The Impact of the Internet on Developing Countries


By the 1980s, Peru's national telecommunications network was one of the least developed in South America [2]. Even by 1994, the average wait time for a telephone line installation was 35 months [2].

Like many Latin American countries, Peru's population is concentrated in its urban centers. 63.3% of the population lives in Lima alone, and 71.2% in urban areas according to a 1999 study at Stanford University [8]. As the study notes, this only compounds the communication problems facing Peru's rural areas, as the cost of running telephone, cable, and fiber optic lines to the countryside is expensive and unprofitable for private businesses.

Anthony Faiola and Stephen Buckley of the Washington Post went so far as to call the limited technology available in Peru the foundation for a "digital apartheid" that plagues Latin America [9]. However, Faiola and Buckley also accurately point out a historically unusual optimism regarding the advent of the Internet compared to the other technologies exported to Peruvian "shantytowns" like television and Nintendo games.

This optimism stems from a genuine effort on the part of the Peruvian government, companies, and non-profit organizations to promote both the development of technology and its availability throughout the country. Founded in 1991 by Peruvian universities, the non-profit Red Científica Peruana (RCP) has established over 27 "cabinas públicas," or public computer centers, all over Peru. For only a few dollars an hour, visitors can use computers for email, web page development, and a variety of RCP classes on technology.

The RCP, which is now supported by over 90,000 paying users and associates, is attempting to "achieve some kind of social and economic justice" in the face of massive infrastructural and economic barriers, and has been incredibly successful so far [10]. In September 2000, the Inter-American Development Bank's investment division to invest $125 million dollars to build 1000 more cabinas throughout rural and urban Peru. There are currently 400,000 internet users throughout the country [9].

Infrastructure Barriers

The Peruvian telecommunications infrastructure has improved significantly in the past 10 years due in large part to a period of privatization and expansion in the Peruvian telecommunications industry. In 1994, the government telecom network was officially privatized, becoming Telefónica del Peru in 1995 [3]. Since then, Telefónica has installed over 2000 miles of telephone lines and 327 miles of cable television lines [3]. Likewise, telephone penetration has risen from 6.7% in 1996 to 10.7% in 1999 [3].

Peruvian telephone penetration

While a significant improvement, these numbers still expose a tremendous infrastructure barrier to bringing the Internet to rural populations. According to Faiola's and Buckley's article, Internet-ready computers were shipped to an Argentinian school that did not yet have electricity[9]. Likewise, it took the joint effort of RCP, the Canadian government, and a Peruvian telephone company to bring a single Internet connection to a remote tribe in Peru [9].

These barriers make the RCP cabina pública model the most viable and the most effective method for bringing the Internet to all of Peru's population. Even with many new companies offering free Internet access, there are only 0.2 computers per household in Latin America (as opposed to 1.6 per household in America), and most Peruvians still access the Internet through these community centers [9].

Each cabina pública is operated as an independent franchise by a private business, local organization, or even an individual. Unlike most American Internet investments, these franchises are almost always profitable, and the RCP forecasted a $4 million revenue from user fees in 1997 [10]. The RCP has proven that such investments can work for even romote locations in Peru, and the IDB investment mentioned above promises to make this model Peru's infrastructure standard.

A cabina pública in the Peruvian countryside

Financial and Economic Barriers

Research and development spending is dismally low in Peru. While $336,285 of Peru's total investment of $1,929,986 in science and technology went to R&D in 1995, only $15,327 went to R&D in 1992 [8]. These numbers are increasing slowly, and measures by congress to increase R&D spending have largely failed.

The Peruvian government has also been hesitant to encourage growth in the private telecommunications sector with subsidies. For instance, the Congressional Committee on Science and Technology passed a bill called Proyecto No. 5054, or Law Project 5054, which offered subsidies and tax benefits up to 20% of a company's net income [7]. However, the bill was rejected "outright" by congress due in large part to free market reforms after the Fujimori government came into power in 1993 [8].

Private investors are hestitant to invest in the Internet as well according to most studies. Terrance Danial, who funded the Argentinian start-up NetKiosk, argues that this is due mostly to "monetary instability" in Latin American markets. "Although they may be interested in the new Internet ideas, they are wary of the risks and take more equity for less capital than is typical in the United States" [q 11].

Consequently, many Latin American technology companies are looking to foreign venture capitalists for technology initiatives. Author Lisa Krochmal estimates that Latin American e-commerce spending levels will grow to $8 billion by 2003 from $167 million today [11]. Predictions like these have inspired a tremendous growth in foreign investment in Internet companies like NetKiosk. Venture capital funds like only target Latin American investments.

However, many are skeptical that this investment model can work for Peru and the rest of Latin America. Latin American governments like Peru do not have many of the same "compensation structures" like stock options used for venture investments in the rest of the world [11]. When Gary Nusbam of E.M. Warburg Pincus asked a Brazilian law firm to draft a stock option plan for a new investment, the law firm said it was illegal [11]. Cultural and economic differences have also contributed to a climate of distrust between investors and entrepreneurs.

Cultural Barriers

RCP has pioneered Interent education in Peru to create a "culture of communication and exchange" about the Internet in Peru [8]. Among the most important of these educational programs are the RCP's informal talks, which take place everywhere from universities to people's homes [4]. These talks, which promote the benefits that Internet technologies offer to Peruvians, have been greatly successful at removing social barriers to expansion.

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  1. CIA World Fact Book
  2. Montealegre, Ramiro. "A Temporal Model of Institutional Interventions for Information Technology Adoption in Less-Developed Countries." Journal of Management Information Systems, Vol. 16 No. 1, Summer 1999 pp. 207 - 240.
  3. Telefonica Web Site
  4. Red Científica Peruana Web Site
  5. Encyclopedia Britannica Online: Peru
  6. OSPITEL Web Site
  7. Congreso de la República de Peru: Proyecto No. 5054
  8. The Information Revolution in Latin America: The Case of Peru
  9. Faiola, Anthony and Stephen Buckley. "Poor in Latin America Embrace Net's Promise." Washington Post. 2000 July 9: A01.
  10. Mangurian, David. "Internet for the People." Inter-American Development Bank Web Site.
  11. Krochmal, Lisa. "Can the Venture Capital Model Work for Latin America?" Comments on Argentine Trade. Argentina American Chamber of Commerce.