Protectionist policies such as import duties could be hampering the growth of Latin American smartphone markets, according to a report by Pyramid.
The Pyramid research, titled ‘Smartphone Trends in Latin America: The Impact of Government Policies and Regulatory Intervention’, argues that intervention in the market such as import quotas and targeted tax incentives has had mixed effects on stakeholders.
When local production is incentivised, local vendors stand to gain from their knowledge of the local market and to compete against major international vendors, but would remain unable to compete outside of their markets.
High-end international vendors might face problems with a lack of locally available labour and technology, as well as prices being higher. However, the contraband market in high-end devices would be eroded.
Low-end international vendors, on the other hand, could potentially make their products more attractively priced when setting up local production, but might not be able to exert enough power over local suppliers to keep prices low. Service providers, additionally, would be able to collaborate with vendors to produce devices tailored to the market, but might suffer from a limited variety of models.
Meanwhile, consumers were generally affected by higher prices for international devices. In the US, the iPhone 6 and Galaxy S5 cost $649 and $529 respectively. By comparison, in Mexico the iPhone 6 costs $775 and the S5 costs $710, and in Brazil the devices are priced at $1200 and $751 respectively.
The report takes the example of Ecuador, which implemented unit and value quotas in 2012 and established additional quotas for importing smartphones where the free on board value is lower than $220 per unit. As a result, the local industry expanded significantly, with 950,000 handsets locally assembled in Ecuador during 2014, up from 632,000 the year before.
However, despite the benefits for local industries, the supply from imported and locally made handsets was not enough to satisfy demand. This led to a growth in the ‘gray market’ for handsets, which accounted for 24 percent of total sales in 2013 compared to 8 percent the year before.
In Brazil, tax policies are used to incentivise local producers; in 2013, the PIS tax of 1.65 percent and the COFINS tax of 7.5 percent were reduced to zero on locally-produced smartphones priced under R$1500, or just over £300. This saw Brazil reducing its dependency on imported smartphones from 73 percent of sales in 2013 to around 34 percent in 2014. On the other hand, Brazil has some of the highest smartphone prices in the region.
Other policies adopted in Latin America included removing SIM locks and banning tying mobile service contracts with handsets.
Based on its findings, Pyramid made several recommendations. For example, the report argued that restrictions on sales of carrier-locked handsets be paired with policies to reduce barriers to switching. Governments were also recommended to accompany local production incentives with export-promotion policies, and more generally, to adopt long-term policies to reduce market uncertainty and increase investment.
Crucially, the report urged stakeholders to take policies to increase adoption of smartphones, as these lead to an increase in average revenue per subscriber (ARPS).