With high demand for telecommunications services, an emphasis on innovation in commerce and industry, and the passing of a new ICT law in June 2019, Colombia’s ICT sector is poised to regain momentum in the coming years. According to international analyst BMI Research, the market value of the country’s ICT sector was $6.29bn in 2018, with this predicted to increase by 6.8% in 2020.
Structure & Oversight
The Ministry of Information and Communication Technology (Ministerio de Tecnologías de la Información y las Comunicaciones, MINTIC) is responsible for overseeing the sector. The ministry has four main responsibilities: to design and construct programmes to boost social, economic and political development; to promote the use of ICT in the public and private sectors; to leverage technology to promote research and innovation, in order for Colombia to compete on a global scale; and to manage the use of the broadcast spectrum and other communication services.
Performance & Size
As of the last quarter of 2018 around 32.7m people were able to access mobile or fixed-line internet over 1 Mbps, representing around 65.6% of the population. This was an increase of 8.3% compared to 2017, when 61.5% of Colombians were connected.
Most people access the internet through a mobile phone, largely using a 3G or 4G network, with a small number still using 2G. Of the total number of internet users, around 26m people were connected to 3G or 4G networks, with 62.2% using the latter. The remaining 6.7m were subscribed to fixed-line home broadband, with 50% able to access connection speeds of over 10 Mbps. Some 91% of fixed-line users were residential, and the remaining 9% commercial.
Internet penetration rates are set to increase rapidly in the coming years as technology advances and becomes more affordable. However, internet coverage varies depending on social class. A report published by MINTIC in 2018 found that the internet penetration rate for the lowest-income segment of the population was 21.7%, while it increased to 98% for the highest-income segment. This is a prime example of the digital divide, which major sector players are working to bridge. Penetration rates are also often lower in rural areas than in urban centres.
In addition, Colombia faces difficulties matching its regional peers in terms of download speed. As of mid-2019 the country’s average download speed was 5.5 Mbps, one of the lowest rates in Latin America. In comparison, the global average speed is 11 Mbps and the average for OECD countries is 15 Mbps.
In terms of demand across the sector, IT services are the most popular product on offer, accounting for two-thirds of all sales. These are followed by hardware sales, which make up 18% of the market, and software sales, with 13%. However, the trend towards cloud computing and away from physical connectivity means that hardware sales are likely to be outstripped by software in the coming years.
Local press reported in June 2019 that there were 62.9m mobile phone subscriptions in the country. According to MINTIC, in 2018 most mobile users were subscribed to pre-paid contracts, at 79.4%, and the remaining 20.6% used post-paid plans. A study conducted by market researcher Nielsen in December 2018 found that 76% of Colombians surveyed owned a smartphone. However, as is the case with internet coverage, there are regional and socio-economic variations in mobile phone usage.
According to the UN Conference on Trade and Development, for every job created in the ICT sector of a developing country, between two and 3.5 additional jobs are generated for the economy. A study conducted by Columbia University in the US also found that in Chile for every 10% increase in internet penetration, unemployment fell by 2%. With this in mind, President Iván Duque pledged to connect 100% of municipalities to the internet by the end of his term in 2022. Previous administrations have made significant progress, with former President Juan Manuel Santos increasing internet coverage from 24% of municipalities in 2010 to 98% in 2018. Much of this progress was the result of strategic public policy, such as the Vive Digital, or Live Digital, strategy, which ran from 2014 until 2018.
In a speech at the annual convention of the Colombian Banking Association (Asociación Bancaria y de Entidades Financieras de Colombia, Asobancaria) in June 2019, the minister of ICT, Sylvia Constaín, said that 2020 will be the “year of connectivity” for Colombia. She told attendees that 2020 would be the most important year in country’s history in terms of digital connectivity, marking the beginning of an “equal public policy of connectivity for all”.
The government’s landmark development for the sector, the ICT Sector Modernisation Bill, was approved by the Senate in June 2019. The law will form the backbone of ICT development in the 2020s, particularly the rollout of 5G technology. It aims to accelerate the expansion and upgrade of the network, tighten the regulatory framework and close the digital divide. The deputy minister of connectivity and digitalisation, Iván Mantilla, told local media in January 2019 that an investment of COP93trn ($31.8bn) will be required for Colombia to reach 100% internet connectivity. He also said that had the law not been passed, it would have taken until 2045 to reach this goal and introduce 5G technology, highlighting the impact this legislation will have on the country’s digital development.
The sector’s regulatory framework has become more streamlined in recent years due to the merger of the Communications Regulatory Comission (Comisión de Regulación de Comunicaciones, CRC) and the National Television Authority (Autoridad Nacional de Televisión, ANTV), which was announced by MINTIC in September 2018.
Following the passing of the ICT Sector Modernisation Bill, the CRC will absorb ANTV, becoming responsible for overseeing telecommunications, internet and broadcast media. The CRC will be run by five commissioners, who will serve for fixed fouryear periods. It is hoped that the simplification of the institutional framework will provide regulatory clarity to all stakeholders and potential investors. The minister of commerce, industry and tourism, José Manuel Restrepo, told local press in June 2019 that the sector had long been awaiting a law to facilitate investment, and the reform would guarantee legal stability and clarity in governance issues.
Colombia ranked 47th out of 118 countries in the Digital Readiness Index published by technology conglomerate CISCO and Garner Research in 2019. On a regional level, Colombia placed seventh out of the 19 Latin American countries surveyed. The index, which is compiled annually, looks at seven components: infrastructure technology, technology adoption, human capital, basic necessities, ease of doing business, government and business investment, and entrepreneurship. The countries are grouped into three categories: “activate”, referring to the least developed countries, which are set to begin digitalisation; “accelerate”, for countries that need to continue building on their digital readiness; and “amplify”, for the most advanced countries that can still extend their ICT capabilities. Colombia was placed in the accelerate category, indicating that the country’s efforts to improve ICT coverage and digital development have been recognised, but there is still progress to be made.
In 2018 Colombia received mixed scores; while it was ranked seventh for start-up environment, it was 71st globally for human capital development, showing that more needs to be done to prepare the workforce for the digital age. The government has drawn up plans to tackle this particular gap by targeting the higher education sector. In her speech to Asobancaria, Constaín announced that the administration aims to train 50,000 young people in computer programming before the end of 2022.
In other global rankings on digitalisation, Colombia has a similar mid-range position. In the “Global Competitiveness Report” published by the World Economic Forum (WEF) in 2018, the country ranked 84th out of 140 countries in terms of ICT adoption, with a score of 46.7 out of 100. In comparison, the highest-ranking country, South Korea, scored 91.3. Colombia lagged behind other Latin American countries in this category, coming 10th in the region, in between the Dominican Republic and Bolivia. It ranked 86th out of 140 countries in the digital skills category, 73rd in terms of innovation capability, and 63rd for research and development. In terms of e-participation, it was ranked 23rd – the third-highest score in Latin America – suggesting that the modernisation of government services is further ahead of the broader digitalisation of the economy.
Before President Duque took office, he played a central role in the development of the “orange economy” system, referring to creative and cultural industries. The government aims to promote Colombia as a regional and global target market for the development of the orange economy, and to double its contribution to GDP from 3.5% to 7% between 2012 and 2022. This will be achieved through policies based on seven pillars: information, institutions, infrastructure, integration, inclusion, inspiration and industry. These intersect with three target subsectors: arts and heritage, cultural industries and functional creations. The latter two are particularly connected to the ICT sector through film, television and digital services. Financial incentives for stakeholders and infrastructure based on ecosystems are also being developed in order to bolster Colombia’s global and regional standing as a centre for creative industries.
In 2019 the second-largest city, Medellín, was named as the fourth location for the WEF Centre for the Fourth Industrial Revolution (C4IR), the first city in Latin America and the Spanish-speaking world to be awarded this title. The other affiliate centres previously designated were in Norway, the UAE and Israel, making Colombia the only centre on the American continent, aside from the headquarters in San Francisco. C4IR looks to bring together governments, business leaders and experts from around the world to explore ways to use technology for economic and social development.
As part of the initiative, in April 2019 Medellín opened Latin America’s first innovation centre for emerging technologies. Speaking at its inauguration, President Duque said, “This will have a significant global and regional impact. Medellín will become the centre in Latin America for the development of artificial intelligence, internet of things (IoT) and blockchain-encrypted security technology.” Given Colombia’s international recognition as a thriving start-up environment and developed industrial capabilities, Medellín’s involvement in the C4IR will further bolster its prominence in global innovation networks.
The need to protect communications networks and digital technologies against security threats is one of the most prominent challenges in Colombia and across the world. In June 2019 the government signed an agreement with CISCO through the Country Digital Acceleration (CDA) programme. The CDA has three main objectives: innovation in education, e-health and e-government; enhancing entrepreneurship and digital skills; and cybersecurity. As part of the cybersecurity branch of the programme, Colombia is working with the Organisation of American States (OAS) to establish a cybersecurity innovation council and has pledged to offer education in cybersecurity skills for 10,000 people before 2020. The CDA forms part of a broader partnership between Colombia and the OAS to strengthen the country’s cybersecurity.
While government strategies are important, it is also necessary for companies to implement their own measures against cyberthreats. However, businesses often lack the financial resources to protect themselves, making them easier targets for threats.
According to “Cyber Risk for Small and Medium-sized Enterprises (SMEs)”, a 2017 report by US-based software company Symantec, 93% of SMEs globally have been victims of cyberattacks. As small businesses are responsible for 80% of all employment in Colombia and 35% of GDP, precautionary measures taken by SMEs will be crucial to protecting the population from data breaches and other threats.
Although many companies remain unaware of the threat that cyberattacks can pose to their business, the Symantec survey found that 78% of companies invest over $1m in cybersecurity. In Colombia there has been a lack of awareness, but it is predicted that Colombia will become more prepared in the medium term. “In a maximum of five years, the country will be at the forefront of cybersecurity,” John Edison Martínez, manager of ICT consultancy Password, told local media. “This includes its SMEs, which will have well-implemented security processes.”
According to the US International Trade Administration, in 2018 around 96% of all municipalities were covered by fibre-optic networks. For the areas that physical infrastructure cannot reach, there is the possibility of using satellite technology to connect remote communities and businesses. Hughes Network Systems connects around 1.5m homes and 5m people with internet at speeds of up to 20 Mbps, which rivals fibre optics. By 2050 it is estimated that the population will have increased by 18m inhabitants and require at least 5m new houses to be built, making it crucial that technology is integrated into urban planning.
Colombia’s size and topography means that much of the country has a very low population density. Given the link between internet access and social well-being, improved connectivity can be a catalyst for development, especially in lower-income rural and remote areas, where physical communication is often limited.
According to a study conducted by the Economic Commission for Latin America and the Caribbean in 2016, only around 10% of people in rural areas had access to internet. A series of policies have been implemented by the government to increase connectivity and digital literacy, in a bid to boost the economic and social well-being of rural populations.
In a continuation of the Vive Digital initiative, in October 2018 MINTIC announced the creation of ICT access points in rural and remote areas of the country. These will be located across three departments: Córdoba, which will have 85 kiosks; Boyacá, with 88; and Valle de Cauca, with 133. The kiosks are designed to encourage communities to access a range of services such as educational resources, technical knowledge and online forms. They will contain between two and three computers, in addition to telephones, scanners, photocopiers and printers.
In March 2019 MINTIC published a draft plan for the Acceso Univeral Sostenible (“Universal Sustainable Access”) project. This programme aims to connect up to 1000 rural communities to the internet. The project allows inhabitants of rural areas to access the internet free of charge from a smartphone, tablet or laptop for a pre-determined amount of time from a number of community access centres.
The market is highly concentrated, with three key providers: as of June 2019 the market leader is Claro, owned by Mexican América Móvil, with a 52.2% share; followed by Spain’s Movistar with 29.5%; and Colombia’s Tigo with 12.1%. The remaining 6.2% is made up of smaller companies, which have been increasingly able to enter the market thanks to new spectrum auctions, expanding 4G coverage. In many cases, the auctions are designed to favour such companies. For example, in 2013 the Colombian provider Avantel was first awarded a spectrum block reserved for new entrants. The company has since expanded its market share to 4.5% as of June 2019.
Although Claro has been the market leader since 2008, a case was taken to the CRC against the company by some of its competitors. Other providers such as Movistar and Tigo argue that Claro has not operated fairly, and accuse the company of fixing prices and obstructing competitors by offering more generous plans. However, in June 2019 the CRC announced that it did not find any evidence of wrongdoing or any reason that other companies would not be able to compete, and stated that Claro’s market dominance was a result of greater investment. As a result of this judgement, smaller operators may feel more pressure to offer competitive plans in the coming years in order to prevent a loss of customers to this much larger provider.
4G LTE-Advanced (LTE-A), an extension of the LTE communication network, began its rollout in some areas of Bogotá in April 2018. This brought speeds of up to 164 Mbps to Colombia for the first time, with Tigo, Claro and mobile digital communication company Telefónica all offering LTE-A services by May 2018.
As of June 2019 Tigo offered LTE-A services in a number of parts of Bogotá and Medellín, with plans to expand further by the end of 2019. Claro announced in May 2018 that it had activated its 4G LTE networks across 199 municipalities, including 24 major cities, covering 40% of major urban centres. These developments are ongoing and are critical to keeping Colombia up to speed compared to its neighbours, many of which are already pushing forward with 5G infrastructure. As of March 2019 Colombia was one of the 13 Latin American countries that have established LTE-A networks.
Closing the Gap
Although LTE-A began its rollout in 2018, many areas of the country are still unable to access 4G technology. At 28% as of September 2018, the country’s 4G penetration rate is lower than the regional average of 35%. Measures are being taken by both the public and private sectors to increase 4G coverage. In June 2019 Constaín announced that 100% of municipal capitals had 4G internet access, a significant step in closing the digital divide between urban and rural populations.
However, many Colombians continue to use older handsets and SIM cards that are not optimised to use 4G. In April 2019 Claro offered an upgrade for 9m of its users who were only able to access 3G. It is estimated that of this total, 7m do not have 4G-enabled phones, and the remaining 2m have an optimised phone but a 3G SIM card. Government statistics suggest that progress is steadily being made in this area, with MINTIC reporting that 4G usage had increased from 12.1m handsets in 2017 to 16.2m by the end of 2018, representing an increase of 33.9%. In the same period, the number of 3G connections also decreased by 17.6%, from 11.9m to 9.8m. As of June 2019 the majority of mobile data users were connected to 4G, at 62.2%.
Although the process of increasing 4G coverage is still in progress, telecoms providers have also begun rolling out 5G networks, which are around 20 times faster than 4G. This began in 2018, with Claro and Tigo trialling 5G in January and Movistar following in June. The 5G technology formally arrived in Colombia in 2019, with a public consultation held by the regulator, the National Spectrum Agency ( Agencia Nacional del Espectro, ANE) in April of that year.
Additionally, a number of public and private entities are working on introducing 5G networks. The technology will enable the integration of new solutions such as IoT, virtual reality and big data, and will be crucial for Colombia to lay the groundwork in adopting the smart city model, which is especially important for the country’s capital of innovation, Medellín. However, even major urban centres are still a long way away from reaching universal 5G adoption.
Ignacio Román, president of Avantel, told local media in January 2019 that, “We will start to see commercial tests of 5G between now and 2022, but a mass rollout will not begin until 2024 or 2025.” According to Mantilla, the implementation of 5G will depend on several factors, including the speed of infrastructure upgrades, the capacity of the spectrum and overall technological advances.
However, in the public consultation document the ANE highlighted that although the rollout of 5G is an important milestone, it is not intended to fully replace 4G and 3G, nor is it expected that 5G penetration rates reach 100%. Conversely, the document emphasises the importance of upgrading existing technology alongside 5G, rather than automatically transferring to the new technology.
Recognised in the 2018 Digital Readiness Index as the most promising location for startups in Latin America, Colombia scored 2.5 out of three in the index’s measure of start-up readiness. One of the country’s most successful start-ups is the e-commerce and delivery service Rappi, which became Colombia’s second unicorn – a company reaching $1bn in value – in September 2018. Rappi has since surpassed the $3.5bn mark, following an announcement in May 2019 that Japanese investment fund Softbank would be investing $1bn in the company, the largest venture capital investment ever issued in the region. The company began in Bogotá in 2015 but now operates in 27 cities across six other countries in Latin America: Argentina, Brazil, Chile, Mexico, Peru and Uruguay. In Colombia alone the firm had 13m users as of October 2018.
Colombia is part of a wider trend of venture capital investments in Latin America, which rose by 400% between 2016 and 2018 to reach $2bn. Another Colombian start-up, logistics company Liftit, now operates in five markets in the region: Colombia, Mexico, Chile, Ecuador and Brazil. Some of its largest clients include US retailer Walmart, Mexican baked goods manufacturer Grupo Bimbo and UAE-based furnishing chain Homecentre. The company’s success is based on providing a more efficient distribution service in the region’s logistics chains. The company now has 8000 registered drivers and grew by 256% in 2018 alone. In January 2019 it received a $2.8m cash injection from the International Finance Corporation, a member of the World Bank Group, showing that Colombian start-ups have received a vote of confidence from the global investment community.
Like much of the region, Colombia is a prominent market for on-demand television, known as over-the-top media services (OTT). According to the CRC, in March 2019 some 72% of Colombians had a television subscription, 42% used a mobile device to access audiovisual content and 15% used Netflix. Although a growing number of people are using OTT, this does not necessarily mean that there has been a significant shift in the way that the population consumes media. The CRC found that only 2% of people surveyed cancelled their television subscription to move to OTT, suggesting that very few Colombians are replacing traditional television services with on-demand platforms, and are instead widening the range of media they engage with.
In April 2019 the government announced the auction of two frequency bands at 700 MHz and 1900 MHz, which are expected to be awarded by the end of 2019. With the passing of the Modernisation Bill in June of 2019, it is expected that the project will move forward swiftly, with the auction scheduled for the last quarter of 2019. In particular, the 700-MHz connection will be crucial to extending the 4G network to rural regions.
According to local media, both frequency bands will form an integral part of the rollout of 5G technology in the coming years, as well as helping to increase mobile data coverage to more than 50% of the population. Although as of June 2019 the exact details of the tender process had yet to be released, the project has already been praised by sector stakeholders, particularly for its openness to allow companies of all sizes to be involved.
The tender includes components for larger companies to participate in, as well as opportunities for smaller companies and new entrants to the market. As a result, there is the chance for greater involvement of operators that are best suited to specific parts of the project, regardless of their size.
In 2018 it was announced that Amazon had selected Colombia as the location for its first service centre in South America. The facility, which offers 24-hour customer service, will create 600 jobs in physical and virtual offices. The centre is scheduled to open by the end of 2019.
Amazon’s vice-president of customer service, Tom Weiland, described Colombia’s “highly qualified” workforce as one of the reasons this location was chosen. Raúl Gallegos, associate director of consultancy Control Risks also cited the country’s stable government, favourable business climate and geographical location as reasons for the decision.
The announcement also shows that Colombia is an attractive location for business process outsourcing (BPO) and knowledge process outsourcing (KPO). “Margins for BPO services can be thin at times, but those for KPO are much larger. The challenge for companies is to extend their operations in order to add greater value to their services,” Martha Berrio, general manager of outsourcing firm Avanza Colombia, told OBG. “The country’s four largest cities, Bogotá, Calí, Medellín and Barranquilla, are its centres for BPO and KPO. In Barranquilla, there is significant availability of native English speakers who have moved to Colombia from the US.”
Although the ICT sector is one of the most promising sectors in Colombia, there remain some structural challenges that need to be overcome. Any further decline in the already devalued currency would significantly increase the price of imported hardware. Other financial challenges, such as changes in interest rates, also significantly impact the growth of ICT due to the long-term nature of investments in the sector. Similarly, companies can struggle to access financing to offer new products and attract a greater share of the competitive market. This is influenced by pressures both within the country’s active start-up scene and from the development of new technologies across the world.
Although it is expected that companies will be able to keep up, the key to ensuring penetration rates continue to increase will be designing products that meet consumer demands and anticipate upcoming trends. With the passing of the Modernisation Bill in June 2019 the sector is set to move forward. However, government reforms will be reliant on the successful collaboration with private sector players and the continued momentum to remain innovative in one of the fastest moving sectors in the economy.