WHAT WORKS: THE INFOCENTROS TELECENTER MODEL


EXECUTIVE SUMMARY


TELEPHONES ARE scarce in El Salvador. Individual computer ownership is even more scarce-fewer than 2 PCs per 100 inhabitants-and dial-up Internet costs prohibitive. As a result, less than 1% of the population now uses the Internet. Changing this situation is the mission of the Infocentros Association (IA), a newly-created non-profit organized and run like a business (1). Its goal is to connect 2 million middle and lower income Salvadorians-one third of the population-to the Internet within 2 years through a chain of 100 telecenters. But connectivity is just the infrastructure: the Infocentros strategy is to build an "infostructure" of local content as well, in order to transform El Salvador's culture into an information society.

BUSINESS MODEL
Although formally a non-profit, Infocentros is headed by a CEO and will build, operate, and franchise telecenters throughout El Salvador. The IA business strategy is built around franchising: of the 100 telecenters planned by the end of 2002, only 10 will be operated by IA itself as regional "mother" centers (2). Franchises will cost about $80,000 and are expected to be profitable within 27 months. However, IA will launch each center and get it operating well before handing it over to the franchise partner; franchise revenues will be re-invested in additional centers and new services. Telecenters will typically have 30 computers and include open access areas and training or on-line conferencing areas.

Infocentros will also provide or catalyze the creation of local content, computer training services, and e-commerce infrastructure, in order to make Internet access an effective development tool. It is this content, such as courseware or other businesses built around computers and Internet access, that is central to the IA business model. Relevant local content generates usage and additional revenue sources for telecenters, as well as significant social benefits for the country. Courseware generated in one telecenter, such as a currently popular course on how to rebuild earthquake-damaged houses, can be offered in all others as well, its value increasing as the Infocentros network expands. In addition, Infocentros is developing strategic alliances with groups that can benefit from information technology, such as hospitals and local governments.

INFRASTRUCTURE
A significant obstacle to Internet use in El Salvador is the high cost of bandwidth (3). Although Infocentros has been able to negotiate discounted rates, connections remain expensive. If Infocentros can use its market power to lower the cost of Internet access, it could gain a strong competitive advantage over private cybercafes.

HUMAN CAPACITY
Because of the focus on local content and training, human capacity development is a major outcome of the Infocentros approach. At the telecenter level, Infocentros trains its own rapidly-growing staff and offers one-to-one assistance to customers unfamiliar with computers or the Internet. Through alliances with government and business, IA also seeks to teach a large segment of the population how to use information technology to increase skills, create jobs and raise incomes, and overcome social problems. For example, Infocentros is negotiating an 8-hour Internet training course for all Salvadorian high school students, in partnership with the Education Ministry. IA is also developing financial applications for small and micro businesses and still other applications for farmers, doctors, and government officials. IA plans to offer free Web page hosting for the 470,000 small businesses that, in El Salvador, constitute 99% of private enterprises.

POLICY
Infocentros has benefited from the government's 10-year, interest-free loan and from alliances with specific government ministries. In addition, IA has benefited from a number of policy initiatives aimed at liberalizing the country's economy. El Salvador's deregulation of the telecommunications sector and resulting competition, for example, have helped to reduce Internet access costs somewhat. Banking deregulation and privatization have also strengthened the investment capacity of entrepreneurs, which is likely to help the financing of IA franchises. Still further legislative and regulatory action will be required if the Infocentros plan to make its telecenters function as e-commerce ordering and payment sites is to succeed.

Uncertainty about the legality of Internet telephony has kept Infocentros from offering this potentially valuable service. IA's telecenters do not prohibit the use of applications like Net2Phone, and during the January earthquake offered Salvadorians free Internet calls to notify relatives in the US, with the blessing of the telecom companies. But Infocentros has chosen not to publicize the technology or to challenge the telecom companies who provide its Internet connections by seeking legal authority to offer the service. In doing so, it is foregoing up a potentially lucrative market, since many Salvadorians live overseas.

ENTERPRISE
The Infocentros business model, with its rapid deployment of franchises to reach scale, enables the enterprise to negotiate favorable contracts for equipment and services from a wide range of vendors. IA also has been very entrepreneurial, negotiating deals with private companies to offer discounted Internet access to groups of employees or clients and agreements with several government agencies to create e-government portals. To increase telecenter usage during evenings and weekends, partnerships are being developed with schools and small businesses that wish to offer computer and Internet training to their students, faculty, and staff. To extend Internet access throughout El Salvador and reduce the need for physical plant, IA is planning to create virtual telecenters located within existing institutions, such as medical centers and central courthouses. And to help perpetuate its entrepreneurial spirit, IA maintains a 3-person new business development group charged with assessing new opportunities quickly. Nonetheless, long term profitability is not assured. As as many Internet startups have found, building market share and creating content can be costly. Currently, for example, 90% of IA telecenter users are paying discounted student rates.

Infocentros assists its franchisees by supplying initial management support, training, technical assistance, network marketing, and other services to help ensure that telecenters remain profitable. But it also uses an enterprise-wide Intranet to share new business ideas across the telecenter network and to compare the monthly performance of each telecenter, providing strong incentives for telecenter managers; managers who do not perform are replaced.

CONTENT
Community-based content is what sets Infocentros apart. One of its founders believes this approach gives IA a competitive advantage over U.S.-style Internet access providers in Latin America. In any event, the enterprise takes content creation seriously. It is building a new digital production center to create audiovisual content for education and professional training courseware that can be broadcast over the Internet. It is also developing a B2B e-commerce portal for small and micro-entrepreneurs, and a suite of business applications designed to help these business owners manage their finances, investments, and billing-services available only at telecenters.

KEY LESSONS
Infocentros is an example of a development-centered ICT strategy based in a unique partnership between government and civil society. It draws on 10 years of accumulated experience in telecenter operation and franchising gained by Red Científica Peruana, a Peruvian NGO that now controls half the Internet access market in that country, and substantial financial and other support from El Salvador's government.

Infocentros is a start-up enterprise-even though a non-profit association-but it appears to be meeting or exceeding its targets. Its business model gains efficiencies by aggregating users in telecenters, providing shared access to computers and bandwidth, generating additional revenues from local content, and aggressive franchising. As a result, it seems capable of reaching scale and providing widespread Internet access and the related social benefits that its creators intend. Critical to its business and social success will be the generation of valuable content and training of customers who understand how to use information technology for their own education, to obtain government services, to grow their businesses, or to communicate more effectively.

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End Notes:


1. During a 1998 national consultation on the information society and the future of El Salvador, the government agreed to use some of the revenue from privatizing its telecom system as a loan to civil society to help transform the country, ensure widespread access, and facilitate rapid social and economic development. As a direct result of this agreement, Asociación Infocentros was created in 1999 and received the loan in February, 2000. IA began operation with the first telecenters in October, 2000.

2. Five telecenters were operational during this case study. The IA business plan projected 18 months for these initial telecenters to become financially self-sufficient, but they achieved it in six months. Twenty five additional telecenters are expected to open by July, 2001, and over 5 years the number is expected to reach 500, although some will be smaller.

3. A dedicated 128 Kbps line costs approximately $600 per month in El Salvador.