Brazil’s bumpy road to the low-cost PC

Thursday, November 3, 2005

It was an idea everyone loved: Develop a cheap PC that would let large numbers of Brazilians connect to the Internet. Literacy would rise, the economy would improve and the country’s emerging tech sector would get a boost.

Unfortunately, it’s been about six years and counting.

From 1999 to the present, the Brazilian government has made several attempts to foster cheap computers for the masses, but the efforts have foundered in a sea of red tape, political infighting, hardware issues and pricing that’s still out of reach for many.

The latest incarnation, a program called “Computer for Everyone,” unveiled in March by President Luiz Inacio Lula da Silva, aimed to sidestep some of the problems of past programs, but so far it’s garnered little support from manufacturers or consumers.

“When it comes to (bringing) computers to the poor, Brazil makes a soap opera of it,” said Rogerio Goncalves, a telecommunications specialist and Webmaster in Rio de Janeiro. “Every single project of digital inclusion, from the very first one until now, has never left the desk.”

Brazil’s experience will likely also serve as a sobering example for others in the process of launching their own programs for burgeoning populations in emerging markets. Currently, efforts are under way to bring $100 computers to the masses in India, the Caribbean and Africa. Meanwhile, Nicholas Negroponte and the Media Lab at MIT of which is he is a co-founder, have plans for widespread deployment in developing nations of a windup-powered laptop targeted at children.

India’s first cheap computer, the Simputer, stumbled because of inadequate technology. Sources in India have also said that the Personal Internet Communicator, a more sophisticated device launched by Advanced Micro Devices last year, has yet to gain much momentum. The PIC has recently debuted in a few cities in Brazil.

On the software side, Microsoft has begun offering low-cost, stripped-down versions of Windows XP to fight back against both software piracy and incursions by open-source software.

Like mainland Asia a few years ago, Latin America is an exploding but difficult market. In the third quarter, PC shipments grew by 22 percent in the region, one of the fastest paces in the world, according to market researcher Gartner. The growth in part came from declining prices, consumer spending and a government-sponsored initiative in relatively prosperous Chile.

Market research firm IDC expects Brazilians to buy 5.2 millions computers this year, a 28 percent rise from 2004.

PC penetration, however, remains low compared to the overall population, and part of the reason is price. The average person simply doesn’t have a sufficient level of disposable income. Minimum wage adds up to around $120 a month.

The problem is compounded in Brazil because of shipping costs and a host of taxes, which can make PCs in Brazil more expensive than those in developed nations. A PC with a 1.5GHz processor, 128MB of memory, a 40GB drive and a 15-inch monitor might go for $600. In the U.S., vendors flog similar PCs, sometimes with dial-up access, for $450 or less after rebates.

Although the Brazilian government began to champion widespread PC use in 1999, the first official program was the “Popular PC” campaign of 2001.

The Popular PC was supposed to be a $250 box. To get around Brazil’s high import taxes, many of the components were going to be made domestically. Researchers from the Federal University of Minas Gerais presented a prototype with a flash drive instead of a hard drive, no CD-ROM and no floppy. The prototype proved unworkable and government support for further research fizzled.

A more conventional PC architecture was tried next, but that caused the price to balloon. The first Popular PCs came out in 2002 with a price tag of around $600, higher than even the promises of a $500 box. The national government changed hands in 2002, leaving the program stranded.

“The government can’t change a lot of things. Worse, many projects are left behind at every change of administration,” saddling the private sector with the burden of popularizing computers, said Gilberto Galan, the Latin America representative for the Computing Technology Industry Association, or CompTIA.

Giving manufacturers a break
In January 2003, Lula became president, and within a year was championing computers for the poor. The first program was called Connected PC, which, before it actually got off the ground, morphed into Computer for Everyone.

Instead of trying to avoid import duties by manufacturing components domestically, the program gave participating manufacturers a tax break. Manufacturers essentially got a 9.25 percent reduction on PIS and Confins, two obligatory taxes, for qualifying PCs costing less than $1,000. The cost reduction is supposed to be passed on to consumers–the PCs come with a sticker announcing that 10 percent was lopped off the list price thanks to Computer for Everyone.

Additionally, consumers could buy these PCs on installment plans, paying, say, $25 a month for 24 months for a $600 PC. Internet service wasn’t bundled in the price, but was supposed to be available for $4 a month. Supporters cautiously applauded the program.

Software talks get heated
“Yes, technology innovation demands a lot more, but reducing PIS and Confins taxes is a very reasonable start to advance,” Ronald Martin Dauscha, president of the National Association of Research, Development and Engineering, said in an open letter to President Lula that was also signed by Luiz Fernandes Madi, president of the Brazilian Association of Technology Research Institutions.

The first problem? Only a few manufacturers applied for government approval, which came out as a “temporary provision” that the national senate had not initially endorsed. The senate recently gave its approval, so more manufacturers may apply.

Then there’s the matter of pricing. The PCs still cost around $600, more than most Brazilians can afford. The $4 monthly ISP rate has proved difficult to implement because of charges associated with telephone access.

The last eight months of struggle between industry and government on Computer for Everyone also involved heated, and as yet unresolved, discussions about which kind of software should be bundled.

To obtain the tax cut, Lula initially stated that manufacturers and stores had to provide the computer with a Linux distribution–in Portuguese and user-friendly–and a whole set of free software applications, such as an office suite.

Heavily supported by Sergio Amadeu, who was until recently president of the National Institute of Information Technology, the proposal brought counterproposals from Microsoft. The Redmond, Wash.-based behemoth also began to promote Windows XP Starter Edition for Brazil.

It’s not clear which way users would trend. While some say Linux does the job, others argue that, as in much of Asia, pirated versions of Windows would capture the day.

Those issues could still be in up in the air the next time a cheap PC program emerges, skeptics say.

“We have some marvelous approaches from private companies and civil associations,” said Goncalves, the Webmaster in Rio de Janeiro, “but they just can’t provide enough access to those who need it.”

CNET’s Michael Kanellos contributed to this report.

Source: CNET, By Paulo Rebelo (link opens in a new window)