Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez (2010)

Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina

Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 321

Understanding Innovation in the telecommunications sector of rural Argentina

Martha Garcia-Murillo

Syracuse University

[email protected]

Fatima K. Espinoza-Vasquez

Syracuse University

[email protected]

BIOGRAPHIES

Martha Garcia-Murillo: Dr. Martha García-Murillo is an Associate Professor and Director of the Telecommunications and

Network Management Master’s program at the School of Information Studies at Syracuse University. She has an M.S. in

Economics and a Ph.D. in Political Economy and Public Policy. She has been involved in research projects for the UN, US State Department and other regional and international organizations. Her areas of research include institutional and

evolutionary economics in the ICT sector, the impact of regulation on business behavior, the impact of technology on

regulation factors that affect infrastructure deployment and ICT in Latin America.

Fatima K. Espinoza-Vasquez is a PhD student at the School of Information Studies in Syracuse University. She has a M.S.

Information Management from Syracuse University and a BA in Communication from Universidad Tecnologica

Centroamericana UNITEC in Honduras. Fatima is a research fellow at the Center for Research in Collaboratories and

Technology Enhanced Learning Communities (Cotelco) in Syracuse University. Her research interest includes: Virtual

Organizations, Transnational Networks, International Development, Social Media, Geographically Distributed Collaboration.

ABSTRACT

This paper explores the role of cooperatives as innovators and promoters of the information and communications industries in

Argentina. We use the open business model literature to help us understand the motivations and modus operandi of these

organizations within the context of innovation in a less developed country. We relied on five case studies with from various

communities in Argentina. In depth interviews were conducted with directors of these organizations. We find that cooperatives operate in a similar manner as open businesses and this has allowed them to respond effectively to their

circumstances and engage in innovation inspired by the difficulties they face.We found that cooperatives operate in a similar

manner as open businesses and this has allowed them to respond effectively to their circumstances, and engage in innovation

inspired by the difficulties they face. Their innovation is driven by: their interest in fulfilling the needs of their communities;

and the regulatory environment which sometimes has protected them sometimes challenged them. We recommend

cooperatives to be given similar rights to resources as those in the private sectors; to provide them access to the universal

services fund, and to address the concerns of their “anticompetitive behavior” using the Argentinean anticompetitive law. We

think cooperatives should be given credit and support for driving innovation, and for having a decisive socio-economic

impact in their communities.

KEYWORDS

Open innovation, cooperatives, information and communications industry, Argentina, Latin America, telecommunications

regulation.

INTRODUCTION

The purpose of this paper is to explore the role of cooperatives as innovators and promoters of the information and communications industries in Argentina. We believe that they can be considered a special type of an open innovation

business model able to contribute to innovation and economic development. We also investigate their ability to face their

countries' political and economic challenges in an increasingly connected and globalized world.

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This research relies on five case studies from various communities in Argentina. for this we conducted in-depth interviews

with directors of these cooperatives. Given the limited amount of research that has been done about innovation in emerging

economies and cooperatives we decided to explore the notion of open business models as a tool that can help us understand

the the operations of these organizations and the manner in which they can potentially contribute to national innovation

systems.

The paper is organized into two sections. The first section provides some background information about Argentina's

telecommunications sector and in particular the origins and evolution of cooperatives. The second section provides an in-

depth review of the literature on innovation as well as the open innovation models their differences and similarities with

cooperatives From this analysis of the literature we then present research questions and a guiding framework. The fourth section presents the methodology. The fifth, and most important section, is the analysis of the data which identifies these

organizations 'innovations, the manner in which they operate and the similarities they have with open businesses. The paper

ends with recommendations and conclusions.

TELECOMMUNICATIONS IN ARGENTINA AND THE ROLE OF COOPERATIVES

It is widely accepted that information and communication technologies (ICTs) promote economic and social development,

increase productivity and support education (Castells, 2000). Researchers have recommended governments to find ways to

provide incentives to foster: innovation, the information industry, and thus economic development (Saunders, Warford, &

Wellenius, 1983). The incentives implemented in developing countries have focused on establishing a research and

development agenda such as those in developed economies, hoping it would ideally help them catch up. Unfortunately, this

approach has not provided the expected results (Wallsten, Scott & George Clarke. 2002), particularly in rural areas. (ITU,

2006) (Galperin & Mariscal, 2007).

Given the failure of those policies, it is thus worth exploring other alternatives of which cooperatives is one of them. From

previous studies we know that cooperatives and other small-scale market entrants have played an important role in the

introduction and development of information and communication services in rural areas of Latin America. (Galperin & Bar,

2006; Simmons & Birchall, 2008). Such is the case of Argentina; the government has struggled keeping up with the rapid pace of technological innovation since the acquisition of its first telecommunication system in 1880. In the 1940’s it

attempted to have a more hands-on strategy to develop the industry by nationalizing its telephone operator. the strategy did

not work as expected as many rural communities were left unconnected by ENTEL (the national telecomm). As a

consequence of the low penetration, in the 60’s, a number of concerned cooperatives in these rural areas got organized to

fulfill their communication needs . By 1965 there were over a hundred cooperatives providing telecommunication services.

With the 1990 telecommunications reform, when ENTEL was privatized, cooperatives were able to strengthen their business

and make alliances. Cooperatives have strengthened as small-scale telecom operators; have emerged with new business

models, to offer ICT services to the rural areas that have been overlooked by government and large companies (Galperin &

Bar, 2006).

Today the Argentinean's communications sector is characterized by a small number of urban concentrated

telecommunications carriers and a large number of cooperatives that serve primarily sub urban, rural or isolated communities.

The major carriers concentrate their operations in the Northern corridor that connects the cities of Rosario, Córdoba, Mendoza, and Santiago de Chile. The rest of the country has much less options for connectivity if any. It is in those regions

of the country where there is a higher concentration of cooperatives and several of them have been in existence for many

decades between 50 and 80 years. They started trying to resolve some basic needs such as access to electricity and they

became so good at it, that they have expanded both their customer base as well as the number of services that they provide. In

Hinca, for example, 35% of the electricity is sold by cooperatives. ( personal interview with Beta (Huinca Gustavo Garcia)

These entities have taken the role of innovators by bringing telecommunication services to remote areas where neither the

private sector or the government have been able to reach. (Galperin & Bar, 2006) Thanks to cooperatives, a person’s average

monthly spending on mobile telephony is of USD$11.00 (6.3% of income) in these locations where the cost would have been

much higher under a private service provider. (Galperin & Mariscal, 2007), A considerable percentage ( 87%) of the

population owns a mobile phone (Galperin & Mariscal, 2007). Their unique characteristics, which much resembled those of

open business, has allowed them to provide and develop the information and communications industry in the rural areas of Argentina.



LITERATURE REVIEW

It is well accepted that innovation and technological change drive economic growth (Kim and Nelson, 2000) (Saunders,

Warford & Wellenius1983). Fagerberg and Srholec (2008) argue that innovations provide competitive advantage at the

industry level but they also positively affect a country’s competitiveness. They claim that is not only technology, but also

social and governmental competencies that foster innovation. Given these agreements will explore innovation in the

telecommunication sector in Argentina, particularly in the rural areas. In the following sections we analyze the contributions

from scholars that have looked at innovation, we will particularly focus on the literature on open innovation given that we

think cooperatives show characteristics of open business models.

Innovation

For the last century a “conversation” has been taking place regarding the factors that foster innovation and economic

development in newly industrialized economies . (Schumpeter & Opie, 1955; 1934) (Shionoya, Perlman, & International

Schumpeter Society. Meeting, 1994)(Rostow, 1959)(Patrick, 1966)(Levine, 1997; Walker, 1969)(J. Fagerberg, Mowery, &

Nelson, 2005; Nelson Sidney & Richard, 1977; Nelson & Winter, 1982)(Aghion & Howitt, 1992; Romer, 1990)(Grossman &

Helpman, 1991)(Grant, 2002)(Lundvall, 2010) (McKnight, Vaaler, & Katz, 2002). Castellacci (Castellacci, 2008), argues that

there are two economic approaches to the of study innovation within the Schumpeterian tradition; (1) the traditional “Research and Development” (R&D) approach and (2) the “Evolutionary” view of innovation. Under the Schumpeterian

view, innovation is a concept associated with cutting edge technological advances and/or inventions created with intellectual

resources within an organization in the context of developed economies. In the evolutionary view, innovation is no longer a

privilege of developed nations and is associated with implementation of existing ideas. Table 1 provides various views of

innovation in the two traditions.

Author Definition of Innovation Innovation

Tradition

Schumpeter

& Opie

Innovation is a process of creative destruction in which new combination of

existing resources replaces old ones.

New Products, new methods of production, new sources of supply, the

exploitation of new markets and new ways of organize business. (Schumpeter &

Opie, 1949)

R&D

Kline &

Rosenberg

Highly complex, hard to measure and uncertain process of creation and marketing

the new. This process intertwines economic and technological considerations.

(Kline & Rosenberg, 1986)

R&D

Teece Process of developing new products.new ideas, and new methods.(Teece, 1986) R&D

Fagerberg &

Srholec

Innovation is the first attempt to carry out an invention into practice. It is a

lengthy, continuous process involving interrelated innovations. (J. Fagerberg &

Srholec, 2008; J. Fagerberg et al., 2005)

R&D

Christensen Innovation is a disruptive strategy that changes the way things are done.

(C. M. Christensen, 2002; J. F. Christensen, Olesen, & Kjaer, 2005)

R&D

Rogers “An idea, practice, or object that is perceived as new by an individual or other

unit of adoption.” (Rogers, 1983)

Evolutionary

Viotti Innovation is any “technical change for technological catch-up”. Innovation as

R&D is typically a privilege of industrialized countries. Whereas in

industrializing economies, Innovation is absorption and improvement of to the absorption and improvement of innovations produced in the industrialized

countries. (Viotti, 2001)

Evolutionary



Chesbrough

Open Innovation: Is the use of purposive inflows and outflows of knowledge to

accelerate internal innovation, and expand the markets for external use of Innovation, respectively. It assumes that firms can and should use external ideas

as well as internal ideas, and internal and external paths to market, as they look to

advance their technology. (H. W. Chesbrough, 2003)

Evolutionary

Table 1. Definitions of Innovation within the two traditions Research and Development and Evolutionary

Castellacci argues that the two views have been used indistinctly, but that they are in fact quite different. He states that each

view has different implications for a) the standards of empirical research; b) theoretical foundations; and c) policy

implications. The first view (R&D) focuses on the research and development activities carried out by private firms as a primary source of innovation and it is normally measured by the percentage of revenue allocated to R&D or the number of

patents received. The second view (evolutionary) considers innovation to be context-specific, these encompass companies'

strategies carried to gain competitive advantage, (e.g. equipment acquisitions, expansion of services, customer support).

Researchers have used the evolutionary perspectives as a framework to study newly industrializing counties such as Brazil, S.

Korea and Singapore (Cooper, 2005), thus advocating for a shift in the studying of innovation, particularly in the context of a

NIE. Coherent with Roger’s (1983) diffusion of innovation theory, the evolutionary view considers innovation as a synonym

of dissemination; the introduction of new products, new services, and improvements, more functions, customizations, and

even small adjustments can be considered innovations. Innovation is then defined as “technical changes” taken to implement

new services or adopt new products in specific contexts. (Viotti 2001; Rogers 1995). Considering that the innovations carried

out by developing countries in the last forty years have been done through imitation (McKnight etal. 2001) we think this

definition of innovation is suitable to study innovation in a newly industrialized economy such as Argentina. (Ehrlich, Eisenach, & Leighton, 2009)

Open Innovation

Consistent with the evolutionary view of innovation, Open Innovation (OI) is a business model that proposes the use of

external sources of value creation (Chesbrough 2005). OI acknowledges the reality of globalization, distributed knowledge, and ubiquitous communication media. It takes advantage of these external resources and ideas and incorporates them into

their business processes to make a profit (McKnight 2001).

“Open innovation assumes the cooperation of two or more organizations — at least one generating an innovation and at

least one utilizing it — with a viable business model for each” (West in Chesbrough, 2005 p. nn)

We think that cooperatives can be considered a special, and perhaps more primitive type, of and open business process that

allows external ideas to be implemented, and that has shaped the current state of the information and communications

industry in rural Argentina. The concept of open innovation emerged within the context of the private sector, there are of

course important differences between the original notion of open innovation and the manner in which cooperatives have

traditionally worked. In cooperatives all the subscribers are members and decisions are made taking into consideration the

interest of the community as a whole. While it is not possible for all of the members to contribute and make decisions, there

is a structure through the cooperatives' representatives that members of the community can make business decisions. Table 2 illustrates the similarities between the manner in which a cooperatives functions and the traditional open innovation format.



Description Open Business

Innovation Cooperatives

Use and adoption of external sources of value creation (products, ideas,

technologies) X X

Allow external elements to join (ideas, partners, resources) X X

Change/Destruction of old organizational relationships X X

Change/Destruction of management practices X X

Change/Destruction of investment policies X X

Change/Destruction of business models X X

Open Decision-making X

Open Membership X

Establishment of strategic alliances X X

Strong interaction with its environment and permeable boundaries

between the firm and its environment. X X

Table 2. Comparison between cooperatives and open innovation business

The Role of Government in Innovation (this section is completed except for the diagram)

Authors like (Molano 2001) argue that governments are unable to adapt to the rapid pace of the destructive forces of creative

business and cloud down the process of innovation. Throughout history there are many cases in which the private sector

brought about innovation when governments were not been able to do so (McKnight 2000; Kim & Nelson, 2000.) There are

several views about the role of governments fostering innovation. One side argues governments should have an open policy and deregulate the environment to allow private entities to innovate (Pack 2000). Another side argues that governments can

posted and facilitate innovation through policy, regulation and incentives (Lall 2000). Strategies though, should be selective

and sector-specific and allow countries to establish their own indigenous capabilities. Consistent with Lall’s position,

Fagerberg & Srholec (2008) argue that governments play a determinant role to help countries catch-up. Countries need to

have a “well developed innovation system” that integrates social and technological capabilities. Fagerberg and Srholec

(2008) identified four fundamental “capabilities” that allowed developed countries to thrive: (1) governance, (2) political

system, (3) national innovation systems and (4) openness to trade.

Taking into consideration the data we have available, we will focus on the third capability: national innovation system .

National innovation systems should contain elements of learning and training of human capital (Lall, 200). Assimilation

theory argues that there is a learning component associated with the adoption and mastering of new technologies. through a

process of imitation and reverse engineering people can learn the skills necessary to become innovative (the traditional R&D approach) in their particular context (Kim & Nelson, 2000). McKnight (2000) also argues that in addition to human capital,

policy should focus on new tools and techniques to support private sector innovation.

At the industry level Castellacci (Castellacci, 2008) proposes governmental measures to coordinate organizational policies to

foster innovation. Fagerberg and Srholec (J. Fagerberg & Srholec, 2008) suggest the same at the national level; they argue

that a combination of institutional arrangements and policy interventions can positively affect innovation.

In the Latin American telecommunications market, Gutierrez and Berg (Gutierrez & Berg, 2000) suggest the creation of new

regulatory models with tailored institutional arrangements to promote investment and innovation in the sector. The study

nonetheless is not very specific with respect to the particular regulatory changes that would accomplish that.

In summary, this study parts from the theoretical assumption that innovation brings about national competitiveness and

economic development. The evolutionary view of innovation allows us to evaluate innovation in the Argentinian



telecommunications sector. Open Innovation functions as a framework to study cooperatives as innovators and to describe

their complex relationships with other organizations including the government. it is also evident from the literature that there

are actions governments can take to enable innovation at the industry level (Castellacci, 2008) (Frenkel et al., 2008). (Lerner

1999). (Kassicieh, 1993) (Gruber & Verboven, 2001).

Thus to understand innovation in the Argentinean information and communications industry, we look at cooperatives as

models of open innovation to understand: 1) their role in promoting innovation; 2) their business model as an example of

open innovation; and 3) the manner in which regulation has fostered or hindered innovation in this context (Fig. 2) given this

objectives this paper will address the following research questions:

1. What impact do cooperatives have on innovation in the information industry in Argentina?

2. What are the reasons that may have prompted cooperatives to engage in innovation? Has their modus operandi, is a type

of an open business model contributed to their success/ failure?

3. Does the Argentina have a regulatory framework that can fosters or hinders innovation of these smaller organizations?

Fig. 3 Variables at each level of the innovation process

METHODOLOGY

This paper is an exploratory qualitative research of cooperatives in Argentina. We selected the country because of previous

evidence of having a thriving cooperatives sector in telecommunications. The project relied on in-depth interviews with high

level officials at five cooperatives in various regions of the country. The companies interviewed agreed to do so after they

answered a survey with a larger pool of participants. All of the companies that participated in the survey came from a public database available from the National Communications Commission of Argentina (CNC as in Spanish) website. From the 50

companies that answered the survey eighteen were cooperatives, and five of them agreed to be interviewed. All the

interviews were done through phone in Spanish, and each of them had an average duration of about 50 minutes. An interview

questionnaire was prepared in advance to assure consistency across all the interviews. All the interviews were transcribed in

Spanish (both researchers are fluent in English and Spanish ) which generated approximately four pages of content for each

interview. The interview asked basic information of the company origins, examples of innovations they have engaged and the

rationale for having done so. Each of the interviews were then coded using a computer assisted qualitative data analysis

software called QDA Miner, their guiding criteria for the analyses were the research questions posed earlier in the paper.

Table 3 provides a short description of each of the companies analyzed this paper. Because of privacy and competitive

concerns the cooperatives are not identified by their real name and use instead letters to identify them.



Company

name

Geographic location Type of services provided Description

Coop A Huinca Renancó, Córdoba

Province, Central Argentina

Public telephony

Analog and IP Telephony

A cooperative founded int

he 1940's, entered into the

telecommunications

industry in 2000. Made

alliances with other

cooperatives to implement

186 miles of infrastructure.

Coop B Pinamar, East Coast, Buenos Aires Province East

of Argentina

Telephony (local and international), and Internet

Small cooperative founded the 1960's. It has seventy

employees. Installed its

digital

Coop C Córdova, Córdova Province,

Central Argentina

Public, Local, National, and

International phone and

Internet services

Relatively recent small

private company created by

an alliance of small

cooperatives in order to

circumvent regulatory limitations related to future

services.

Coop D All Argentinean Territory Telephony, Internet,

Broadband, data transport,

home security systems,

Cooperative founded in the

begining of the 1960's

Coop E Carhue Province, East-Center of Argentina

Telephony

Internet (ADSL)

Interconection to Bahia

Blanca

Cooperative founded in 2007 as a joint-venture of

two cooperatives.

Table 3. Description of companies

ANALYSIS

The analysis of the five cooperatives with which we had interviews is organized in this section based on the research

questions that were posed for this paper. Because we are using the open innovation business as a framework to understand

the manner in which cooperatives operate, this section makes comparisons between those two types of organizations and reflects specifically on the elements that foster or hindered innovation.

1. Cooperatives and Innovation

There are many dimensions in which we can observe innovation in cooperatives. The first one is in its membership and

decision-making processes. Cooperatives have open memberships and decision-making that is done with some sort of representation: "... each customer becomes a partner, much like a shareholder who can vote to choose the council who leads

the business. This generates a strong local identity, utilities are distributed ........and the community appreciates it."

(Manager, Coop B). Even though decisions are made only by those individuals representing, this horizontal approach is more

consistent with an open business model, than with a traditional vertical business model in which decision-making is

centralized.



The market liberalization in the 1990s allowed cooperatives to diversify and offer telecommunication sevices. In order to do

that, they had to rethink their old management practices, investment policies organizational relationships and business

models. Since many cooperative had existed for several years, most of them already had key business resources in place such

as billing systems, customers, funds, and in some cases even electrical networks. Many of them had to make significant

changes to the way they were used to do business, these changes ranged from updating their accounting systems to heavy

investments in infrastructure deployment. For instance Coop C invested in an entirely new corporate infrastructure that

currently has over 9000 subscribers with a 5 to 10 percent growth. Coop A Beta invested on a 300 km (185 miles) fiber optic

network that connected several other cooperatives. We must also note that these investments and adoptions of existing ideas

or products into a new endeavor are characteristic of an open business model.

Unlike their private counterparts cooperatives have been innovative in the manner in which they conduct their businesses. A

private corporation for example would find it difficult to cooperate with another company to pool resources, in fact in some

cases this can even be prohibited by law. Open innovation businesses on the other hand have realized the benefits of pooling

resources which in the case of cooperatives is manifested through the association of several of these organizations. Alliances

allows them to generate higher levels of volume, which can benefit their clients and give them leverage when negotiating

with incumbents or to pay off a large investment. "Telecomms are volume businesses, this forces them to have a broad

regional view in order for them to have high volumes and low costs" (Coop A) These alliances are done through associations

such as FESECOR, FECOTEL, FECOSUR and INVERTEL. There are many other cooperatives in the Argentinean

telecommunication industry who have made strategic alliances.

Another important innovation for cooperatives is the strong interaction with their environment, this can be demonstrated in

the way in which they support their clients/members. For many private companies it is unprofitable to have representation in

small communities; the way they handle customer services is through remote 800 numbers that can only offer generic answers and little support. "Here people are used to sit and talk. The international models have shut everything, bills need to

be sent to another business, support by telephone has thousands of menus. When you manage the resources locally, they are

spent locally... that is very important" (Manager, Coop A). The boundaries between cooperatives and their environment are

more permeable, they can have a strong influence in the community and vice-versa.

Lack of stronger intervention from the regulator and interconnection issues have been blessing and a curse for cooperatives.

While these organizations can get access to the incumbents' networks, the terms are often quite onerous. "The requirements

imposed by those companies were too burdensome, they requested links in far away communities at 100 or 200 Kms (60 to

120 miles) away" (Manager, Coop A). The inability to obtain favorable terms forced them, as was stated before, to build

their own infrastructure but also to become much more creative in the manner they managed their networks. A group of

cooperatives built a network wide enough that encompassed several communities; and through creative incentives,

fostered local traffic that would avoid the costs of interconnection.

Because cooperatives operate on a cost-basis model, they have little margin for innovation. This forces them to be more

ingenious in the way in which they make their investments. Some cooperatives have been particularly creative: A

cooperatives in the east coast of Argentina set up a software development company. They build software for themselves and

then sell their products to other companies. (Manager, Coop B). This same cooperative was also the first one in Latin

America to install a digital switch in the 1980s when analog systems were still prevalent. At this respect the general manager

states: "...it was the first city to have a digital switch, and for many years the only one to have telephone wake-up calls. We

were one of the first companies in the industry to offer conference calling, call forwarding and innovative phone

plans.....people reacted positively when we implemented detailed billing in the 1980's. The cooperative had a breakthrough,

thanks to implementation of technology that could produce better "timing" (this is in regards to time-based charges)

(Manager, Coop B)

Cooperatives in Argentina have reactied to the particularities of the Argentinean telecommunication environment, they have become innovators because they have opened their business processes at different stages of their life-cycles. They have

opened their decision-making process and company boundaries in order to allow members of the community and

shareholders to have a say in the destiny of the company. They have innovated in their investment policies and approach to

business, they have diversified their services and entered new markets, built their own infrastructure and managed their own

networks. They have also innovated in their management practices by forming strategic alliances that have given them

leverage.



2. Rationale for innovation with cooperatives

Business, unlike cooperatives, have a different rationale for operation. For instance in the open source community people

engage in the development of sofware for other than for profit reasons; for example, programmers often participate in

projects that entails no remuneration because of the prestige and perhaps experience that they can get out of a project

(Crowston & Howison, 2006). Individuals participate in the community to share knowledge, engage intellectually, gain a

good reputation, or for the excitement of seeing the final product working. Cooperatives engage in innovation to benefit the

community. In some cases, these innovation initiatives entail important investments. Coop C, for example made a significant

investment in infrastructure. "It was a big economic challenge, we had to invest USD $2" (Manager, Coop C)

For the most part a cooperative initiates such type of initiatives because they see an important need among their

members.The main motivation to invest for one of the cooperatives that we interviewed, was simply to provide access to

basic phone service. They did it by strategically selecting communities that needed it the most. Coop C Manager says: "In Jesus Maria they had electricity, but they did not have telephone service, and people had been requesting it for quite some

time" The priority in this case was determined based on how much the community had demanded the service.

Coop A had to make a calculated cost benefit analysis. When they requested capacity, the incumbent operator charged them

something between $1,800 and $2,000 per megabyte while the same capacity was being offered for $200 in the main cities of

the country. "...... we made a deal with Red Digital Sur that allowed us to build a 300 Km (186 mles) of fiber optic. This

network connected eight localities and reached over 60,000 people. The purchasing price was of USD $270 per megabite,

which is about 10% of the original price. We are now getting ready for IPTV." (Manager, Coop A) This particular

cooperative was not only making a cost-benefit calculation for the short but also long term investment and opportunities.

There are some cooperatives closer to the major network backbones of the country but there are also others that have no

connectivity at all, those are the ones that have been forced to build their own networks.This problem was exacerbated by the

liberalization of the market in 2000 and the economic crisis in 2002. Such was the case of Coop A; which in addition to

needing to respond to the demand of services, their investment motivation was thus basic survival. For Coop A this meant building up their own infrastructure. "Market liberalization made markets become concentrated and small towns had no

access. We were forced to provide acces" (Manager, Coop A)

Cooperatives tend to operate in remote areas where the private sector has not yet initiated any services. Ideas for investment

in this kind of remote disconnected communities have to come from their community or neighboring communities. In this

kind of open business model those that benefit the most are those were there is little research or expertise.Cooperatives

therefore often pool their resources to accomplish their objectives; their community of course is much more narrow than any

of its kind in a networked world. Coop C formed alliances with for major infrastructure investments. Nevertheless managing

the alliances has not been easy for them because 1) each of them is by nature highly independent because they had to survive

with no support in the past. 2) coordination in a non-network world is much more difficult and 3) lack of technical expertise

in some of the smaller cooperatives often makes them much more risk-averse and unwilling to sign off to projects that may

seem too ambitious. In this respect Coop C manager says: ) "All cooperatives are affiliated, it's hard for 600 cooperatives to agree on a single infrastructure"

Because cooperatives don't have a profit motive, they need to be able to survive on very low, if any, profit margins. It is not

uncommon for these organizations to cross subsidize among a portfolio of very diverse services. It would be ideal, for

example, for them to be able to expand the spectrum of communication services that they can offer through the network

infrastructure that they have invested in. They would like to offer, for example, TV services which for the moment are

prohibited from doing. "The law won't allow coops to have television licences. This is a problem because the existing

networks could be used to provide television....adding services is maximizing. It would be ideal to have electric, telephone

and television services over the same networks, and to use technology that allow us to use the same cables, that would be

highly efficient" (Manager, Coop A)

Several of the larger cooperatives have been able to diversify their services into many areas:

"Coops are very strong, they practically offer all services. Coop A offers, on top of electricity, public lightning, land

telephone, ADSL Internet, Internet access, social services, health services, emergency services, funeral services in which the community pay a monthly fee/insurance and the coop takes care of the funeral service, distance education, potable watter, all

of these services are related to the community's quality of life." (Manager, Coop A)

This type of business model has great benefits to rural communities because in addition to offering services of need to the

population it also helps to resolve a greater issue, which is the migration to the countries capitals. "Argentina is very big and

it has low and poorly distributed population, if there is no (universal service) fund in low profit areas, the gap grows bigger.



Argentina has always been an innovator, however due to it's population distribution, everything is concentrated in the large

markets" (Manager, Coop A). This statement makes clear that in addition to the diversification of services as a risk spreading

mechanism there are other elements that don't only benefits the community but the country as a whole.

3. Policy Factors

The liberalization of the market in 2000 was welcomed by many players in the telecommunication market. On one side,

entities who were not allowed to enter the market due to the 1992 decree, were now able to become players. Cooperatives

were able to expand and diversify their basket of services. They entered new markets and compete with new players. The

Manager of Coop C stresses these points: "Since 1992, coops and private companies had exclusive rights to the market.

Nobody else was allowed to provide telecommunication services until the decree 764/2000 in the Argentinean National

Telecommunication Law was signed.... It was a very competitive time; coops invaded wherever they already provider electricity." The current broadcasting and telecommunication laws prohibit cooperatives from offering cable TV and

wireless Decree 22285/80. Laws and regulations would have to be changed to allow these entities to have access to resources

such as spectrum and to operate alongside for-profit corporations. Cooperative managers "hope liberalization with respect to

these services"(Manager Coop D), they argue "there is a high interest in the change of the broadcasting and

telecommunications law" (Manager Coop E), though they acknowledge it will be a complicated process.

In the same way, cooperatives' structure also represent a challenge for governments, because it is difficult for them to

conceive giving a license to a non-for profit organization. In this respect the notion of anticompetitive behavior may be an

issue because at some point, in some of those larger communities cooperatives may have to compete with for-profit

corporations and there is concern they might find themselves at disadvantage. Coop C manager states: "Very few of them

(cooperatives) have a bank account big enough to buy a licence and offer cellphone. The process is in its

infancy" Cooperatives usually have low cash flow and would not easily be able to participate in spectrum auctions or similar

transactions.

In addition, given their cross subsidization schemes and their not for profit model, they are often perceived as being

anticompetitive. Cooperatives at this respect comment: "The cooperative model is different... partners in the annual

assembly may use the surplus on a totally different way than a for-profit business. An organization like ours would buy

equipment for the public hospital, because we consider public health very important. For someone in business this is very

difficult to understand; for a caring organization like ours, it's important to invest in our own community" (Manager, Coop

A)

Unfortunatelly, the universal service program that was proposed in the 764/2000 decree has never been implemented. This

could have been a mechanism to avail cooperatives of resources that would help them establish or improve their

communication services. Cooperatives are well aware of the program and regret that no implementation has been done so

far."There are opportunities for operators, such as universal service .......... with those funds ti would be possible to finance

telephony for neighborhoods, however as a mechanism it has not been effective" (Manager, Coop C)

CONCLUSIONS AND RECOMMENDATIONS

There is of course one important difference between open innovation business and the manner in which cooperatives operate. Cooperatives have benefited from receiving monopoly protection.

Given their limited resources cooperatives have to make very concerted effort to select investments that will result in the

greatest benefits. like the Open Innovation businesses they rely on input from the entire community to help them prioritize on

their projects.

Cooperatives should be considered innovators. They fit the open innovation model; the openness of their model allows them

to get input from their communities that helps them make decisions and they are more open boundaries facilitates the making

of alliances that bring greater benefits to their business and members.

Cooperatives tend to have a gradual approach to innovation. They do so because of their limited resources. This approach

however has allowed them to more successfully take on projects that private corporations might have taken much faster but

perhaps also leading to a greater percentage of failure. Their gradual approach has allowed them to learn and the success of

one business has helped to support others emerging businesses. In the telecommunications field they started with fixed telephony and later on they added Internet access with the vision to also be able to provide cellular and a TV to their

members.



Unlike private corporations the rationale for innovation is significantly different. Cooperatives innovate because of the

benefits they see in their communities. These services and infrastructure investments that they undertake are done because of

the need from the members to have the same type of services as their counterparts in urban settings. Their innovations are

thus not only restricted to the introduction of new products or services but also in their business practices and the manner in

which they interact with the community, their members. These organizations, like open innovation businesses, are more in

touch with issues in the community. For both, their core values, are to benefit their communities.

The policy environment in Argentina has shaped the way cooperatives have evolved. They were to a certain extent protected,

but we must admit that the function they perform perhaps wouldn't have been done by a private business. We don't argue that

they should continue be protected, however we cannot deny as Galperin indicated they have played a very important role in the information industry and thus economic development of Argentina. Given these benefits governments have much to learn

and do you continue to support these organizations and their communities.

The Argentinean government should recognize cooperatives as entities with similar rights to resources as those in the private

sector. These should thus give them access to spectrum as well as the ability to enter for example the television market when

the law is changed. Given that these organizations have limited cash, the universal service fund should provide resources for

them to continue to invest in the modernization of their infrastructure. Ideally, the Argentinean government, should invest on

a nationwide backbone that could allow its remote communities to tap into this network at more affordable prices. Concerns

for anticompetitive behavior should be dealt on a case-by-case basis using Argentina's anticompetitive law. This however

should take into consideration the fact that these are not for-profit corporations that will in turn lower cost of operation than

their private counterparts. These businesses could also be supported with some training that could potentially make their

operations more efficient. In this process we shouldn't forget the benefits of having a model similar to that of open business

that they should continue to exploit as they move into more networked global communities.



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