Thomas A. Buckley Issue: Latin America I 1999
Article no.: 12
Topic: Foreign Competition in Latin America: The First Anniversary of the WTO Agreement
Author: Thomas A. Buckley
Title: Law Clerk
Organisation: Competitive Telecommunications Association, USA
PDF size: 36KB

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Article abstract

It is the first anniversary of the WTO Agreement on Basic Telecommunications Services, and successes to date points towards the dawn of the renaissance of global telecommunications. However; it is crucial for Latin American countries to revise their regulatory processes. Here, Mr. Buckley reviews some of the notable privatisations In the region, and suggests that countries can earn from the regulatory accomplishments of the FCC, and also adhere to certain principles when revising their regulatory processes.


Full Article

Opening up of the Global Market It has been a year since the 69 WTO members agreed to open their markets to foreign investment and competition in wireline telecommunications and satellite services. The WTO Agreement has already produced impressive results. For example, around the globe, the era of natural monopolies is coming to an end, consumers are using international telecommunications more frequently, and prices continue to fall while services continue to improve. Furthermore, in Latin America, certain countries have begun the process of changing their regulatory regimes. Privatisations in Latin America The most successful privatisation in Latin America is probably that of Chilean telecommunications. Since Chile opened its doors to competition in 1994, telephone traffic has increased dramatically. Such an increase indicates the response of consumers to lower prices. For example, before competition was introduced, the average Chilean made on average a 30 second call to the US. However, with the advent of privatisation, that number increased to 5.4 minutes in 1996. Prior to the WTO Agreement, the teledensity rate in Chile was 15.59. It rose to approximately 21.71 in 1998. In Mexico, both AT&T and MCI WorldCom help themselves to customers by providing cheaper and better services through a combined US$0.58 billion (2 billion Peruvian Nuevo Sol) investment in joint ventures. An even more astonishing aspect is that, despite the regulatory and anti-:competitive barriers to which the two corporations have been subjected to; they have still managed to lure 25% of the Mexican long distance market from another company, TelMex. One can only imagine the market potential for foreign corporations once a fair, competitive structure is established. Last July in Brazil, the government sold Telebras. The opportunity for foreign investors to enter into the Brazilian market after the sale became quite evident when MCI WorldCom paid US$916 million for a 52% voting share of long distance provider Embratel. Moreover, since the privatisation of telecommunications services, Brazilian regulators have continued to emphasise their commitment to fair global competition, improved services and access for their customers. For instance, Brazilian regulators intend to apply sanctions to providers that failed to meet the conditions required under the terms of the sale of Telebras. Before the privatisation, an expansion program was initiated which required the local telco to install new phone lines. Eight of the 34 carriers in Brazil have failed to meet this target, will now receive sanctions which include the provision of affected subscribers with service peaks and free minutes on call cards. Recently in Argentina, WinStar communications (WinStar) announced a plan to purchase 95% of Macrocom, SA, the company which holds the nation-wide license for 400 Mhz of spectrum in Argentina’s 38 GH band. This action is part of WinStar’s bold plan to expand its broadband network into the top 50 international markets. Moreover, this places WinStar in a strategic position as it awaits the opening of Argentina’s local and long distance markets in November 2000. Peru has also opened its telecommunications market to competition. Last year, Telefonica del Peru ended its monopoly over a US$0.29 million (1 million Peruvian Nuevo Sol) local telephone service market. Following that event, US based FirstCom has announced plans to invest US$58 million (200 million Peruvian Nuevo Sol) over five years in the conventional telephone sector. Prior to this announcement, Telefonica’s only competitor was BellSouth who operates in the wireless market. Now, FirstCom plans to open 50,000 lines within 12 months as an alternative to Telefonica. Necessary Regulatory Reform Despite of the success of the post WTO Agreement, the work necessary to establish the GII is far from completion. Due to privatisation around the globe, numerous countries continue to wrestle over the type of regulatory reform they should implement. Furthermore, the privatisation process raises antitrust concerns as to what type of antitrust model will ensure robust competition without inhibiting investment in the fledgling markets in Latin America. Role Model An excellent resource for WTO countries that are seeking pro-competitive regulatory policies is the Federal Communications Commission (FCC). The Commission maintains its position as the world leader in experience and expertise in developing pro-competitive policies. The FCC participated in the break-up of AT&T and the implementation of the Telecommunications Act of 1996. Countries can learn from the successful regulatory accomplishments of the FCC, as well as avoid unsuccessful strategies by reference to the FCC’s failures. The FCC has already been an active player in the regulatory dialog with WTO members. Since last year, the FCC has hosted five workshops, which have included Latin American countries such as Brazil and Ecuador. Furthermore, the Commission has been involved in formal bilateral meetings and high level face-to-face dialogs with their foreign counterparts. Finally, the FCC has played an important role in the Organisation of American States’ Inter-American Telecommunications Commission. While guidance from the FCC is helpful, Latin American countries need to develop pro-competitive regulations that are consistent with their specific governmental needs. Most Latin American countries base their system of government on a French civil code unlike the civil law tradition found in the US. Thus, while the FCC maintains authority of a quasi-judicial nature, in Latin America, the regulatory process may be quite different. That is, the particular country may have a minister or president that has the full discretion to create regulation or set tariffs. For example, in Venezuela, the minister maintains unlimited authority to set tariffs on telecommunications services. Principles to Bear in Mind Nevertheless, there are certain principles that WTO members should adhere to when revising their regulatory processes: · Agencies that control procedures must have independence from former monopolies and political influence of the state. · Latin American countries should adopt a system that expedites the rulemaking process. Especially in an age of constantly emerging technological advancements, there cannot be substantial delay from the start to the final order of a regulatory proceeding. · Administrative agencies must be consistent in their decisions. Whether issuing a license, or privatising a particular type of service, the agency cannot decide to give the concession but then later contradict itself by reversing its prior decision. Without consistency, foreign investors (as well as citizens) will lose confidence in the agency and be weary to further explore opportunities in that country. While most of Latin America has decided to, or have already privatised, their services, it is crucial for Latin American countries to revise their regulatory processes. The bottom line is that if Latin America does not adopt the same principles as the rest of the world, it will lose market value and assets. While it is impractical to think that a country can mirror its system on a regulatory process based on common law, such as the FCC, it, is possible to base the regulatory regime on the same underlying principles. Antitrust Enforcement Along with economic liberalisation comes increased reliance on antitrust enforcement. Price fixing and division of markets may become subject to stricter enforcement. Also, highly concentrated markets will continue in certain areas, which must be properly regulated. Further, governmental supervision of mergers and acquisitions will increase as international investment in Latin America continues (e.g., MCI WorldCom investment in Embratel). However, it is critical that antitrust enforcement refrains from stifling the flow of foreign investment. The US and Europe both offer different philosophically based antitrust systems, which should be helpful to Latin American countries seeking reform. But Latin American countries must also institute antitrust systems that satisfy their economic growth and social policies. However, a delicate balance exists between pro-competitive antitrust matters and the protection of the interests of local telecommunications firms. Maintaining the Momentum The WTO Agreement has also been a catalyst for new initiatives and bilateral agreements between member states. For example, in June 1998, the US and Argentina reached an agreement concerning fixed, direct broadcast and direct-to-home (DTH) satellite services. US satellite operators now have full access to the Argentine market. The agreement permits US carriers to have the same access as Argentine-licensed satellites in the Argentinean market, and, Argentine-licensed satellites may provide uninterrupted service in the US. This achievement resulted in the broadcast of the 1998 World Cup to a record number of Argentine viewers. The momentum created by the WTO Agreement, as in the above example, cannot be lost. WTO members must continue effortlessly to develop new pro-competitive policies and agreements such as Global Mobile Personal Communications by SateIlite (GMPCS) Memorandum of Understanding (MoU) and Arrangements. Inspired by the WTO Agreement, the MoU has been signed by over 100 parties. The commitments ensure that terminals associated with GMPCS systems will be able to transit borders and ‘roam’ freely which is essential to the operation of a GMPCS system. Renaissance of Global Telecommunications The WTO Agreement is the beginning of the renaissance for the global telecommunications industry. However, each country must explore its intellectual potential in creating opportunities. If regulatory regimes institute similar principles, pioneers of investment opportunities, whether foreign or domestic, will continue to enter Latin America. The end result will be a fair competitive marketplace which will produce increased revenue, jobs, and more efficient, cheaper services offered to consumers. Probably the best illustration of the opportunities created by the GII was in a recent National Geographic article. Although this example occurred in Bangladesh, it offers an insight into the opportunities for all countries around the globe: Conclusion “In a small village in Bangladesh lives a widow named Anowara Begum. With the help of a small loan from the Grameen Bank, she bought a Nokia cellular phone. It’s the only phone in the village, and she charges her neighbours about 10 cents a minute. With her phone she makes about US$6.50 per week, about halve [sic] which goes to repay her loan. In three years, she will pay the loan off After that she will be able to earn about US$700 per year, nearly three times the average per capita income.”