Home Latin America II 1998 Evolution of Telecommunications in Argentina

Evolution of Telecommunications in Argentina

by david.nunes
Dr. German KammerathIssue:Latin America II 1998
Article no.:5
Topic:Evolution of Telecommunications in Argentina
Author:Dr. German Kammerath
Title:Secretary, Communications
PDF size:20KB

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Article abstract

During the last few years Argentina has experienced significant changes in the telecommunications sector. The consolidation of a stable economic environment and the liberalisation of the private sector serve to reinforce its ambitious telecommunications development plan. It firmly believes in promoting competition as the best policy for providing quality and cheaper telecommunications services. The government will play a strong role in reviewing the effectiveness of the policies introduced, and in changing them when necessary.

Full Article

During the last few year~ Argentina has experienced significant changes. Rationalisation of public spending and privatisation policies have allowed improvements in the government’s finances. Foreign investment and unrestricted access to the Argentinean market, accompanied by inflation control, have presented an attractive offer to prospective investors. In addition, Argentina has witnessed the privatisation or liquidation of most of its national companies and state economic activity, where the basic economic strategies are already adopted by the government. On March 27th, 1991, the Argentinean Congress approved the ‘conversion law’ by which the national currency was fixed to the US dollar. In addition, this law established the fundamentals regarding monetary policy on: · foreign currency reserves; · gold; · any nominative foreign currency or gold title, at market price established by The Central Bank. These economic measures constituted the beginning of economic growth and stability in the country, bringing down inflation and interest rates, and augmenting the Gross Domestic Product (GDP) and access to credit in the country. As a consequence, there has been a significant increase in confidence in the country. Likewise, as a complement to fiscal balance, there were more reforms on the tributary system and more decisive improvements on tax evasion control. In the same vein a plan was effected for the deregulation and privatisation of the economy, with the objective of redefining and reducing State intervention, reducing spending, achieving better efficiency for public funding, and generating more attractive economies of scale for production investors. The consolidation of a stable economic environment and the liberalisation of the private sector serve to reinforce the ambitious telecommunications development plan for Argentina. Condition of Telecommunications in 1989 Back in 1989 when the telecommunications service was in the hands of the State Company ENTEL (National Communications Company), it experienced an unprecedented crisis that worsened every day as a reflection of the country’s economic crisis. ENTEL did not exist as an investment policy, plans were not fulfilled, and as a result the telecommunications services were a mix of very old and last generation equipment. The maintenance of external line panels was unmanageable, with thousands of unusable old cables. With approximately 3.5 million lines available, it was not surprising that a mere rainstorm could disconnect around 150,000 users from the service. The reparation time was longer than a month and users complained on a daily basis about the poor quality of the service. During the 1980s the cost of a telephone line was around US$1,500 in a country where the average salary represented a quarter of that amount. To obtain a telephone line, a user had to wait between 5 and 10 years. Personnel at all levels were wholly unmotivated, due to the internal chaos, low salaries and insufficient training. There were too many workers, a high average age, absenteeism was high, workers abused extra hours; all of these circumstances did not help to improve the quality of service. Low quality service and difficulties in communication combined to make conditions unbearable for most users who demanded some profound changes to the network system. The State Telecommunications Company asphyxiated most of the communications network, impeding its development. However, it must be said that some Argentinean companies, in the middle of the 1980s, started to attain authorisation and permits to provide data communication via satellites, as well as other services not provided by ENTEL. The Deregulation of Services Argentina started to privatise its telecommunications network at the end of 1989, with the purpose of deregulating the state monopoly on telecommunications and making the service more efficient and competitive for the benefit of the public. The state became an independent arbiter and the concept of ‘user’ was changed to ‘client’, based on equal rights. With the purpose of establishing an expansive basic telecommunications network at reasonable prices, and a public network allowing for the development of other telecommunication services, a monopolistic temporal structure (7 to 10 years license in relation to quality of services), was secured for basic telephone lines, that is the national telephone lines, or on the urban, inter-urban and international lines connected to the network. Furthermore, the monopoly was extended to international telecommunications services: international data (information), telex, international direct links rented for communication, and transmission of data/services for added value. This telecommunications model was approved because it was necessary to have a modern and universal telecommunications network to take us into the new millennium. Different measures were taken to promote strong telecommunications operators at the end of the exclusivity period, in order to regulate a competitive, free system where everybody has access and equal opportunity. As part of the exclusive rights given, the companies were asked to have quality goals and expansion services, as well as a minimum plan to cover areas where there were no public or semi-public services. Likewise, to provide national basic telecommunications services, the country was divided in two main regions, where two large and equal size companies were created to compete against each other after a period of exclusive rights. The purpose was to promote competition, thus motivating more efficiency (‘reference level of competence’). In addition, it was decided not to separate inter-urban services from urban (local) services. Therefore, the need to finance a large programme of investment was recognised, particularly in the local network, and considering local incomes as part of the resources was obtained from other local services. The north-south divisions left intact a great number of small independent operators – the majority of which were co-operatives – which, before privatisation, provided basic local services. They received the same exclusive license agreements in order to provide their services for the same number of years. Likewise, a mechanism was foreseen that would allow any interested party to offer basic services in any locality where there was no licensed telecommunications company, and if these companies did not offer any service, they would receive an exclusive right to provide the service in that locality. For the rest of the services and terminal equipment – that should be homologue by the National Commission of Telecommunications, now National Communications Commission (CNC) – it was approved as a free competition regime. To protect fair market competition, de facto, companies providing licenses for basic services were not permitted to subsidise these services from their profits. Competition is based on equal opportunities, and it would have been unfair to allow these companies to monopolise basic services. Conclusion The fundamental decisions adopted have several implications for policy regulations. First, the most obvious is to favour competition as the best method for quality and cheaper services. Second, although, exclusive guarantees are offered on basic services for seven years, there is a necessity for future competition, to re-accommodate prices and to establish new interconnection agreements with competitive services, such as mobile telecommunications companies. On the other hand, the government will periodically review whether the policies are effective, in order to introduce changes whenever necessary. Rather than a cosmetic transformation, Argentina has thus experienced a profound change in its telecommunications structures.

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