|Latin America III 1997
|Future Telecommunications in Costa Rica
|Lilliana Quiros Quiros
|Control and Programming Director
|Costa Rican Electricity Institute
Costa Rica’s telecommunications sector is undergoing an organisational restructuring to move towards globalisation and free trade, but more importantly, to appropriate the use of technological advances to provide better services. The envisaged economic changes necessary for competitive markets have brought about a new regulatory framework and financial reforms, and also an examination of how the laws of the land can be combined with the rules of business to pave the way for a promising future.
Whilst the Costa Rican Electricity Institute (ICE) was initially created to provide electricity services, it later expanded to cover telecommunications services. The service, currently operating as a public enterprise and regulated by the Public Service Regulatory Authority, has a monopoly for the provision of fixed telephony, mobile and international services. However, other services, such as radio and Cable TV, operate in a “free market” system (i.e. little state intervention and active participation of local private companies). Thus, Cable TV services for instance, work through two private operators which manage to provide an efficient service to nearly 32,000 customers in the metropolitan areas of the country. Current Situation To date, the telecommunications sector has over 650,000 installed lines (18.5 per 100 inhabitants) with a net digitalisation of 95% in the mobile system serving 60,000 customers. It has a waiting list of nearly 75,047 applications with an average waiting time of between 6 months and 3 years. On average, it takes 25 days for network installation if there are no network or line number problems. For fixing telephone or line problems, 48 hours is the average waiting time. Concerning tariffs, special fix rates operate to balance national and international rates to their minimum cost. This mechanism is expected to pave the way for future international competition. Basic rates are expected to cover customers’ operation expenses, line maintenance and administration. International rates are expected to be reduced from US$1.00 for the average minute conversation (1997) to US$0.20 in 2004. Net rates will then be reduced from US$0.50 down to US$0.12 in 2004. Envisaged economic changes for future competitive markets have brought about a new corporate regulatory framework to make the company responsive and flexible to future international market challenges. For that reason, in August 1996 the ICE Direction Committee put forward three rules of law: two related to the telecommunications industry’s strategy and structure, and the other one to the ICE group. Subsequently, an alternative proposal was put forward by the Sub-commission which intended to give more autonomy to the managerial style of the organisation. Termed “ICE Modernisation and Transformation Process”, this new autonomy-driven approach attempted to include subsidiaries as well as main organisations. The proposal is currently under deliberation. The Modernisation and Transformation Process An organisational strategy of structure and action was then put together to determine courses of action for the following enterprises: · Radiografica Costarricense, a subsidiary at the forefront of national and international telematics services; · Compania Nacional de Fuerza y de Luz, a subsidiary distributing electric energy to the metropolitan areas; and · Unidades Estrategicas de Negocios (UENS). This organisational structure for the Information and Communications sector includes companies legally and/or virtually constituted and their sub-units, or (UENS) that take part in the same industry or market with complementary well-defined products. The ultimate purpose of this organisational framework is to achieve higher competitiveness in international markets. These sub-units are to satisfy their own organisational needs and expectations through specialised information systems platforms, infrastructures and networks, required for the best servicing of customers. Competitive factors such as efficiency, quality, prices, opportunity, and commercial, legal and modern practices will become the bases of their organisational functioning. New financing schemes (e.g. leasing) will also be included in order to contract telephony services. Moreover, integrative telecommunications structures (central, external plants and transmission) will be acquired as well. Most importantly, the Information and Communications sector will be directed towards a system of open competitiveness, services diversification and active suppliers’ participation. It is then of paramount importance to move from an old paradigm to a new one. In order to implement the new paradigm, two international commerce objectives include not only targeting improved access of Costa Rican products to international markets; but also achieving higher productivity levels. Consequently, strategies of action involve the following guidelines: · improvement investment will not exceed 5% of traditional and nontraditional investment; · public telephones wil have an approximate density of 7 per 1000 inhabitants; · employee-line ratio will move from from 6 employees per 100 lines lines to 4 employees per 1000 lines; · operational expenses growth in relation to employee growth percentage; · no commuting systems from place to place; and · transport networks connecting the primary and secondary National Telecommunications system centres to be carried out through the ICE alone. Access to External Markets Access to external markets will be subject to a strong multilateral system which includes administrative measures and adjustments that warrant the Free Trade Agreement between Mexico and Costa Rica. Nonetheless, agreements resulting from the World Trade Organisation will be given exclusive priority. The institution will also make attempts to approach the regulatory entities in the US so as to avoid possible economic or commercial disadvantages to Costa Rica, such as in the case of existing trade agreements between the US and other countries which may possibly divert investment and trade away from Costa Rica. Public relations will be geared to the consolidation of already established international trade agreements and at facilitating new international commercial pacts with interested partners. The aim is to provide potential investors with a stable social and political environment. Telecommunications in Costa Rica certainly promise a bright future. Notwithstanding, in order to avoid expected commercial risks, it is in the process of an organisational restructuring to facilitate moving towards towards globalisation, free trade and economy of scale. More importantly, the appropriate use of technological advances would result in better service to its customers. Concerning financial risks, after a decade of free trade in Costa Rica, the corresponding financial reform has further provided the tools for a progressive move towards globalisation. The financial reform includes: · partial and gradual interest rates liberation (the expected rate for 1997 is 20%); · market liberalisation. Expected devaluation rate for 1997 is 10.5% lower than the rate for 1996 (12.8%); · rationality and efficiency principles towards the best use of available financial resources (modernisation of the state banking system); · efficient private banking (well regulated and with signs of growth). Costa Rica will efficiently cope with technological risks through the promotion of a technological cluster. This cluster will be 80 km long and 20 km wide so as to house 35 enterprises with the specific purpose of promoting technological advancement. Companies such as Intel, Motorola, Baxter, Acer and Lucent Technologies are among those included. There are also two state medical centres, 21 educational institutes, 46 industrial zones and a telecommunications network with analogous and digital services, and 5 satellite stations geared towards information exchange. Costa Rica as a potential investment ground poses no legal risks as the country ascribes full autonomy to its judiciary system. The Judiciary relies on three branches for civil and penal processes, and two chambers for constitutional and legal procedures. When created or modified, laws, once passed and approved by a legislative assembly composed of 57 legislative members, also require two approvals from the Executive branch of the political Costa Rican system. Conclusion Groups of professionals currently analyse and determine the processes required for a successful organisational restructuring. Their analysis is expected to combine with laws and commercial rules approved by the local government to pave the way for a promising development of the Costa Rican telecommunications system.