Home Latin America II 1996 Opening Markets is Necessary

Opening Markets is Necessary

by david.nunes
Edgardo LertoraIssue:Latin America II 1996
Article no.:7
Topic:Opening Markets is Necessary
Author:Edgardo Lertora
Title:Not available
PDF size:20KB

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Article abstract

“Opening telecommunications markets throughout Latin America to foreign investment is necessary in order to fuel the economic expansion of this region. Communications infrastructure development makes way for the modern telephone products and services that benefit international commerce. This truly provides the bricks and mortar needed at the foundation of Latin America’s future success.”

Full Article

At first listen, free and open competition has a nice “ring” to it for international telecommunications companies looking to expand their revenue base. And as numerous markets approach market liberalisation, telecommunications deregulation is indeed on the rise and competition is opening. After the dust settles from these regulatory battles, consumers around the globe will truly be the winners. And although deregulation and market liberalisation promote free and open competition, the price for playing this cyber service game is hardly free for the private telecoms in Latin America or the countries that encourage their investment. The cost of entrance for international telecommunications companies comes in the form of high capital investment in network infrastructure. In addition, large amounts of capital are required to modernise facilities and in turn increase teledensity. As governments in Latin America are hard pressed to provide the large amounts of capital needed, these governments liberalise foreign investment legislation making the participation of multinational companies and private investors possible. Today, numerous countries have opened their telecommunications industry up to private investment and billions of dollars have been invested in 1995 by multinational telecommunications companies. And as this investment continues to increase, its potential for growth is only limited by the rate with which regulation can be legislated. To date, regulation has yet to open all sectors of telecommunications services at the same time. Take for example the divestiture of AT&T into seven Regional Bell Operating Companies (RBOCs) in 1984. Although consumer choice increased for long distance services, monopolies on local service were secured by divestiture. Today, the average interstate long-distance phone call is more than 60% lower in price than a decade ago. This intense competition in the long-distance market continues. The RBOCs and long distance service providers such at AT&T have been in fervent lobbying efforts that each hoped would result in their ability to compete in one another’s markets. In the battle for local phone service, long distance and alternate access service providers had been locked out and in the fight for participation in long distance service, President Clinton’s recent signing of a landmark telecommunications bill into law is opening the door for the RBOCS in all 50 states. The discussion of open competition takes on some similar issues outside of the U.S., however, the topic of market liberalization and privitization is tempered with differing political views and cultural influences unique to sovereign nations. For example, in Latin America competition in telecommunications is thriving where governments have allowed it, however, peculiar dichotomies are formed wherein international long distance operators team up with the same local phone company that represents their largest competition in that market. The existence of large in-country and international networks is precisely why competitors must work together. Successfully completing a long distance phone call requires cooperation of both local and long distance networks. This symbiotic relationship between government owned telephone monopolies and international long distance carriers (ILCs) makes the terms of engagement and operation the principle factor in determining business operations viability for these markets. What often times results is a “cold war” of sorts in which access to the local market is made available to ILCs, but not without intense scrutiny by local telephone authorities. The fight to control their destiny with regards to local access is a battle best refereed by third party telephone commissions, who in Latin America are most often ministries of the same government that owns the local phone company. After all the negotiations, disputes and partnerships, one thing makes this arduous process worthwhile for the ILCs. If it weren’t for the highest profit margins in the industry, international long distance providers would not be able to live with the cost of local access. Most recently, Mexico announced plans to open its national and international long distance market to competition. Companies looking to compete with the long established local company Telefonos de Mexico (Telmex) will be allowed to do so in 1997 through joint ventures with wholly owned Mexican partners. Foreign participation is limited to 49%. The telephone and transportation ministry walks a fine line in developing rules of engagement that balance the opportunity for foreign competitors and minimize the risks for local phone operators. As long distance service opens in Mexico, the discussion surrounding other types of service sectors such as satellite, cable, PCS and cellular are also moving forward. Similar rules of engagement are being discussed in Brazil, where B-band cellular will be open to competition as soon as foreign participation guidelines are established in Congress. Today, between 750 thousand and 2 million people are awaiting cellular service in Brazil. A Napoleonic legal system requires “enabling” laws that cover critical technical issues and these legislative items further add to the agenda facing congress and logjam seems likely. Meanwhile, millions of people wait for phone service and tax revenues are lost. The best example in the world of open competition in the telecommunications arena currently exists in Chile. This nation of 13.6 million inhabitants began privatisation efforts as far back as 1978. Since then, the telecommunications industry has seen annual growth of more than 19.5% over the last five years. In 1988 Compania de Telecommunicaciones de Chile (CTC) and Empresas Nacional de Telecomunicaciones (ENTEL) both became privatised. A multicarrier system was then implemented in 1994 when the Chilean market opened the doors for equal access competition for domestic and international long-distance services. Teledensity is up over 12 lines per 100 inhabitants, GDP has increased over 100% since privatisation and best of all, Chilean consumers enjoy some of the least expensive rates anywhere in the world for long-distance telephone calls. Conclusion Many nations throughout Latin America now look to Chile as a model for structuring their own telecommunications privatisation efforts. As they do so, complicated legislation is debated and foreign investment guidelines are being set. And for the ILCs, with each penny spent, margins on long distance minutes are reduced and rates for international connection are falling in favour of the consumer. In the end, consumers are to be the winners, with improved services, higher quality and cheaper prices.

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