 | Issue: | Latin America IV 1997 |
| Article no.: | 1 | |
| Topic: | Telecommunications: a Service for Many, a Business for Few | |
| Author: | Dr. Alberto J. Gabrielli | |
| Title: | Not available | |
| Organisation: | Buenos Aires University, Argentina | |
| PDF size: | 24KB |
About author
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Article abstract
Argentina began a process of liberalisation almost 10 years ago, and it had required an enormous social and political effort to achieve economic freedom and political stability. One of the main instruments used to transform the economy was state reform through the privatisation process. However, privatisation of telecommunications, due to the size of all the resources required, is a case of a service for many, but a business for few. Dr. Gabrielli provides a frank assessment of what it has taken for Argentina to achieve to date.
Full Article
Telecommunications, like the oceans, have become a common space for humanity. They are essential to economic growth and cultural development, and constitute a fundamental instrument in the service of mankind in all aspects of life. However, it is not sufficient to interconnect citizens; telecommunications are also necessary to ensure competitiveness in the business world and in the struggle for supremacy in regional and global markets. It has also been proven that those who have superior telecommunications in times of peace will be most powerful during war. These challenges demand exceptional levels of efficiency, adaptability to change, technology and capital. The state-owned enterprises of Latin America, built during times of populist state control policies in the fifties, were not in a position to adequately respond to these challenges of the 21st Century. Telecommunications, a service which until a few years ago was considered the exclusive heritage of the state, has now entered the sphere of private enterprise after some brief extremist resistance. However, shortly after getting on its way, history showed that the privatisation of telecommunications, due to the size of all the resources required (technological, economic and human) also surpasses the capabilities of local companies and is only a realistic idea for a select club of large international companies. In Latin America, only a select group of local companies, mostly those which for years have been devoted to the construction of public works, had access to the emerging telecommunications business. However, none was able to deal with the mobile or fixed telephony projects, either alone or through majority shareholdings. If at one time they had hopes in this respect, they soon grasped reality. The First World Development Telecommunication Conference (WTDC) took place in Buenos Aires in 1994. The WDTC’s documents revealed the following facts: · telecommunications form between 1-2.5% of the GNP of countries worldwide; · more than 1 million men and women in Latin America work in the sector; · the telecommunications market has a US$ 600 billion turnover worldwide. Three quarters in telecommunications services and the rest in equipment and hardware; · more than 50% of this market share is in the hands of seven companies – the sales of Alcatel, Siemens, AT&T, Northern Telecom, Ericsson, Motorola and NEC, the main equipment providers, reach US$ 100 billion; · profitability of the sector is high ranging between 10-16%. Brazil still believes that it can retain 51% of the business for Brazilian capital. Everything leads us to believe that financial, technological and management demands will make this recognition of national businessmen by the legislators of Brasilia difficult to uphold. Telecommunications, in fact, is a service for many, but a business for few. For better or for worse, the stories of small local providers will remain only in regional history. Protectionist barriers are coming down more rapidly in telecommunications than in other sectors, due to the unstoppable force of the facts and the new demands of the consumer-oriented society. An exception could be the ultimate project of the coming together of more than 300 small telephony co-operatives, which operate in limited areas of Argentina, to become a large national operator. In any case, they would need support from a company in terms of management, technology and capital. It is useful to remember that from a cultural perspective there may be conflicting aspects in the development of communications. Satellite transmissions and the growth of cable TV penetration are capable of weakening and even wiping out the vestiges of rich local literacy, musical and artistic traditions which collapse when the dams of isolationism are overcome by the international multimedia, due to their seductive power over consumers. Large scale uniformity and standardisation are as bad for the cultural heritage of mankind as the felling of trees is for the ecological protection of the environment. The difference is that trees can be replanted whereas the cultural treasures lost when certain traditions are abandoned become irrecoverable. Structural Change and Platform for Development Almost 10 years ago, Argentina began a process which other countries of Latin America (with the exception of Chile) started much later. It required an enormous social and political effort and the unswerving decision of President Menem. Despite having a homogeneous population with no racial problems of any kind, and being self sufficient in energy and a large-scale food exporter, Argentina has had a history of economic and political disenchantment. After two dramatic experiences; the civil war between the guerrilla and regular forces, and the Malvinas war against Great Britain, a democratic way of life was finally restored in 1983. However, this was followed shortly by an economic crisis. Democracy was not enough. A rationally managed economy became the strongest demand of the citizens. The final step of establishing a predictable economy arrived a decade later. As in all Western democracies, the people of Argentina prefer relaxing periods after a time of austerity. President Menem removed the some of the worst faults of the Argentinian political life: · a repetitive jump between an irresponsible populism and extreme austerity; · the vacillation of the politician to request sacrifices from the people. He showed that it was possible to develop a rational economy in a fully democratic environment. The main instruments used to transform the economy were state reform through the privatisation process, monetary reform and the recognition of freedom as the best controller of the market, through a deep deregulation movement. A balanced budget is a strong requirement, an essential requisite of the law, sacred for- the government and a key point in favour of stability and against inflation. The bankruptcy of the social security system was overcome by privatising it. The old regime was frozen and a 100% new regime managed by private institutions started from scratch. Billions of dollars are now been invested in the financial markets. All this profound revolution transformed not, only businesses, but the whole social and cultural Argentine life. Another column of the structural change was tax reform, a comprehensive redesign of the legal instruments and a policy of hard prosecution for fraud. In seven years, Argentina has left behind half a century of estatism and populism to become a first world democratic country with a strong, growing, rationally managed economy, with stability and predictability. The privatisation process in Argentina had no special exception which was immune to the changes: From the biggest Argentine enterprise YPF (the state owned oil company), to the railroad services with uncontrollable debt, the government transferred 90% of the formerly public corporations to the private sector. No significant leftist criticism nor old-fashioned nationalist speeches were heard. The notorious decrease in the country risk level shown between 1990 and the present, allowed both the state and the private sector to finance themselves in competitive conditions within the international capital markets. The Argentine currency, the peso, has continuously been ‘one to one’ against the US dollar in a free exchange market. Furthermore, the main consulting companies pointed out that the Argentine economy is in a rising economic cycle, which will continue for at least 3 more years. The National Post Company has already been granted against an annual fee of US$ 100 million, in a fully competitive postal environment in 1997. During 1998 there will be more privatisations. More than 30 airports will change to private management (it is intended that only one operator should -take over all of them). Nuclear power plants; provincial power and water companies, and national and provincial banks will constitute new opportunities for foreign investors. Few countries in the world present such a wide variety of productive sectors in which investment is profitable, and within an environment of economic freedom and political stability. Another remarkable phenomenon is the Mercosur process. Since its constitution, as a preferential trade area in 1991, its trade volume with the world has continued to grow strongly. Mercosur as a whole takes an active part in the negotiations of the hemispheric integration (ALCA). It is also negotiating a medium term free-trade agreement with the European Union. The free trade area between Mercosur and Chile has also been growing. Furthermore, the economic and geographic position of Chile may be the master key that increases the economic relationship between Mercosur and Eastern Asia in the short term. According to Interamerican Development Bank reports, Mercosur and its natural partners will require, until 2004, investment in basic infrastructures of U$S 6 billion per year. An additional US$ 9.6 billion per year is required to maintain and replace existent facilities. Corruption Another element that investors seriously consider when deciding their investment strategy is the level of corruption in each of the country. As this factor has become an important issue among international financial institutions, banks and multinational companies, I think that we should confront this question frankly, and face the real boundaries of this difficult aspect of contemporary democracies. In the emerging countries, the delays in the judiciary system and the constitutional warranties, lead the citizens to believe that corruption is not prosecuted enough. The press strongly support these sentiments, presenting a true picture, but sometimes in an unfair manner. A responsible approach is to request the use of some neutral parameters in order to understand the real situation. The corruption we are considering is that related to the government. Therefore, the bigger the state operation is, the greater the opportunity for bribery. In 1989, 52% of the gross national product originated from state activity. The biggest companies in oil, gas, electricity, airlines, telecomniunications, water supply, post, railroads, steel, harbours, ships, etc. were owned by the state and administrated by public officials, sometimes with 10 times more employees than necessary. For example, the former state-owned Telephone Company in Argentina usually paid three to four times what the private companies started to pay the day after the takeover for telephone hardware or cables. Privatisation transformed the annual results of the company from billions of dollars of losses into hundreds of dollars of profit. Today, the economy in Argentina is market rather than state oriented. The providers of services, equipment or credits to the former state companies now deal with quality and prices instead of bribery. The influence of the government over the private business world has been dramatically reduced, which is why corruption has been minimized. Those comments regarding corruption have been made from the perspective of the impact of the phenomena into the business world and particularly in the decision making process for investment. Let me express that from an ethical point of view, neither a big or small act of corruption could be tolerated and we should strongly support all internal an external measures against this. However, we can say that corruption has been significantly reduced, and this change greatly contributes to the present economic stability. The Political Risk There are strong links that insure the Argentine economic frame against political changes or deviations. Most of the politicians running in the last general election have taken public promises to support the essentials of the system, and received approval of more than 80% of the voters who were afraid of instability, inflation or devaluation. Globalisation became a major and unavoidable limitation for populism or irresponsible political projects. Since 1990 telecommunications have been regulated by executives decrees and the sector is still waiting for a modern regulatory law, now in process in the Congress. Maybe the absence of a regulatory frame that limits them, and the control of a weak and unstable regulatory body were factors that allowed the ‘spring of telecommunications’ that occurred during the 1990s. Conclusion However I think that a telecommunications law is a strong requirement to ensure both certainty for the companies and guarantees for the customers. I also believe that an independent and stable controller is a prerequisite for a competitive market and for the customers’ protection. 1998 could be the year of the new telecommunications law in Argentina.
