 | Issue: | Latin America II 1999 |
| Article no.: | 10 | |
| Topic: | Telecommunications Liberalisation Process in Colombia | |
| Author: | Margarita Fernandez | |
| Title: | Consultant | |
| Organisation: | Price Waterhouse Coopers, USA | |
| PDF size: | 20KB |
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Article abstract
Colombia is following the worldwide trend to liberalise telecommunications sectors and privatise government-owned telephone monopolies. However, unlike most other countries, the country has chosen a different path. What remains to be seen in Colombia is whether competition and revenue sharing agreements are enough to make state-owned entities more efficient, and competitive. Or does it take privatisation to increase their efficiency? Although it is too early to tell, competition, or the simple threat of it, may be sufficient to improve efficiency and productivity in smaller operators, especially local ones.
Full Article
Colombia is following the worldwide trend to liberalise its telecommunications sector and privatise government-owned telephone monopolies. However, unlike most other countries, Colombia has chosen a less travelled road. What is this road and where does it lead? Different Path There are two reasons why the path is different: · Colombian regulatory authorities have permitted competition at a local level, prior to privatising government-owned telcos and prior to permitting competition in long distance services. · Colombia’s competition scenarios are unlike any other as, not only are state-owned companies competing against privately owned ones, or against companies of mixed ownership (public-private ventures), but they are also competing among themselves to offer comparable services to the same customers. Is this new and unusual type of competition likely to make Colombia’s state-owned telcos more efficient and ultimately beneficial to the consumer? And will privatisation of the state-owned entities prove to be a prerequisite for a more efficient sector? Only the passage of time will provide the answer to these questions, until then let’s take a closer look at the situation today. Long Distance The capital of Colombia, Bogota, has more than 7 million inhabitants in its metropolitan area and a penetration rate of 31 lines per 100 inhabitants. Historically the Empresa de Telecomunicaciones de Santa Fe de Bogota (ETB) had exclusivity in delivering local telephony services and until 1998 Bogota’s inhabitants did not have a choice of a long distance provider due to Telecom’s exclusive status as the sole long distance provider nationwide. Since December 1988, Bogota’s inhabitants can select among Colombia’s three long distance providers licensed to operate in the capital (ETB, Telecom and Orbitel). The choice of long distance provider is not only on an account basis but also on a call by call basis, by dialling assigned access codes. Furthermore, local services are now offered by two other carriers in the Colombian capital: EPM Bogota and Capitel. ETB has only recently been authorised to offer long distance services. Telecom, the long distance incumbent and formerly exclusive international and long distance provider, has repeatedly failed to embark on its privatisation plans due largely to challenges from labour unions and politically motivated groups. Orbitel, the third long distance alternative, is a ‘mixed’ company, owned partly by Empresas Publicas de Medellin (EPM), the incumbent local service provider in Medellin, Colombia’s second largest city. In addition to EPM who owns 50% of Orbitel, two of Colombia’s most influential financial groups, the Sarmiento Group and the Valores Bavaria Group, each hold a 25% stake in Orbitel. Some of the most visible effects of this newly competitive environment have been escalating marketing schemes, catchy tunes and recognisable public figures promoting access codes. But does the average Colombian still pay high rates for long distance calls? Is quality service provided? Are Colombian consumers pleasantly surprised by efficient customer care systems? While long distance rates were among the highest in Latin America until 1998, they have experienced reductions as a result of competition. Telecom launched a brief reduced rate campaign prior to the ETB and Orbitel entrance to the market; and, upon entering the market, ETB and Orbitel both offered rates below those of Telecom. However, Colombia’s telecommunications regulator, the Comision de Regulacion de Telecomunicaciones (CRT), has set limits on long distance tariff reductions to no more than 20% relative to 1997 rates (40% for international long distance) until the end of 1999. These limits were partly set to avoid a situation similar to what occurred in Chile, where the market’s reaction to open competition resulted in a dramatic fall in prices which ultimately threatened the existence of some of the new operators. Local Services Competition to provide local telephone services in Colombia was authorised in 1990 and began in earnest in late 1995 when the threat of imminent liberalisation of the long distance sector, plus the threat of privatisation, prompted Telecom to launch its Telecom 2000 program as a way to diversify away from long distance services. Although competition has not fully developed to the extent where the incumbent operator has lost it’s majority share in the market, the numbers seem to be changing daily and point to significant improvement in service delivery, sometimes sparked by the simple fear of competition. To date, cities like Bogota, Barranquilla and Popayan have competing operators, and the numbers appear to be on the rise. In Bogota, local telephony services are now offered not only by ETB, but also by Capitel (a joint venture between Telecom and several telecommunications equipment suppliers, among them Siemens, Nortel, Alcatel and Ericsson) and by EPM Bogota (EPM’s subsidiary licensed to provide services in Bogota). ETB, with its 1.89 million lines, remains the dominant carrier with 88% of the market, while Capitel and EPM Bogota have approximately 250,000 and 40,000 lines, respectively. With comparatively smaller networks it is no surprise that Capitel and EPM Bogota only enjoy 11% and 0.4% of the Bogota market to date. All in all, how has new competition in local services benefited the consumer? Is there real competition? In Colombia local tariffs have been historically low and subsidised by long distance tariffs. Furthermore, because local tariffs are classified into 6 different economic ‘strata’ (according to purchasing power), additional cross subsidies exist whereby the higher strata (i.e. generating higher revenues per line) command higher rates than the lower ones. These cross subsidies impede further tariff reductions. In addition, CRT regulations limit tariff increases by incumbent local operators with more than a 60% share of the market and thus indirectly regulate new entrants who wish to compete against incumbent operators. Colombia’s new local providers distinguish themselves through promotions that waive connection fees, reduce monthly fixed fees and/or other charges. They also offer better customer care, promising a quicker and more efficient service. A positive example of how the threat of competition can spark increased efficiency is evident in the southern city of Ipiales, where historically services have been offered exclusively by Tele-Obando. Although Telecom is now authorised to provide local service in that area, it explored the possibility of servicing the area but was prevented from delivering service by local interests. Responding to the threat of a competitor however, the incumbent, improved its customer care program and its operational efficiency in very tangible terms. Previously, it took months to have a line installed, but it has now been reduced to a few days. Conclusion What remains to be seen in Colombia is whether competition and revenue-sharing agreements are enough to make state-owned entities more efficient and competitive. Or does it take privatisation to increase their efficiency? Although it is too early to tell, competition, or the simple threat of it, may be sufficient to improve efficiency and productivity in smaller operators, especially local ones. This is more and more likely to happen now that long distance services are open to competition and the local loop takes on new importance as a source of customers. In addition, as new services, such as Internet connections are added to old offerings, and the convergence of telecommunications, entertainment and media takes on added momentum, securing the local loop directly is likely to increase the chances of an operator’s future access to subscribers on a national level. Consolidation among Colombia’s more than 30 telcos is likely to emerge as a result, the smaller regional companies most likely to be absorbed first. However, larger companies such as ETB and Telecom will have to re-invent themselves and prove to be adept at selling their services effectively to subscribers, old and new. This means shedding old habits quickly and this is no small feat.
