 | Issue: | Latin America IV 2001 |
| Article no.: | 9 | |
| Topic: | The Emergence of a New Post-Privatisation, Public Policy Agenda for Telecommunications in Latin America | |
| Author: | Professor Dr. Márcio Wohlers | |
| Title: | General Co-ordinator | |
| Organisation: | CELAET; UNICAMP – State University of Campinas Economics Institute | |
| PDF size: | 36KB |
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Article abstract
After a decade of privatisation of telecommunications in Latin America, three critical problems of the old telecommunications regime have been solved: the adverse political influence upon the business decisions of state-owned operators; the federal budget constraint on investments in the telecommunications sector; and the bundling of operations, regulation and enforcement in a single entity.
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As a result, very positive changes have been introduced: • The new private operators have freedom to make their own investment decisions. • These same operators have tackled the pent-up demand, generating rapid growth in the sector. • New regulatory frameworks have emerged, giving birth to independent and flexible regulatory agencies. Nonetheless, after the post-privatisation honeymoon, new issues have emerged with regard to the relationships between governments and the telecommunications sector. In addition, the international investment environment has changed, since the resources for financing telecommunications infrastructure expansion began to dry up in 1999, reducing Foreign Direct Investment (FDI) in the sector. New questions have also emerged: • How can a level playing field be created for fixed-line telephony? • How can the issues of digital exclusion be effectively addressed? • How, in parallel, can economic growth and the market economy be fostered by e-commerce? • How can e-government bring greater efficiency and transparency to government? • How can the trade deficit in electronics and telecommunications equipment be addressed by increasing domestic production? All these topics are on the agenda of all Latin American countries; the issue of domestic equipment production is especially relevant in Brazil. Brazil has an important industrial base and intends to be a continuing part of the global telecommunications production chain. Strong domestic demand, the presence of all major global equipment manufacturers, and local producers focused on niche hardware and software products, all justify Brazil’s ambitions. How can we create a level playing field in fixed-line telephony? Privatisation did not address the issue of fixed-line monopoly. In Spanish-speaking Latin American countries, monopolies of four to ten years were awarded to the new private owners, while in Brazil, the regulators establish a fictitious duopoly. Monopolies survived, as a trade-off, to ignite investment. Under conditions of pent-up demand, non-competitive market structures (monopolistic or quasi-monopolistic) can, indeed, attract substantial private investment. This gives operators solid cash flow projections and returns on investment. The trade off is that regulators imposed tough universal service and quality goals in exchange for these quasi-monopolistic market conditions. Cellular telephony faced a more competitive environment than fixed-line operations. In many countries, there was also competition in corporate services. In Brazil, domestic long-distance gained some intra-regional competition and a duopoly environment at the national level. It is predictable that problems would appear when the periods of guaranteed monopoly ended. And so they did. One of the issues is the timing of the ‘sunset’ of monopoly rights. In Brazil, the timing was clear since 1998, as part of the rules of privatisation: either the end of 2001 or the end of 2003, depending upon the ability of fixed-line operators to meet the universal service goals imposed upon them. The other critical issue is the conditions under which the new competitive environment will emerge. The Brazilian regulator, ANATEL, delayed for as long as it could the announcement of the new rules of competition. In August 2001, the Brazilian regulator finally announced the conditions for new players to obtain new operating licences for long-distance international, national and local services. The requirements are of two types: • To obtain some new concessions operators may be required to assume others. In practice, this means that to acquire a long-distance licence a local services licence will also be required and local service goals will have to be met; • The local licence has coverage requirements of one per cent of all major cities in three years. These rules were controversial and ignited opposition. Indeed, there is a shock of expectations. On the one hand, ANATEL argued that the local users needed protection, given the fact that the expected duopoly never took root. The incumbent fixed-line operators continue to hold strong market power; therefore, new coverage requirements are necessary. On the other hand, incumbents, new players and trade associations complained against the new rules. They all criticised the requirements, especially the one per cent of coverage in all major cities. They argued that, given the international crisis of telecommunications financing, the coverage requirements would discourage investment. ANATEL has agreed to soften the rules, but not to eliminate them. [Editor’s note: Since this was written, Anatel has announced that it will circulate new rules, for public comment, which ease the requirements] “In Brazil…as the fixed-network reached the neighbourhoods of the poor, these citizens gained access to basic telephone services, but the operators found that they could not pay their bills for lack of income… There is only so much that the democratisation of access to telephony can do to reduce income inequalities.” However, local competition cannot be equated only with the extent of the requirements for local penetration. Analyses prepared by the Latin American Centre for the Study of Telecommunications Economics (CELAET —www.celaet.com.br) demonstrate that local competition is a global issue whose roots depend on economies of scale and scope, and, as well, upon the economies of density and precedence existing in local networks. In industrialised countries, there has been intensive research on local competition. In France and Italy, energy and rail utilities have formed consortiums, leveraging their rights of way in alliances with equipment manufacturers who know the telecom business well. These alliances have rights of way that connect the facilities to end-users. In Brazil, the model of telecommunications reform created too much fragmentation among the different segments of the industry for this to occur. Brazil must encourage the type of utility company/telecommunications alliances that are common in Europe. How should digital exclusion, e-commerce and e-government be addressed? Digital exclusion (haves and have-nots) is a phenomenon present in both industrialised and developing countries. In the latter, however, digital exclusion is more dramatic. In the developing countries, digital exclusion is an integral part of a scenario of broader social exclusion of the masses that includes poor income distribution, lack of government resources to develop compensatory policies and severe disparities in access to technology between large corporations and small and medium-size businesses. In Brazil, an interesting paradox has resulted from the recent increase in the penetration of fixed telephony. As the fixed network reached the neighbourhoods of the poor, these citizens gained access to basic telephone services, but the operators found that they could not pay their bills for lack of income. How, then, can we think in terms of providing these citizens with IT tools and Internet access? There is only so much that the democratisation of access to telephony can do to reduce income inequalities. Digital exclusion has become a topic of real debate in Brazil. Organisations that support small enterprises are developing strategies for assisting these companies in becoming Internet-smart. Training in e-commerce is also taking place. Computer-training programmes are being created at all levels of the government for those in need. In addition, the Telecommunications Universalisation Fund (FUST), which collects a tax from telecommunications services, will soon begin to invest in Internet access for public schools, libraries and health centres. The Brazilian government is pursuing a broad initiative to use the Internet to facilitate access of citizens to the government (e-government). Nonetheless, for a country with the social and public administration complexities of Brazil, one must be careful. Policies to reduce digital exclusion cannot be isolated from broader social policies. Sub-utilisation, and other inefficiencies, could plague well-intentioned digital access promotion policies. For instance, computers might have to be locked up in schools, far away from the hands of teachers and students, because of the lack of security in school rooms. Teachers with access to computers may not be able to use them for lack of computer-training. Many of the communities that will receive expensive equipment to connect them to the Internet might have much more pressing priorities, such as for food, clean water and sewage treatment. The key to success here will be policy coordination. How should the issue of local production of hardware and software be addressed? The old telecommunications regime in Brazil was relatively successful in terms of industrial policy. There were three poles: (i) the Centre for Research and Development (CPqD), the national institute of telecommunications technology, which developed local technology; (ii) local manufacturers, who licensed the technology that the CPqD developed and who manufactured products; and (iii) the state-owned Telebrás telephone operating companies, who bought the products. The Tropico switching Centre, developed by the CPqD, is the most important ‘success case’ of these policies. Other two such successes are the locally developed payphone telephone cards and the local production of fibre-optic cables. The old industrial policy model, however, is dead. The causes are multiple: the growing complexity of digital systems, the new openness to international trade linked to globalisation and the privatisation of the telephone operating companies, which marked the demise of the old model. A new model to encourage local production is still in the making. FUNTTEL is a new fund for research and technological development. The fund receives resources from taxes on telecommunications services as well as from the government. FUNTTEL nurtures research at the CPqD and universities. The CpqD has also succeeded in maintaining its relationships with operators. In addition, the next-generation IP-based networks’ intense use of several kinds of equipment and software opens opportunities for local companies to address niches that their international competitors have not. Nonetheless, government incentives seem necessary—and they must show tremendous intelligence if they are to have an impact in today’s free trade environment and globalisation. New sets of incentives for public–private co-ordination to promote domestic production of hardware and software are necessary. Conclusion The scope of the new policy agenda is broad. The new agenda is not as powerful as the privatisation itself to attract mass media attention, but it is not less important. A powerful public sphere that openly debates the issues, nurtures policy-makers with a wide range of alternatives and keeps pressuring for solutions is as important as ever. We are in the centre of an information revolution—our region and our countries will be shaped by how we deal with the key issues of access to the new information-based economy.
