|Issue:||Latin America II 1996|
|Topic:||The STET Group in Latin America|
Obvious cultural affinities, the presence of well-established Italian communities and the business opportunities stemming from privatization and liberalization make Latin America one of the key areas for Stet’s internationalisation process. In addition to sales operations conducted by several companies in the group including Italtel, Finsiel and Nuova Telespazio, Stet has acquired either directly or through its subsidiaries majority or minority interests in a number of Latin American companies.
The group’s presence in Central and South America, which is especially significant in Argentina, Cuba, Brazil, Bolivia and Chile, is part of a broader strategy of internationalisation, the main goals of which are the establishment of global alliances, the use of Stet International as a vehicle for the acquisition of interests in foreign telecommunications operators and the provision of worldwide telecommunications services to multinational customers through TMI. The group’s internationalization has not been limited to the provision of services, but is also being followed by its manufacturing and installation divisions, which are headed by Italtel and Sirti respectively. In response to changing market conditions, the pace at which this strategy is being implemented has quickened in recent years. However, the current international vocation of the Stet Group is a long-standing tradition especially for Sirti, Italtel and Italcable (which has now been merged into Telecom Italia, but which was active in Latin America for over 70 years). The most recent strategic partnership transaction in South America is the purchase by Stet International of an interest of more than 16% in Entel Chile. This investment, which puts Stet International on an equal footing with Chilquinta – the current majority shareholder – was completed at a cost of $270 million, despite competition from such major operators as MCI, the U.S. long-distance carrier. The Chilean telecommunications market is already highly competitive. The Stet Group was chosen because of its commitment to strengthening the domestic presence of the largest local provider of long-distance services, while at the same time enhancing its presence on the international markets. The Chilean economy has expanded vigorously for twelve consecutive years, the country has no foreign debt, the government budget shows a surplus and all manufacturing and service industries are growing rapidly. Entel reported revenues of about $300 million and net income of about $25 million. In addition to providing long-distance services, it is also active in the fields of data transmission, cellular telephony, telex services and private networks for large customers in Chile and other South American countries. It has recently been awarded a license to provide local telephone services in the most important neighbourhood of Santiago, and is planning to develop nationwide wireless services. In the fall of 1995, Stet International edged out Telefonica to win the competitive bidding for the privatization of 50% of Entel Bolivia. This Bolivian company, whose net income totalled £30 million in 1994, controls domestic and international telephone traffic. It is the holder of one of two licences awarded to provide nationwide cellular telephone services, and also holds a paging license and a cable TV license. The acquisition of an interest in Entel Bolivia will be carried out by an injection of $160 million of new capital, as a result of which Stet International will hold a 50% interest and control a majority of the seats on the Board of Directors. Entel will therefore enjoy a strong capital base and have ample financial resources to fund a capital spending program which will be implemented in conjunction with local cooperatives. This will allow it to develop a market with extremely attractive potential. At present, telephone density is a low 3%, but long-distance traffic has been growing at an average of 20% for the last five years. Based on the experience acquired in other countries, where Stet has been operating for some time (Argentina and Chile in particular), this investment will generate important synergies at the group level. Furthermore, given the potential offered by Entel Bolivia, Stet is currently negotiating with other Latin American and U.S. operators who have expressed an interest in gaining access to the Bolivian telecommunications market. Argentina is undoubtedly one of the cornerstones of Stet’s operations in South America. The group has an 18.85% interest in Nortel Inversora, a holding company of strategic importance which, in turn, owns 60% of Telecom Argentina, the provider of basic telephone service in the North of the country, including Buenos Aires; 50% of Telintar, which handles international telephone traffic; 50% of Startel, which offers value-added services; 50% of Movistar, a company that went on stream in 1993 and now operates a cellular telephone network in Buenos Aires; and 100% of Publicom, a publishing company. Other group companies have also contributed to the establishment of a strong Italian presence in Argentina: Telecom Italia holds a 24.26% interest in Impsat S.A. (satellite services); Sirti owns 50% of Telsys (design and installation of telecommunications networks); and Italtel sells analog multiplexing telephone equipment, digital radio relays and telephone sets to Telecom Argentina and Telefonica Argentina. In addition, Italtel controls 48% of the capital stock of Transdigi S.A., a manufacturer of transmission systems, and supplies UT -line switching centers to Telecom Argentina. The Brazilian market also presents very attractive growth opportunities to the group. However, only limited inroads have been made thus far, owing primarily to restrictions on foreign investments in the field of telecommunications services. Stet’s main initiatives consist of joint ventures with local businesses. In particular, Sirti owns 48% of Construtel e Matricial, a leader in the design and construction of telecommunications networks in Brazil, and 37% of Batik which manufactures transmission equipment and small and medium-size switchboards. In addition Telecom Italia holds a 25% interest in Victori Comunicaçõaes, with the remaining 75% being divided equally among Grupo Globo, Grupo Bradesco and Victori Internacional. Victor Comunicaçõaes provides data transmission and paging services, in addition to installing, maintaining and managing telecommunications and data processing systems and equipment. In the Caribbean Basin, Stet International has acquired 25% of Citel, which in turn owns 49% of Etecsa, Cuba’s telecommunications operator. Stet is involved in managing the island’s telecommunications networks, with specific operational tasks. Conclusion Iridium is an important project on the cutting edge of technology that provides global voice and data transmission services through a network of 66 low-orbiting satellites. Stet holds a significant interest in Iridium and, consequently, can offer these services to European customers on an exclusive basis. It is also a shareholder of Iridium South America, which operates throughout Latin America. Lastly, Stet International owns 25% of Impsat Corporation, a company of the Pescarmona Group, which offers satellite-based data transmission for private networks, a field in which it is the market leader in Latin America. Impsat provides its services through local operating companies, which it has established in Argentina, Colombia, Venezuela, Mexico, Ecuador, Brazil and Peru.