Home Latin America III 1997 The Value of Telecommunications CompetitionIn Boosting Latin American Economies

The Value of Telecommunications CompetitionIn Boosting Latin American Economies

by david.nunes
C. Holland Taylor Issue: Latin America III 1997
Article no.: 5
Topic: The Value of Telecommunications CompetitionIn Boosting Latin American Economies
Author: C. Holland Taylor
Title: Chief Executive Officer
Organisation: USA Global Link, USA
PDF size: 32KB

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Article abstract

The driving forces of competition and advances of low-cost, high-speed telecommunications technologies are sweeping away ancient barriers imposed by excessive regulation, exorbitant monopoly rates and outmoded bilateral agreements. Reducing accounting rates to a cost-oriented level or abandoning the system altogether in favour of a competitive paradigm will usher in a new era which will boost the economies of Latin America, and thrust the region to the forefront of global competitiveness in the information age.

Full Article

Global fibre optic highways and a galaxy of new satellites will soon enable telecommunications users to communicate with anyone, anytime, anywhere at little or no cost. However, while the actual technology of providing telecommunications services continues to evolve rapidly, the regulatory structures, such as the international accounting rates regime, prevent society’s realisation of digital nirvana. These archaic regulations prevent individual consumers, .businesses, and the Latin American economy from reaping the full benefits of these technological advancements. Latin American countries are at the forefront of the struggle between the old outmoded monopolies and the expansion and development inherent in privatisation and liberalisation. While some countries, such as Brazil, Ecuador and the Central American countries, are struggling with the early aspects of privatisation and liberalisation, others, such as Mexico, Chile and Argentina are in the throes of advanced competition and development. The driving forces of competition and advances of low cost, high-speed telecommunications technologies are sweeping away ancient barriers imposed by excessive regulation, exorbitant monopoly rates and outmoded bilateral agreements. Alternative telecommunications methodologies, such as re-origination, private line resale and refiling allow progressive telecommunications organisations to circumvent the existing accounting rates system. The Market-Driven Paradigm In recent years, new market entrants in virtually every corner of the world have utilised alternative calling procedures to secure entry to previously closed, monopolistic markets – leveraging technology and free market principles to compete with legacy carriers. Callback, the most publicised of alternative-calling procedures, functions like a laser: from a single switch in the US or UK. Callback companies have been able to penetrate markets world-wide – to become the first truly global providers of voice telephony service. Enormous customer demand for call-back has beep fuelled by high PTT collection rates, the absence of discounts for large volume customers, and often poor customer-service relations. Alternative carriers embody a revolutionary market-driven paradigm, offering reduced costs to end users, as well as expanding the nature and quality of services offered. Within monopolised telecommunications, a handful of individuals decide the telephony fate of a nation. In a free market, economic decisions are made by millions of individual consumers, each pursuing his or her perceived best interest in light of the best available knowledge. An Irresistible Tide of Change Despite the fervent desire of Some PTTs and Public Telecoms Operators (PTOs) to cling to the comfortable ways of the past, global market liberalisation is facing three irresistible forces, all converging simultaneously: · technology, in the form of low cost digital fibre optics and cheap, readiily available switching capacity, which enables new market entrants to process millions of calls at an extremely low per port, per minute cost; · competition in North America, Europe, Australia, etc., which forces carriers in these markets to offer wholesale domestic and international transport services at a price close to actual cost-stimulating, resulting in the export of relatively inexpensive dial tone to less competitive markets; · the economic necessity for every nation to secure a low cost telecommunications service, in order to become or remain competitive in today’s global economy. Widespread industry recognition that these converging forces cannot be checked has led to a fundamental change in the global telecommunications industry over the past 2 years. Competition in liberalised markets will increase substantially in the months and years ahead. Legacy carriers face a crisis in their need to quickly rebalance tariffs and achieve economic efficiency amidst an assault by new technologies and competitors. Thus, the single most important thing an incumbent operator can do to ensure its future competitiveness is to lower its existing cost structure without delay. A Telecoms Free-Trade Zone Historically, domestic service and institutional inefficiency have been “cross-subsidised” by maintaining high international collection rates. In a world of global competition, this becomes untenable. The proliferation of knowledge and competition virtually ensures that artificially high accounting rates will be circumvented, either by refile or other forms of creative bypass. Come January 1, 1998, most member states of the European Union, North America, and Australia and New Zealand will constitute a telecommunications free-trade zone in which private line voice traffic that enters any of these regional markets can automatically flow to the others – outside the accounting rate system. Convergence of Voice and Data Systems Voice capability over the Internet highlights the artificiality and extreme vulnerability of the traditional accounting rates system. In many parts of the industrialised world, Internet access is priced artificially low, while long distance collection rates for Public Switched Telephone Network (PSTN) service are set artificially high. As soon as Internet telephony reaches an acceptable level of quality and convenience, operators will be forced to adopt cost-based pricing of PSTN voice telephony service – acknowledging, in economic practice, what telecommunications engineers have stated for years: that voice traffic itself is no longer anything but a series of digital bit-streams (i.e. data), circling the globe at the speed of light. Infrastructure Drives a Healthy Economy A healthy economy is necessary to fund the build-out of the telecommunications infrastructure, yet the infrastructure is essential to invigorate the economy. The two factors stimulate each other. In fact, the most effective way to accelerate build-out of the infrastructure has proved to be liberalising and privatising telecommunications itself. In Argentina, according to Mauricio Bossa, Director of International and Institutional Issues in the country’s Ministry of Telecommunications, privatising “permitted an enormous expansion of the quality and quantity of services, which would have been unthinkable under the old state monopoly”. Monopolies traditionally have a difficult time attracting investment income, while privately held enterprises competing in open markets can attract enormous amounts. Extra capital allows more rapid build-out of the infrastructure, providing the backbone for access to global markets. A New Era In many nations, the benefits of switching to a market-driven telecommunications industry are far-reaching and profound. Venezuela, which privatised its telecommunications sector in 1991, experienced a resulting US$1.1 billion upgrade in the nation’s telecommunications infrastructure – more than had been spent during the previous 20 years. Hundreds of thousands of new customers were added as the speed of provisioning new lines increased dramatically. In general, countries whose policies encourage the modernisation, growth and diversity in their telecommunication industry are experiencing greater economic development. The liberalised market in Chile has faltered since its conception in 1994, however, competitive lower rates have led to increase telecommunications density (15%), and a substantial increase (42% in 1996) in international telecommunications traffic. The success of privatisation, as evidenced in Venezuela and Argentina, provides a beacon for Latin American telecommunications reform. While privatisation works as a first step, it does not guarantee the benefits of a fully competitive market. Whether or not legacy carriers move towards privatisation or full liberalisation, competition for telecommunications markets will increase substantially in the months and years ahead. With the ability to provide inexpensive service anywhere in the world, alternative carriers are now introducing competition to closed markets, and are poised to become dominant players in the telecommunications industry of the 21st century. The logic of reducing accounting rates to a cost-oriented level (or abandoning the system altogether as more and more countries adopt a competitive telecommunications paradigm) will soon replace the artificiality of an archaic regime with the authenticity and purity of a virtual commodity exchange in which digital bit-streams/seek and find the most economically efficient route to their global destination. Conclusion Competition demands the resulting reduction in underlying operator costs be passed along to end-users. This inevitable development, once embraced by members of the Latin American community, will usher in a new era of cost-based telephony service, which will boost the economies of Latin America, and thrust the region to the forefront of global competitiveness in the information age.

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