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Colombia: Telecom Sector Opens Way for More Players
The Wall Street Journal / July 18, 1997

By Larry Luxner

BOGOTA -- The Colombian telecom market is poised for enormous growth, with $3 billion to be invested between now and the end of 1998 thanks to "flexible regulatory policies and the pending liberalization of the long-distance market."

That's among the conclusions of a 200-page report issued by International Technology Consultants of Bethesda, Md. The survey notes that demand for both domestic and overseas long-distance could grow at 20% a year due to the Samper administration's decision to open up bidding for two long-distance licenses as early as this August, luring business away from Colombia Telecom, the government's 50-year-old phone monopoly.

Despite bitter labor opposition to the plan, which forced a delay in bidding earlier this year, "competition in the domestic long-distance market could begin in late 1997, followed by competition in the international long-distance market in early 1998," says the ITC study. "This development will certainly bring the needed investment and technology base that Colombia has lacked."

Global One -- a venture between Sprint, France Telecom and Deutsche Telekom -- has joined Bavaria S.A. and the local phone companies of Medellín and Cali in bidding for one license. The other consortium vying for a license groups MCI, Grupo Sarmiento, El Tiempo newspaper and Empresas de Telécomunicaciones de Bogotá (ETB). GTE Corp., Bell Canada International, Japan's Marubeni and Spain's Telefónica have also expressed interest.

Arely Castellon, vice-president and general manager of Global One in Reston, Va., estimates the buying-in price per bid at $150 million.

Yet things could change drastically now that it appears local and long-distance providers may be able to compete in each other's turf -- much the same way MCI in the United States can now offer local phone service and traditional Baby Bells like Bell Atlantic and Nynex can go after long-distance dollars.

In April, a newly formed venture, Capitel, began carrying local phone calls in Bogotá -- marking the inauguration of competition in Colombia's local access market and effectively ending the monopoly long enjoyed by ETB. Capitel is a strategic alliance between Ericsson, Northern Telecom, Siemens and Colombia Telecom. The Capitel network, valued at $513 million, plans to install 550,000 lines; it also foresees operating 14 switching stations, 550 remote concentrators and 10 administrative buildings.

Likewise, ETB could soon be permitted to offer long-distance service -- breaking Telecom's monopoly much more quickly than anyone had envisioned. This follows a June 11 ruling by the Superior Tribunal of Bogotá, in which the court sided ETB's complaint that its right to equal economic opportunity had been abridged.

"We thought that the decision would be made to open the long-distance market to competition, and there would be two new licenses granted to the highest bidders, and that these two new operators would compete with Telecom, who would be guaranteed a license by law," says Carlos Acevedo, a telecom specialist with the Colombian Embassy in Washington. "Now we don't know what's going to happen."

As of year-end 1995, Colombia had 4.9 million lines in service, translating into a "teledensity" of 14.1 per 100 -- well above the Latin American average. Colombia's cellular network is growing even faster, with cellular penetration now at 0.25% and the total subscriber base at over half a million.

Earlier this year, Sweden's Ericsson won a $75 million contract to upgrade the public telephone networks of Bogotá and Medellín, a deal that also includes SDH transport network solutions and AXE switching equipment.

Michael Kühner is vice-president of Ericsson de Colombia S.A., which has been operating here for over 100 years. He says 50% to 60% of Colombia's 500,000 cellular users live in and around Bogotá, with the Caribbean coast accounting for 25% and the Pacific coast the remaining 25%.

"Today Colombia is a digital market. They run on the latest standards," said Kühner. "There are two reasons this market is so strong. First, the fixed network is not up to date. Also, it's very expensive to get a fixed line, around $600. You have to wait around half a year for a phone. So the cellular industry is a hot market."

In the beginning, he said, it cost $1,500 just for a cellphone and activation. Now that cost has dropped to $125. Average monthly bills still come to $100-180 a month, which is higher than Colombia's monthly minimum wage.

Kühner concedes that "snob appeal and status" still have a lot to do with cellphone ownership, though he's seeing more business usage lately.

"It's very common here to walk in a restaurant and put your phone on the table so everyone else can see you have a cellphone," he said. "If normal communications were established, however, it would not be a status symbol. People are now buying phones for security, in case they're robbed or in an accident."

Foreign firms are also investing in other areas of Colombia's telecom industry.

In May, Emtelco -- a commercial service provider made up of Empresas Públicas de Medellín and Empresas Municipales de Cali -- inaugurated one of Latin America's first commercial ATM (asynchronous transfer mode) broadband telecom networks. The system was furnished by Northern Telecom, and enables Emtelco to offer its customers an Integrated Services Broadband Network (ISBN) and value-added services including voice, data and video, interconnecting users not only within Colombia but worldwide.

"This project puts Emtelco at the forefront of Latin America's networking services," said Kevin Bowyer, group vice-president at Nortel's Caribbean and Latin American region. "This world-class network will offer the latest in ATM technology to government, businesses, and end-users in general, helping Colombia take a major step into the information era."

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