The Wall Street Journal / September 20, 1996
By Larry Luxner
SANTIAGO -- The new $71 million steel-and-glass headquarters of Compañía de Teléfonos de Chile S.A., a 32-story skyscraper overlooking Santiago's Rio Mapocho, resembles a rocket launching pad or a giant cellular phone, depending who you ask.
Either way, Chile's tallest building -- set for completion next month -- is a fitting tribute to telecommunications in a country that despite its geographical isolation, boasts Latin America's best phone network and some of the world's cheapest long-distance rates.
"Chile has the most competitive telecom market in the world," says Wayne S. Alexander, president of SBC International Chile, which recently paid $350 million to acquire a 49% stake in VTR S.A., a conglomerate with interests in cellular telephony, cable TV, long-distance and local phone service. "We have a growing middle class and a robust economy, and Chile will become of on the first countries in Latin America to develop a market for interactive services."
Nevertheless, most Chileans still don't have even basic phone service. At the moment, Chile has only 14 working lines per 100 inhabitants, according to VTR chairman and CEO Jorge Salvatierra; that puts it behind Uruguay and Argentina in terms of South American teledensity.
As far back as 1978, the military regime of former President Augusto Pinochet considered privatizing Chile's phone monopoly, and in 1992 finally began the liberalization process with the Telecommunications Policy Act. The resulting multi-carrier system, which allows users to select the company of their choice for both domestic and international long-distance calls, "has created a feeding frenzy among the nearly dozen licensed operators" in Chile, according to the International Institute of Wireless Communications.
At last count, CTC has a 95% share of the local telephone market, while the long-distance market is dominated by Entel (38%), CTC (23%), Chilesat (15%) and VTR (8%).
Meanwhile, Chile's market for telecom equipment and services stands at nearly $1 billion, with annual growth over the next five years projected at 20-25% -- three times the overall growth rate. Between 1993 and 2000, CTC alone will have spent $2.6 billion to install three million new phone lines. The Chilean phone network is already 100% digital, and carriers are tripping over themselves to install synchronous digital hierarchy (SDI) fiberoptic networks from one end of Chile to the other.
"It's one of the most open systems in the world," says Dean Alexander, director of Grant Thornton International's business center in Santiago. "Chile is being used as a testing ground for liberalization of the telecom industry. It's very, very competitive."
So competitive, in fact, that recent price wars have caused long-distance rates to the United States to dip as low as 10 cents a minute -- compared to the $3-a-minute charge in neighboring Argentina, which has among the most expensive phone rates in the world. For that reason, ads for callback companies -- so prevalent in the rest of Latin America -- are virtually non-existent in Chile.
But the real battle is in cellular telephony. Chile has more than 140,000 cellular subscribers, up from only 38,000 in 1991. Penetration has already reached 1.03%, topped in Latin America only by Venezuela and Argentina.
VTR, though it will soon compete with CTC in the local phone market, recently signed a $700 million nationwide joint venture with CTC. The network, known as Startel, will be Chile's first fully digital cellular system, giving it an advantage over Chile's two other cellular providers, BellSouth Celular in Santiago and Telecom (owned by Motorola and Entel).
At the same time, Hewster Servicios Intermedios (HSI), whose parent, InterAmericas Communications Corp., already operates a 100-km fiberoptic network in Santiago, will soon be providing 38-Ghz wireless local loop services over five frequencies in the Santiago area, home to a third of Chile's inhabitants and nearly all of its multinational companies. And several providers are eagerly looking to personal communications services (PCS).
Predicts IIWC: "The recent slow growth of cellular services, which is largely attributable to the widespread availability of basic main lines in urban areas and to the maturity of the cellular market, may provide an impetus for PCS growth. With its proposed inexpensive, high-quality service offerings, PCS could become the most dynamic segment of Chile's wireless communications market in the short and medium term."
The government's Subsecretaría de Telecomunicaciones (Subtel) recently announced -- after beating back several court challenges brought by competitors -- that in October, it would auction off three nationwide PCS bands now being used by the police and armed forces. Service could start by early 1997, say observers.
"The telecom sector in Chile will continue to expand for a number of reasons," says Alexander, "including a lack of market entrance barriers; convenience for multinationals world-wide to set up their operations in Chile to manage the Latin American region; continuous upgrading of existing equipment and networks; establishment of strategic alliances between foreign investors and local partners, and the willingness of Chileans to adopt state-of-the-art technologies."
Perhaps the most dramatic example of this is Chile's efforts towards developing interactive TV -- a rarity even in the United States. CTC plans to become a huge multimedia outlet with the ability to provide video conferencing, home shopping, home banking, video-on-demand and distance learning services within four to five years.
CTC's $140 million Multimedia Pilot Project, as it's code-named, involves the wiring of half a million homes in the Santiago area alone, and the installation of 12,000 kilometers of cable throughout the country. The first of four phases will offer pay-per-view and basic segmented cable (packets of channels oriented towards distinct socio-economic groups).
Later on, CTC hopes to initiate Phase II, which will include tele-education, video games and digital music. The third phase, planned for 1998, will offer "near video-on-demand" and interactive games. The fourth and final phase, set for 1999, will include telemedicine, full video-on-demand, home shopping and high-definition TV.