TelePress Latinoamérica / November 2001
By Larry Luxner
On Nov. 27, mountainous, landlocked Bolivia -- one of Latin America's poorest countries -- will throw its telecom sector wide open to competition, in a dramatic effort to improve quality, bring down prices and attract foreign investment to a stagnant economy.
The market opening has been in the planning stages for six years, ever since Nov. 27, 1995 -- the day Telecom Italia paid $600 million for a 50% interest in state-owned Entel, in what was widely seen as Bolivia's biggest and most successful "capitalization."
To prepare for the onslaught, the country's Superintendency of Telecommunications (Sittel) last month lengthened all Bolivian telephone numbers from six digits to seven, and is putting a system into place that allows customers, as of Nov. 27, to choose their long-distance provider every time they place a call.
Guido Loayza, chief of Sittel, said international long-distance rates will immediately plummet by around 35% as a result of the market opening, which he says could also put out of business many of the 14 telephone cooperatives that have long controlled Bolivia's local telephone market.
"We thnk the monopolies have always been inefficient, whether they be foreign investors or cooperatives," he told us during a recent interview here. "So we will see some nice surprises with the coops in competition. For Bolivia, it's a new culture, because Entel and the coops have lived all their lives as monopolies."
Loayza said six or seven companies have applied for permission to offer long-distance services. The biggest of these is AES Communications Bolivia, a unit of the Virginia-based energy giant which already has telecom ventures in Brazil and Venezuela. In Bolivia, AES will spend upwards of $90 million to offer domestic long-distance, international long-distance, high-speed Internet access and data transmission, as well as wholesale capacity to other companies routing traffic between Brazil and the United States, and vice-versa.
"Even though Bolivia is a very small market, it's virgin," says Richard Ades, executive vice-president of AES in La Paz. "You have Entel, and that's it. They've had the monopoly for six years, and local telephony is handled by very small local cooperatives which don't have the capital resources for infrastructure investment. Overall, the operators give very poor-quality service."
He adds: "The big problem here is the size of the market. But if you have a regional strategy, that's a huge market which nobody has looked at. And it's tied into integration."
AES recently signed a strategic agreement with Cotel, the cooperative serving La Paz; it alone accounts for about 40% of Bolivia's local telephone market. The deal gives Cotel a 15% stake in AES Communications Bolivia, in exchange for Cotel's 165,000 clients.
"Cotel is in shambles. It's one of the worst-run cooperatives in Bolivia, but it's the largest," said Ades. "And since they don't have any money to invest in developing long-distance or Internet, they can use our services. They will benefit from revenues and profits from our business, and will give them the opportunity to go national. When the market opens up, all these coops have to start competing not only in their own cities but nationally and internationally. If they don't, they'll die."
Just as Cotel has signed up with AES, Cotas -- the coop serving Santa Cruz -- has joined forces with ITXC, a voice-over IP provider. Likewise, Cotemco, the coop serving Cochabamba, has forged a partnership with Western Wireless. Together, those three coops represent 80% of total revenues. The rest are much smaller, and the tiniest of them serve only 1,500 or so customers. Analysts predict that many of these coops will disappear as prices come tumbling down.
Peter McFarren, a La Paz-based consultant who's currently working with the OAS on a project to bring Internet access to villages in the Bolivian interior, says competition in the telecom sector is long overdue.
"Some of the coops have been handled like private fiefdoms. They're incompetent and corrupt," he says. "Cotel is a prime example, with cost overruns, kickbacks and all kinds of not-so-kosher things. I think the market should have been opened years ago."
At the moment, Bolivia has 600,000 mobile and 500,000 fixed lines in service, making it one of the only countries in Latin America to have more mobile customers than fixed-line customers.
The reason for this is simple. The only way to get a phone line here, traditionally, has been to buy shares in one of the coops. At $1,500 per share, that effectively put phone service out of the reach of all but the wealthiest Bolivians.
But then the advent of cellular telephony changed that. Fierce competition between Millicom subsidiary Telefónica Celular de Bolivia S.A. (Telecel), which began offering mobile service in 1991, and Entel Movil, which entered the mobile market in November 1996, has driven prices down dramatically.
"To have a cellular phone in 1996, you had to pay between $1,500 and $2,000 just for the handset," said Juan León Cornejo, public-relations manager for Entel. "And tariffs were in dollars for calls received and made. It was a thing of luxury, in a country with an average per-capita income of $1,000. Now you can buy a cellphone for less than $60, and the tariffs are in bolivianos. Now you don't pay for calls received, only for calls made."
Today, Entel and Telecel each have nearly half of the mobile market, though each company claims to have 55%. A tiny sliver of the pie held by a third company, Nuevatel, which is a newly formed partnership between Western Wireless and Comteco. None of the operators interviewed would reveal their average revenue per subscriber (ARPS), though it's known that ARPS has fallen dramatically since cellular service was introduced 10 years ago.
"As the economy has gotten weaker and weaker, people have migrated from post-paid toward the prepaid cards, so revenues have dropped dramatically, even though the subscriber base has gone up," Ades explained. "That's particularly true of Telecel and Nuevatel. At the same time, the fact that you have to purchase a share in one of the coops to get a line has been a tremendous barrier to the growth of fixed lines. But this will change with the market opening, and that's what we're banking on."
Donal Lynch, executive president of Ericsson de Bolivia, has done business with both major cellular companies, providing analog and digital infrastructure to Telecel, and both TDMA and GSM networks for Entel under a $36 million contract signed last year. He says GSM will let Entel offer such value-added services as SMS and WAP-based applications.
"These ventures with the coops will help spread the base further, but whether it'll help with ARPS is difficult to say. I don't think there's a vast untapped market in Bolivia ready to spend more money per minute. So it's normal that ARPS drops as you increase the number of scubsribers, but it's in line with the economic situation at the moment. That's the main issue."
Ades says that with competition, "there could be a tremendous jump in fixed lines once prices drop and services improve." Within two years, he predicts, Bolivia could easily have two million lines in service.
As a result, AES has grown rapidly here. Nine months ago, the company had 20 employees; today it has 150. The company has already invested $20 million of its own money in Bolivia, and plans to invest another $20 million in the short term. Ades says this is money well spent.
"This market has a lot of potential. Bolivia within a couple of years will probably have one of the best telecom infrastructures in Latin America," he said. "The beauty of this country is that it's so far behind, that you're not really building onto it. You have to eliminate it and start from scratch. And when you start from scratch, you're obviously putting in the latest technology."
Adds Ana M. Asmaeil Alcoreza, executive president of AES Communications Bolivia: "We'll be able to offer the same services as Entel, and with much better technology. What they purchased six to ten years ago is obsolete by now."
Yet Entel's León claims that his company is the only one in South America using both TDMA and GSM, and was the first Bolivian operator to offer national roaming. By the same token, he says, Entel will be the technology leader when it comes to long-distance.
"When Entel was capitalized, it didn't have one meter of fiberoptic cable. Now we have 3,200 kilometers of cable connecting the seven principal cities of Bolivia with Argentina, Chile and Peru," he says. "Entel has the best technology infrastructure and coverage in the country. We have financial resources and another $300 million to invest, depending on market conditions. We're not afraid of the market opening; we've had six years to prepare for this."
Entel's chief rival, Telecel, has invested $120 million since beginning operations, said the company's executive vice-president, Laura Ruth Schneider. Last year, the company had $47 million in revenues and $1 million in profits. She says about 80% of her clients are prepaid, though she wouldn't discuss ARPS, saying only that "after so many years, you start penetrating the lower end of the market. The cost of handsets is droping. You have to subsidize."
Schneider says Telecel -- 40% of whose customers use analog technology -- will now invest $10 million to penetrate the Bolivian long-distance market, as well as $14 million to expand mobile coverage.
"Our main business is mobile. Long-distance will be a value-added service," she says. "We have 329,000 customers who use Entel every day for long-distance. Now I want them to choose my network, and Entel is going to lose because we can offer rates that will be 50% lower than theirs."
In the meantime, Telecel is negotiating with Cotas over the possibility of forming a mobile virtual network operator (MVNO) -- a concept that doesn't really exist anywhere in the world yet.
"We will be the host, and they will be the virtual. They will be using our network elements and switches. They will provide their own marketing and numbering plan, billing and customer service," said Schneider. "We offered that to all the coops back in February, and the only one that showed any interest was Cotas. The other ones didn't understand the concept, and now it's too late for them."
Schneider says Entel's status as a monopoly long-distance provider has allowed it to unfairly cross-subsidize its mobile operations to the detriment of Telecel -- a situation she blames squarely on Telecommunications Superintendent Loayza.
"He's God and the devil at the same time. He has more power than a minister here," she says. "Why are big long-distance companies like AT&T and MCI not coming to Bolivia? Because of the legal insecurity. Our main problem is not Entel. Our main problem is the one who regulates the market. Under a monopoly, you need a regulator, otherwise the monopoly can abuse. Under competition, you don't need a regulator. Supply and demand regulates the market."