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Modernized markets: Argentina and Chile take two different paths
Tele.Com / October 14, 1999

By Larry Luxner

The growth of wireless telephony is exploding in Latin America, giving users tremendous price breaks in countries with telecom infrastructures ranging from modern to intermittent. The transformation is most apparent in Argentina, where only nine years ago, people were lucky just to complete a call across town, and Chile, although it still has only 14 working phone lines per 100 inhabitants.

One hundred years ago, the national symbol of Argentina was the gaucho cowboy, sipping hot yerba mate from a silver flask as he looked out over the vast rolling pampas of wheat, cattle and endless blue sky. Today, Argentina's icon might well be the cellphone. Since 1991, well over two million people from Buenos Aires to Bariloche have signed up for wireless telephone service

Argentina, which enjoys a per-capita income of $8,000 -- South America's highest -- now also boasts one of the region's higest cellular penetration rates. If the legendary gaucho were alive today, he'd probably be using a cellphone too, now that competing carriers are suddenly racing to set up wireless networks in the still-underpopulated Argentine interior.

"Wireless growth in Argentina has been explosive, close to 200% a year," says Rolando Zubirán, president of Ericsson Argentina S.A., a key player in that race. "The overall cellular penetration rate has risen from just above 2% to over 6%."

"Many potential subscribers were skeptical because of the high costs of placing and receiving calls. Now that they don't have to pay [to receive calls], they're signing up," he said, adding that yet a third factor is the opening of the market to two new PCS operators. "This has motivated the incumbent carriers to launch a promotional campaign to catch as many subscribers as possible, to get hold of the market."

That explosive growth forced authorities earlier this year to introduce eight-digit phone numbers in Buenos Aires -- a city where most phone numbers had only six digits as late as 1990. Under the new National Centralized Numeration Plan, the city code for Buenos Aires has changed from "1" to "11" while in the southern half of Argentina (served by Telefónica de Argentina S.A.) a "2" has been added to all city codes and in the northern half of Argentina (served by Telecom Argentina S.A.), a "3" has been added to city codes.

Juan Villalonga, president of Spain's Telefónica, promises to invest over $1.2 billion this year to install 100,000 fixed phone lines, add 300,000 cellular lines and boost the number of pay phones by 35%. Villalonga, whose company has already invested $8.5 billion in Argentina, claims to support Argentine President Carlos Menem's plan to open the telecom sector up to competition by the end of 1999, saying "we are in favor of competition because our customers can only benefit from it."

Earlier this year, Telefónica inaugurated South America's highest pay phone on the western slopes of Mount Aconcagua. Situated 4,370 meters above sea level, the phone allows climbers and park staff to make local, long-distance and overseas calls via a satellite network; the shelter is linked to La Granja Teleport in Buenos Aires province.

Telefónica has also entered the trunking business through its Telefónica Comunicaciones Personales unit, which recently spent $26 million to buy Argentina Wireless Telecommunications, Radio Movil Digital and Radio Servicios. AWT owns the license for 80 channels in Buenos Aires and 200 more in the provinces. Major rivals in the trunking business are Nextel, Movlink and Starcom.

Meanwhile, Argentina's Secretariat of Communications has OK'd a series of measures that reduce domestic long-distance rates by 10% to 20%, and overseas long-distance charges by up to 63%. The decision, approved in November, deprives Telecom Argentina, Telefónica and long-distance carrier Telintar S.A. of some $180 million in long-distance revenues. The tariff reductions are part of Argentina's 1994 concession licenses which allow for cuts every November; this most recent adjustment is the last one before telecom deregulation takes effect at the end of this year.

Investments in the cellular arena are continuing, despite an economic slowdown in Argentina triggered by the recent currency devaluations in neighboring Brazil. Ericsson has already snared three orders totaling $193 million to double the capacity of existing analog AMPS and digital D-AMPS wireless networks in Argentina. The orders are from Miniphone, which covers the Buenos Aires metro area; Compañía de Comunicaciones Personales del Interior S.A. (CCPI) for northern Argentina, and Telefónica Comunicaciones Personales (TCP) for southern Argentina.

Together, the three form the Personal Communication National Network, which provides 800-MHz services to nearly a million subscribers, including all towns with at least 500 inhabitants. Roaming deals among the three will soon let subscribers continue to use their phones as they travel throughout Argentina.

Likewise, Lucent Technologies in April signed a $41 million deal with CTI Movil to provide CDMA for the first phase of the digitalization of its national mobile phone network; this phase includes the cities of Córdoba, Rosario, Mendoza, Mar del Plata, Tucumán, Paraná and Santa Fe. It also provides for the installation of a wireless intelligent network software platform that'll allow CTI to offer its customers Short Message Service and other value-added options.

Similary, a venture led by Millicom International Cellular has won a license to provide wireless data communication services in an area covering 90% of Argentina's urban population. MIC, using a 50-MHz-wide frequency range within the 3.4-3.7 GHz band, will focus on offering Internet access and bandwidth-intensive applications like high-speed data transmission. As of June 1999, MIC is already offering services in six key cities.

One of the largest telecom deals to date this year is British Telecom's purchase of a 20% stake in Argentine data transmission company ImpSat S.A. for $150 million. BT's investment is a critical component of ImpSat's ambitious ImpSat 2000 plan. "The project proposes the $2 billion development of a Latin American information fiberoptic highway connecting 170 cities over the next six years," says Pyramid Research, adding that BT's collaboration with other European telcos "enables Argentine and Latin clients access to European destinations with unified services, quality standards and billing, giving ImpSat a tremendous advantage over other domestically oriented Latin corporate service providers."

Yet it's hard to talk about data transmission when millions of Argentines are still phoneless. Aware of this paradox, the Menem government and the ITU have agreed to jointly establish "multipurpose community telecenters" that'll offer, among other things, telemedicine; cybercities and cyberprovinces; virtual education and libraries; development of the Internet in Argentina, and traveling demonstrations on its use and applications. The ITU says the $20 million project, modeled on the framework of its 1994 Buenos Aires Action Plan, will "bring the benefits of the Information Age to Argentines everywhere, from the remotest villages to the most crowded urban cores."

In Chile, the new $71 million steel-and-glass headquarters of Compañía de Telécomunicaciones 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 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, an executive with SBC International, which recently sold its 45% interest in the Startel mobile phone venture for $425 million to CTC. "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."

Chilean telecom regulatory agency Subtel says the number of cellular subscribers will jump from the current 800,000 at the beginning of 1999 to 1.5 million by Dec. 31, 1999, and to two million by Dec. 31, 2000 -- thanks to the approval in late January of tariffs based on the "calling party pays" concept. One operator, BellSouth, says it plans to double its subscriber base from 200,000 to 400,000 by year's end.

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%).

An Entel subsidiary, Entelphone, plans to boost its coverage from the current 50,000 fixed phone lines to 80,000 this year, expanding to three cities in the countryside. Until now, Entelphone has focused on the corporate market, offering service in the Santiago business districts of Maipú, Huechuraba, Providencia and Macul. Entel will reportedly invest $200 million this year, 60% of it going for mobile services, 25% for private services and 15% for transmission.

Leap Wireless International will boost its ownership of Chilesat PCS from 50% to 100%, by paying Telex-Chile $50 million for the half of Chilesat it doesn't already own. Chilesat, which launched commercial service in September 1998, has 315 employees and over 27,000 cellular subscribers.

In southern Chile, Telefónica del Sur says it's planning to expand to Concepción, Chillan and other cities in Chile's Region VIII. Owned by Grupo Luksic, Telefónica del Sur has annual sales of $64 million, profits of $13 million and 141,000 lines in service.

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. Thanks to the introduction of PCS, wireless services no reach 6% of the Chilean population -- a number topped in Latin America only by Venezuela and Argentina.

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 battle over the Internet is also heating up. CTC Internet wants to boost its share of the Chilean Internet access market from 38% to 50% -- in a business now dominated by rival Entel. CTC says it's aiming for 100,000 customers by year's end, up from the present 30,000. It already has 60% of the dedicated connection market, with 250 corporate clients.

At the moment, the chief barrier to greater Internet use is the high cost of PC terminals; as such, CTC wants to offer financing for equipment acquisition. Although it recently bought a 60% stake in Sonda, an information solutions and equipment distributor, CTC says it has no plans to acquire existing Internet service providers.

"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."

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