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Colombia: Difficult path to privatization
Tele.Com / October 16, 1999

By Larry Luxner

Colombia, the second-most populous nation in South America, is poised for enormous growth in the telecom sector -- despite the country's reputation for kidnapping, drug-trafficking and political violence.

According to a report issued in late May by Pyramid Research, tariff rebalancing, coupled with main line growth, should drive Colombia's local basic service revenue market from $622 million in 1998 to approximately $1.6 billion in 2003.

"While the total average subscriber bills will increase in absolute terms over the five-year forecast period, local service revenues will also increase vis-a-vis long-distance revenue, given the simultaneous decrease in long-distance tariffs," says Pyramid. "Between in 1994 and 2003, local services revenues will increase from 63% to 78% of the total average monthly bill for residential users. The change will be even more dramatic for business subscribers, increasing from only 20% of average bills in 1994 to roughly 40% by 2003."

As of year-end 1998, state-owned Empresa de Telecomunicaciones de Bogota (ETB) maintained over two million lines in service, with 87% of the Bogota local market and 31% of all the lines in service in Colombia. In addition, ETB purchased a long-distance license in 1997. Last year, it launched long-distance service using the 007 access code.

Yet efforts to privatize ETB are running aground. In mid-May, the telco announced it had temporarily suspended the privatization process because of a poor investment climate and unresolved interconnection problems with Colombia Telecom, the country's dominant long-distance provider. The lack of an agreement between the two utilities would in effect prevent most of Bogota's residents from being able to place calls through Telecom's long-distance network.

"The postponement of the ETB privatization follows several failed attempts to privatize incumbent Telecom, each thwarted by the actions of powerful labor unions," says Pyramid analyst Andrew Elrick. "Although this postponement was not due to union pressures, it nonetheless demonstrates the overwhelming dominance of state interests in Colombia's telecom sector."

Three out of every 100 Colombians today use cellphones. By 2002, the advent of new technologies and competitors will have pushed that number to seven out of 100 -- giving Colombia one of the highest cellular penetration rates in Latin America.

Thanks to the introduction of pre-paid services, initial start-up costs including the price of a lower-end handset have now fallen from $800 per line in 1994 to around $100. Meanwhile, average usage per subscriber has dropped from 230 minutes a month in 1995 to 125 minutes in 1997, as very low-usage subscribers -- attracted to Calling Party Pays and pre-paid mobile service -- flock to sign up at record rates. In the last three years alone, the cellular subscriber base has skyrocketed by 144% annually to over 1.26 million.

Six operators dominate Colombia's cellular industry: Comcel, with 430,635 subscribers as of Dec. 31, 1997, followed by Celumovil (423,099); Cocelco (133,362); Occel (109,835); Celumovil's Celulares de la Costa (94,113) and Celcaribe (73,719).

Meanwhile, progress continues on other fronts. Two Bogota-based private firms -- New World Network and Centa Telecom -- are planning to finance a $300 million fiberoptic cable linking Colombia, Venezuela, Mexico, the United States, six Central American nations and five Caribbean islands. The Arcos-1 cable will be constructed by Tyco Submarine Systems Ltd. and Norddeutsche Seekabelwerke GmbH.

Set for completion in mid-2000, the system utilizes repeatered and non-repeatered links, which combine to form an SDH ring network. Arcos-1 will have an initial cross-sectional capacity of 15 Gb/s, though the transmission capabilities of the repeatered segments will have future upgrade potential of 320 Gb/s over each fiber pair.

Colombians are also logging onto the Internet in growing numbers. According to industry experts, some 350,000 Colombians are currently online, with the number expected to exceed 500,000 by year's end and 1.3 million by 2002. That translates into a 31% over the next five years.

Meanwhile, Orientation.com, formed only three months ago, has announced a venture with Colnodo, Colombia's top Internet company, known as Orientation Colombia. The new site empowers net surfers to view the world from a uniquely Colombian perspective.

"Colnodo is a not-for-profit organization whose primary concern is building the size and quality of the Internet market in Colombia's says Colnodo's director, Julian Casasbuenas, adding that his firm promotes the Internet as a vital medium for discussing difficult issues.

"By posting current statistics on the refugees of guerrilla warfare and acting as a forum for its country's peace process," Casasbuenas says, "Colnodo does not shy away from Colombia's volatile issues."

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