Telephony / June 2, 1997
By Larry Luxner
Throughout Latin America, RHCs that were once strictly U.S. household names such as Bell Atlantic, Nynex and BellSouth are becoming as well-known to local investors as McDonald's and Blockbuster Video. They're being joined by the likes of GTE, Sprint and Britain's Cable & Wireless, all of which see huge potential in the region's burgeoning telecom market.
According to a study by Pyramid Research Inc., South America's phone companies will add 17 million conventional phone lines and 16 million cellular and PCS lines between now and 2000 -- translating into investments of nearly $40 billion over the next four years. The study says growth will be led by Brazil, whose Ministry of Communications has called for the addition of 10 million lines by 2000. But interest isn't confined to Brazil; lucrative opportunities also abound in Argentina, Colombia, Ecuador, Paraguay, Peru and Uruguay.
"Private investment will fuel rapid adoption of leading-edge technologies across the region," says Pyramid's Latin American research director, Catherine Forster Connolly. "Many of these countries will go abroad to seek foreign investment and create attractive joint-venture opportunities for global players to extend their reach into the region."
One of the most active RHCs or "Baby Bells" in Latin America is BellSouth International. The Atlanta-based $19 billion giant currently has operations in eight Latin countries: Argentina, Chile, Ecuador, Nicaragua, Panama, Peru, Uruguay and Venezuela.
In April, BellSouth bought a 61% interest in Otecel -- one of Ecuador's two nationwide cellular rivals. Otecel now has around 30,000 clients in Quito, Guayaquil and other cities; its market share is just over 50%.
Says Charles C. Miller, president of BellSouth International: "With its very low penetration of both landline and cellular service, Ecuador provides the kind of opportunity we have pursued across Latin America."
Adds Ronald Symes, executive vice-president for corporate development at SBC Corp., formerly Southwestern Bell: "Telephone wireline development in Latin America has lagged way behind the rest of the Western Hemisphere in terms of teledensity. We think its a win-win situation for ourselves as well as the countries we might go into. Here in the U.S., our wireline telephony is a farily mature industry, so if we want to continue to grow, it's appropriate to go someplace where growth is possible, and where market activities are such that competition is allowed and you can come in as a foreigner with very few restrictions on investment."
Another reason U.S. companies are so eager to get into Latin America is fierce compe-tition from European rivals like Spain's Telefónica, Italy's Stet (which owns half of Bolivia's Entel) and Britain's Cable & Wireless PLC (dominant throughout the English-speaking Caribbean).
On May 22, for instance, C&W outbid GTE for a 49% chunk of Panama's government-owned Instituto Nacional de Telecomunicaciones S.A. (Intel), paying $652 million in what observers said was an astonishing price for a telco with only 400,000 lines. The sale could set the trend for upcoming selloffs in Nicaragua, Guatemala and Ecuador.
"This transaction is significant because it represents the first telecom privatization in Central America, and the highest price per-capita ever paid for a telecom transaction anywhere in Latin America," said J. Alberto González-Pita, an attorney for White & Case, which advised the Panamanian government.
GTE, which had bid $452 million for Intel, already owns 100% of Codetel, the dominant phone company of the Dominican Republic. It also leads a consortium that owns 40% of CANTV, the telephone monopoly of Venezuela.
Unlike GTE, BellSouth has confined its Latin investments to long-distance and wireless companies; it doesn't own any telcos outright. In 1990, it was on the verge of buying the state-owned Puerto Rico Telephone Co., but the deal fell apart after Puerto Rican government officials insisted on setting a $3 billion minimum price and getting BellSouth officials to promise they wouldn't lay off any workers. Seven years later, PRTC is up for sale again -- with no minimum price -- though BellSouth says it isn't interested.
"It's not on the top of our agenda," says Luis La Rocca, BellSouth's vice-president of business development. He adds, however, that "we believe in the region. We invested in Argentina when the economy wasn't what it was today, when inflation was running rampant. Our results in Venezuela, Chile and Uruguay encouraged us to continue investing in Latin America.
La Rocca says that "we've always had our radar pointed on Brazil," even though the company presently has no operations there.
Bell Atlantic's only Latin investment is its stake in Iusacell, a Mexican cellular provider. Ameritech, based in Chicago, has invested heavily overseas -- in China, Poland, Norway, Belgium, Hungary and New Zealand -- though curiously not in Latin America. Neither has Pacific Telesis or Nynex.
One company that has staked much of its international success on the region, however, is San Antonio-based SBC Corp. In 1990, the company bought a 9.5% chunk of Mexico's Telmex together with France Telecom and Grupo Carso. Since then, SBC says it's invested over $1 billion in the consortium, helping to boost Telmex's access lines by over 60% to 8.5 million, and bringing phone service to more than 10,000 urban and rural areas for the first time.
In addition, SBC says digitalization has increased from 29% in 1990 to 90% today, and that Telmex recently completed 100% digitalization of the Mexico City metro area, the world's largest.
SBC also owns a 49% share of Chile's VTR, a conglomerate with interests in cellular telephony, cable TV, long-distance and local phone service.
"Chile has the most competitive telecom market in the world," says Wayne S. Alexander, president of SBC International Chile, which paid $350 million to acquire its stake in VTR. "We have a growing middle class and a robust economy, and Chile will become one of the first countries in Latin America to develop a market for interactive services."
All agree, however, that the biggest prize remains Brazil, whose population of 160 million and teledensity of just under 10 per 100 make it one of the world's largest potential phone markets; the country alone represents 40% of Latin American phone revenues.
SBC, like dozens of other U.S. and foreign telecom firms, is bidding for the right to operate cellular systems in Brazil's two largest cities -- São Paulo and Rio de Janeiro -- and in its four of its most important states -- São Paulo, Minas Gerais, Paraná and Rio Grande do Sul.
"The potential is tremendous in our view, if for no other reason the size of the market," says SBC's Symes. "This is a country almost as large as the United States. We believe that any of those markets would be extremely [lucrative] for the cellular business, and that's why we're there."