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Mixed bag of tricks: Chile's VTR and CTC create Startel
Global Telephony / November 1996

By Larry Luxner

SANTIAGO -- VTR S.A., which has only an 8% share of Chile's lucrative yet cut-throat long-distance market, battles against Compañía de Telecomunicaciones de Chile S.A. (CTC), which has a 23% share. It now plans on introducing local phone service -- again in competition with CTC -- which has a whopping 92% share of that market.

Yet when it comes to cellular, the two companies couldn't be friendlier. In June, CTC and VTR announced the creation of Startel, a nationwide digital cellular network that would stretch from Chile's northern port city of Arica to Punta Arenas in the extreme south, a distance of 2,690 miles. The promising joint venture already has a 51% market share and a customer base of around 133,000 subscribers.

"Chile has the most competitive telecom market in the world," said Wayne S. Alexander, president of SBC International Chile, in a recent interview in Santiago. SBC (formerly Southwestern Bell) recently paid $350 million to acquire a 49% stake in VTR, a conglomerate with interests in cellular telephony, cable TV, long-distance and local phone service. The other 51% is held by the Luksic Group, a Santiago-based banking conglomerate. "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."

Alexander, who says the VTR-SBC partnership "will be investing millions more over the next three to five years," explained that the decision to go into local service against CTC, which has a stranglehold on that market, is based on several factors.

"A large part of our future is staked on cable and telephony over the same network. That's why we think we'll be unique and successful," he said, adding that the two main companies offering local service in competition with CTC are CMET, with around 60,000 lines, and Telefónica Manquéhue, with 34,000 lines. VTR itself owns CNT, a small telco which provides local phone service in two regions of extreme southern Chile.

"We think competing against CTC with traditional technology doesn't make sense. Those two companies [CMET and Manquehue] cannot grow their projects. They're using twisted-pair," he said. "In our case, we believe in the option of doing it through the cable network, which allows you to offer more than just plain telephony."

VTR, which reported $160 million in 1995 revenues and expects to have $270 million this year, has already achieved a significant presence in the Chilean cable TV industry through its recent merger with United International Holdings, a Denver-based company that operates in several overseas markets.

Yet even with the country's dramatic telecom advances, the fact is that most Chileans still don't enjoy 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, and means there's plenty of room for even the local market to grow.

"Long-distance was fashionable one or two years ago, but today, prices are still very low," said Salvatierra. "We're starting to see some companies get into the local telephony business, trying to compete against CTC. We believe that's the main theme in telecom today. Some say it's PCS, but the wireless market is pretty much covered."

Nevertheless, VTR is hardly ignoring cellular. In June, the company, which had been a regional cellular provider throughout all of Chile except for the Santiago metropolitan area (home to 5.5 million people), decided to merge its cellular system with that of CTC, whose network covered only the Santiago area. The result was a new $700 million network known as Startel. This new entity (owned 55% by CTC and 45% by VTR) is already competing against BellSouth, will be Chile's first fully digital cellular system, giving it a distinct advantage over Chile's two other cellular providers, BellSouth Celular in Santiago and Telecom (owned 51% by Entel and 49% by Motorola).

According to Alexander, VTR is replacing its current hodgepodge of Motorola, NEC and Ericsson equipment with only Ericsson, in a contract with the giant Swedish firm worth an estimated $200 million over the next three years.

"This was a technology option we chose after a thorough analysis," said Alexander. "Ericsson's cost and performance was deemed superior to other alternatives for an 800-MHz TDMA network."

With Chile's telecom market so ripe for investment, PCS can't be far off. The government's Subsecretaría de Telecomunicaciones 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. Observers now say service could start by early 1997.

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