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Phone Fundamentals: AES comes to Bolivia
Latin CEO / 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 jump-start a crumbling economy.

Ana M. Alcoreza already sees a gold mine.

As executive president of AES Communications Bolivia, Alcoreza is overseeing the largest single foreign investment in telecommunications here since Nov. 27, 1995 -- the day Telecom Italia paid $600 million for a 50% interest in state-owned Entel, launching the six-year countdown to complete liberalization of the telecom industry.

With competition, companies like AES will be able to offer long-distance telephone service, which until now has been legally monopolized by Entel. At the same time, Entel and its rivals will be able to enter the local market, which for many years has been dominated by Bolivia's 14 inefficient and often corrupt cooperatives. Any company that wants can also offer mobile telephony, a cut-throat business with very low profit margins that's currently dominated by two players: Entel and Millicom subsidiary Telecel.

"Our main focus here is to make a difference in Bolivia," says Alcoreza. "We think that by having a second player in long-distance telephony, providing fair prices and better service, we are definitely going to attract investment to Bolivia. The country is counting on it."

AES, a Virginia-based multinational that made its fortunes in the energy business, has already spent $600 million on telecom investments in Brazil and Venezuela. In Bolivia, a nation of only eight million people, the company will invest around $100 million, with 60% of that going to compete in domestic and international long-distance, 20% in the Internet market, and the remaining 20% in data transmission and other value-added services like web hosting and e-commerce.

It's already signed a deal with the largest cooperative, Cotel, which serves the city of La Paz and generates 40% of the country's incoming and outgoing long-distance traffic. The deal gives Cotel 15% of the stock of AES Bolivia in exchange for access to Cotel's 165,000 customers.

"I believe the cooperatives were mismanaged in the past," said Alcoreza. "They did not invest properly, so today they find themselves with no cash and very obsolete equipment. However, the coops have one strength: they're the only game in town with the last mile to the client, and that's why we're interested in forming alliances with them."

Adds AES Bolivia's vice-president, Richard Ades: "Since Cotas doesn't have any money to invest in developing long-distance or Internet, they can use our services. They'll benefit from revenues and profits from our business, and we'll give them the opportunity to go national. When the market opens up, all these coops will 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.

Peter McFarren, a La Paz business consultant with long experience in the telecom sector, says some of these coops have been run 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."

Alcoreza, whose high-rise office looks out onto downtown La Paz and the snow-capped mountains surrounding the city, has been with AES in 1991, starting in the accounting department at company headquarters in Arlington, Va. Her last assignment before coming to Bolivia was with Eletropaulo, an AES venture in So Paulo, Brazil.

If the trilingual executive feels at home here, she should. Despite being born and raised in San Antonio, Tex., her family is Bolivian, and she knows the country and its customs intimately.

"In Bolivia, you have to have a lot of patience, and you have to learn to listen," says Alcoreza, though she's no pushover. "I don't take no for an answer."

That philosophy should help AES compete against cash-rich Entel, which has never faced competition in anything other than mobile telephony. Says Alcoreza: "We'll be able to compete with the same services as Entel, and with much better technology. What they purchased six or ten years ago is obsolete by now."

Yet Entel spokesman Juan Len claims this company 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. Entel has the best technology infrastructure and coverage in the country," he boasted. "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."

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 than fixed-line customers.

The reason for this is simple. For years, the only way to get a phone line here has been to buy shares in one of the coops. At $1,500 a share, that effectively put phone service out of the reach of all but the wealthiest Bolivians. But thanks to competition in the mobile market, cellphones cost only $60, and with prepaid clients now driving the market, the cost of calls have fallen to only 20 cents a minute.

Yet long-distance is still prohibitively expensive, even for calls within Bolivia.

Guido Loayza, Bolivia's superintendent of telecommunications, said he expects international long-distance rates to immediately plummet by 35% as a result of the market opening.

"We think monopolies have always been inefficient, whether they're foreign investors or cooperatives. So we should see some nice surprises," he predicted. "For Bolivia, it's a whole new culture, because Entel and the coops have lived all their lives as monopolies."

Alcoreza's biggest concern at the moment is the issue of interconnection fees that Entel and other long-distance companies will have to pay the Bolivian government. The current fee of 21 Bolivian centavos (about 3.2 cents) a minute is on the high side when compared with other countries.

"It's not a big deal for Entel to pay a fee, because it's a monopoly," she said. "But if these interconnect rates do not come down from what they're at now, it will be almost impossible to offer lower rates to the consumer. This will have a political cost if it's not managed properly."

One thing Alcoreza doesn't seem too worried about is corruption -- despite Bolivia's reputation as being one of the most graft-ridden countries in Latin America.

"I think there is corruption here. You'd have to be blind not to see it," she says, "but one of the fundamental pillars of AES is integrity. There is no way we would do anything dishonest, and we have never been asked for anything. If a condition of doing business in Bolivia is to pay some kind of commission or bribe, we'll just pack up and leave."

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