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What drives telecommunications in Latin America?

The first step in understanding the transformation of telecommunications is to know the forces that have given rise to this process.

50 years ago, telecommunications were limited to radio, television and telephony; Today, thanks to new technological developments, the growth of the industry lies in the convergence of the television, telephony, cable, wireless services, satellite and Internet sectors. This integration process has developed in parallel with political and economic reforms that changed the landscape of businesses and states.

The first step in understanding the transformation of telecommunications is to know the forces that have given rise to this process. As already mentioned, technology has been perhaps the most important factor in the evolution of the market; however, it has needed a more flexible context for its implementation. Privatization, deregulation and globalization are all part of the creation of this new environment.

Privatize

Privatization can be understood as the sale of large state monopolies or public services to private sectors of the national or international economy. Of course, privatization is at the center of the controversy. From the left, privatization is generally conceived as a threat to the public interest. Privatization would mean handing over the obligation of the State to provide all inhabitants with certain services, regardless of the geographical location of the user or its cost.

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On the side of the right, of the neoliberal currents and of the supporters of the free market, there is a tendency, on the contrary, to equate that public interest with the well-being of the consumer. The use of resources must be optimized by prioritizing costs and leaving aside users and areas where it is not economically profitable to develop the business.

The search for the middle ground between one extreme and the other is the political challenge of which Luis Andrade and Eduardo Michelsen speak ("Privatize successfully". Dinero Magazine, April 13, 1998. Pp. 54-55) could well be defined as follows: "balancing social and economic interests, seeking to capture the greatest possible value, subject to the satisfaction of the interests of society." To achieve this balance, it is necessary to take into account the characteristics of each market, the needs for investment in infrastructure, economic constraints and social and political priorities. Ideally, privatization should lead to new alternatives for consumers, strengthen competitiveness within the market, ensure low prices and guarantee the universal character of services, all with the help of a transparent, flexible and fair legal system.

Without going to extremes that threaten development, the first thing is to stop seeing the objectives as opposed and see them as consequential. For example, universality should be understood not as an obligation but as the right that we all have to obtain the same opportunities to access a service.

There would be types of negotiations where privatizing will ensure that, at least in the long term, limited accessibility will be reduced by new technologies that allow reaching all places with costs that that population can afford. While that happens, governments will continue to leverage private companies through subsidies that will be gradually dismantled with technological development and with the revenues generated by the same growth of the sector.

On the competitiveness side, as subsidies are not healthy from this point of view, it can be started by offering the service in those places where investment in infrastructure is lower (that is, in urban areas), where the population has resources to pay for the service and where the growth of users is rapid. This will generate sufficient revenue to allow the development of new technologies, low prices and multiple services. The achievement of the second objective (competitiveness) will generate opportunities to achieve the first (universality).

Deregulate

Deregulation is as complex as privatization and also has to seek a balance between social, political and economic objectives that generate collective benefits. The creation of a new legal map must ensure clear rules that allow us to know where companies that want to enter a market are going and under what conditions they can do so. This map determines types of negotiation and contracting, tax regimes, and in general legal and market rules that will make the market more or less attractive.

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Deregulation can be initiated before or after privatization, and can occur in other sectors where there have been no state monopolies such as in cellular telephony. This means that deregulation is not a piece of privatization, but a complementary fact that seeks the best options for consumers avoiding moving from state monopolies to private monopolies. Deregulation helps to ensure that, in effect, the sequential development of objectives takes place and allows a more flexible framework of action, such as the creation of new forms of contracts (Joint Ventures and Franchises).

Globalize

Globalization, which began in the early 80s, is a socio-cultural process marked primarily by the economy and the market. Governments saw the need to move towards an expanded economy that would generate higher revenues for states and boost national economies. Thus, the dismantling of political and cultural barriers that have led to the creation of regional economies such as the European Union and Mercosur began.

Globalization has allowed the disappearance of borders and two-way access to closed cultures, such as those of the Far East. Being able to move freely through the different countries allows alliances to explore new fields such as the development of technologies that, due to their costs, were difficult to achieve by individual countries. Globalization has liberated in one way or another sectors such as telecommunications, previously pressured by protectionist policies that prevented their development. This process has led to regions such as Latin America accessing innovative industries of enormous costs such as satellite communications.

In Latin America, deregulation has had a political tinge to the extent that deregulating has often also meant democratizing. Political dictatorships, which were presented in almost all countries, served as a platform for media such as television to be used as instruments of control and social and political influence. For many years, dictatorships closed the doors to new models and, on the contrary, generated violence and divisions that are still the subject of controversy today.

Likewise, globalization put companies in open competition with very different business environments, and the comparison was not always favorable for Latin Americans. In Latin America the service mentality is little, companies in general have a conception of massive products that leaves aside the well-being of the consumer or the quality of the service, and puts the company in the foreground. In sectors such as cable television, for example, the concept of technological and business efficiency translates into an increase in the consumption base; that is, in the percentage of market penetration and in the short-term economic benefit.

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In the United States, the same sector generates greater profits through the added value in the production process and the diversification of products and services. There, the conservation of the satisfied user is considered paramount, especially the so-called "complex consumers", who acquire the new services offered as a complement to those already used.

In summa...

The processes of privatization, deregulation and globalization have had a direct impact on the telecommunications sector in Latin America; its low development and low levels of penetration make the market very attractive for large multinational companies. Privatization processes began in the fixed telephony segment where large state-owned companies such as Telebras and Telmex were sold to foreign multinationals.

Deregulation and the opening of markets have allowed the entry of transnationals into new market segments such as cellular telephony and cable television, generating technological developments in infrastructure and services that translate into the progress of the sector. Advances in technologies such as fiber optics have acted as a junction point for the telephony and television segments to offer additional services such as fast Internet access, data transport, video, multimedia and closed or enterprise networks.

Privatization and the opening of markets have served as a complement to technological development for the improvement of the quality of life of consumers and the generation of large incomes that reflect macroeconomic growth. Although market development and penetration has mainly occurred in metropolitan areas, it is expected that with the implementation of satellite and wireless technologies, remote regions' access to telecommunications services will be widespread.

The figures presented by Andrade and Michelsen are eloquent regarding the benefits that the privatization of telecommunications has brought to Latin American societies: "3 years before against 3 years later, the number of telephone lines per 100 inhabitants went from 3.4 to 11 in Chile, in Venezuela from 1.9 to 9, in Argentina from 0.6 to 5.3 and in Mexico from 8.4 to 10.2" Holly Warner ("Latin American Telecom Is Busting Out All Over". Venture Capital Journal. October 1, 1999) states that the telecommunications sector "in Chile presented an annual growth rate of 14% since privatization in 1989, on the other hand in Venezuela, in 1997, its telecommunications represented 3.5% of GDP and growth was projected to represent 7% of it for 1999". Privatization has managed to reduce costs by up to 50% in some cases; in Brazil, for example, a cell line costs US$300 today, before the opening it cost US$700.

Market Outlook

Faced with an open market and a growth potential of more than 30%, the telecommunications sector in Latin America has much to develop. Companies that manage fiber optic technologies expect the definitive "yes" of the States to provide multiple communication services under the same technological platform; This does not mean the provision of all services by a single company but the creation of strategic groups that unite their base service under the same platform. The consumer, on the other hand, expects to benefit from these business complexes with low costs and better quality of service.

The future of communications lies in the management of satellite and fiber optic technologies. The first will allow people to have a cordless phone to be able to communicate from anywhere. Satellite will be the most effective means of transmission especially in rural areas and remote areas of the world, where 50% of the world's population lives than ever made a phone call. Fiber optics, on the other hand, will allow the development of interactive television, where the consumer will have two-way communication and where digitized services such as VOD (Video on Demand) will offer multiplicity of contents which can be chosen and at today's costs.

On the Internet side, the concept of "free access" will continue to become widespread by transforming the costs and revenues of the companies that provide the service. Companies will have to look for new forms of financing and develop segments such as e-commerce and virtual advertising as their sources of income. Access to the network will be generalized by means of the cable modem and DSL (Digital Subscriber Line). The implementation of these devices will allow the total convergence of the sector and the possibility of providing all communication services through the computer. What awaits Latin America is the popularization of digital services until reaching a network economy managed by the information element as key working capital.

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