WITH SOME HURDLES, TELECOM LIBERALIZATION CONTINUES IN LATIN AMERICA   

  
The past decade has seen major policy changes in the telecommunications sector in Latin America. Structural reforms such as privatization and deregulation have been accompanied, and at times driven by, advances in technology. The biggest innovations have included voice and data transmission by satellite, new optical cables and the Internet. As equipment hardware has become more efficient and affordable, new technology has brought lower costs for consumers and a large increase in business and residential telephone traffic. The challenge continues to be how state-owned and newly privatized telephone monopolies and regulatory authorities handle the new technologies and consumer demand for more service options and lower costs.

The international policy environment improved with the agreement by the United States and other World Trade Organization member states to open up their markets for basic telecommunications, including local, long-distance and international voice and data transmission services. A WTO agreement among 69 countries, including the United States, entered into force on February 5, 1998. The signatory countries account for more than 90% of world telecom revenues, estimated to reach $900 billion this year.

Fifty-eight countries agreed to allow all or selected services provided by satellite suppliers. Forty-five permit full foreign ownership or control of all telecom services and facilities, while 13 allow foreign ownership or control of certain areas. Ten other countries guarantee some degree of foreign ownership. Of major significance for the international telecom market, 58 countries adopted a common text on competitive regulatory principles; ten others either agreed to some of the regulatory principles or pledged to adopt them in the future. These commitments are subject to challenge through WTO dispute settlement provisions.

In addition to the WTO agreement, the ongoing Free Trade Area of the Americas (FTAA) negotiations include a non-negotiating Committee of Experts on Electronic Commerce. This committee makes recommendations to the Trade Negotiating Committee and the relevant negotiating groups. Issues addressed in its meetings include: protection of privacy in electronic commerce; consumer protection; building marketplace confidence in e-commerce security, encryption, authentication and digital signatures; criminal and civil responsibility in electronic commerce; the implications of electronic commerce for domestic taxation; and electronic payment systems.

Unexpectedly, the privatization/deregulation process converged rapidly with technological advances, especially the Internet. In the early 1990s, Latin American governments sought to open up their telecommunications sectors by selling a controlling stake in their monopoly operator to major international investors in exchange for an exclusivity period for basic voice services. More recently, however, the Internet-driven revolution in global communications has shortened time spans, lowered costs and spawned a host of new services, many of which compete with traditional voice communication. All Latin American countries, some much more than others, need to invest more in expanding their basic communications infrastructure. The developed countries have seen fierce competition drive telephone rates down and access rates up.

The expanding Latin American market for communications equipment and services has been a great opportunity for US (and Florida) exporters (see the table below). US telecom equipment exports in 1999 reached almost $19 billion. US telecom service providers face expanding commercial opportunities in foreign telecom markets, which have a current annual value of about $550 billion.

US Telecom Equipment Exports to Selected Latin American Markets (US$ Million)

Trade Data Center at USDOC
  

Regulatory authorities and bloated state-owned telephone monopolies in Latin America are challenged by the new telecom paradigm. Authorities that once regulated basic and cable television and telephone services now must consider the implications of new technologies, such as the Internet and new wireless capabilities, that can offer new and expanded telecommunications and data services. Incumbent monopolies and new entrants are adopting the new technologies to provide advanced services to consumers in the region. In some cases, cable owners are being required to offer value-added service providers access to transmission over their networks.

Some privatized monopolies, such as Mexico's Telmex and Peru's Telef�nica, use political influence and their monopoly position to charge high rates for the use of their lines. Competitors are either shut out or greatly limited in their ability to compete. Politically connected Mexican billionaire Carlos Slim Helu, one of the principal owners of Telmex, is successfully fighting rulings by the regulatory agency Cofetel while insisting that Telmex charge potential competitors such as AT&T and Worldcom excessive rates to use its lines. The US government is investigating complaints made by these companies with regard to Mexico's implementation of its telecommunications trade commitments, such as the WTO Basic Telecommunications Agreement.

Despite such examples, however, liberalization of the telecom sector in Latin America continues. Argentina announced in June that it will open its market to full competition in November 2000. Colombia is following a strategy of gradual, phased-in change, although each step has become politicized. What is clear is that continued opening of the telecom sector is vital to the ability of Latin American businesses to compete and to satisfy consumer demand for affordable and innovative new services.

Summary of Telecom Developments in Four Major Latin American Countries

Argentina. Argentina provides market access and national treatment for domestic data and telex, domestic and international fax, paging, trunk radio and leased circuits. Telecom Argentina, which covers the north of the country, and Telef�nica de Argentina, which covers the south, maintain a duopoly for cellular services. Access for personal communications services (PCS) is to be decided "in light of present and future needs." Market access and national treatment for all other services will be granted as of November 8, 2000, including those provided via non-geostationary, non-fixed satellite services (Argentina offers MFN exemption for access to geostationary fixed satellite systems). Argentina adopted the WTO reference paper. The state-owned company ENTEL was sold to private operators in 1991. Voice over Packet (VoP) is prohibited, but in June 2000 the government announced its support for continued liberalization of the telecom sector.

The Argentine market for telecommunications equipment imports is open and competitive, but only half of the country's equipment needs are supplied by imports due to significant local manufacturing. US suppliers lead the market.

Brazil. Brazil provides market access and national treatment for enhanced services, paging, and nonpublic domestic and international services for closed user groups. Analog/digital cellular mobile service is handled by a duopoly. Complete foreign ownership of nonpublic service providers is permitted. The state-owned TELEBRAS system-both the wireline and cellular portions-has been privatized and opened to competition. Cellular services are competitive and competition is beginning in basic telecommunications services. In January 1999, the government awarded licenses for the two "mirror" companies that will compete against EMBRATEL, the international long distance provider. Telecommunications services are regulated by an independent regulatory authority, the National Telecommunications Agency (ANATEL). VoP is not regulated.

Use of foreign-licensed GSO space segment facilities is allowed whenever they offer better technical, operational and commercial conditions. Brazil has MFN exemption for telecommunications services supplied for distribution of radio or television programming for direct reception by service consumers.

Colombia. Colombia provides market access and national treatment for private networks for voice and data, paging, trunked radio, geostationary satellite and local public voice services. Long-distance and international services, as well as cellular services and PCS, are entitled to market access and national treatment subject to an economic needs test. Colombia has adopted the WTO reference paper and permits 70% foreign ownership of all services. TELECOM, the basic telecommunications services monopoly, remains a state company. Regulation of the communications sector is divided between the Ministry of Telecommunications, the Regulatory Commission (CRT) and the Superintendency of Public Services. In 1998, ORBITEL, EPM and ETB were granted domestic and international long distance licenses to compete with TELECOM. CRT will supervise rates to insure fair competition and protect the public welfare. President Andr�s Pastrana recently signed legislation that allows LMDS providers to operate in the country. TDMA has been widely adopted as the preferred digital technology. The VoP issue is now in the courts.

Imports account for 85% of the Colombian telecommunications equipment market. The US is the leader in this area, with nearly 40% of the import market. Import tariffs have been substantially reduced and most prior import licensing requirements have been eliminated.

Mexico. Mexico provides market access and national treatment for all services, but it requires use of Mexican satellites for the provision of domestic services until 2002. Mexico has adopted the WTO reference paper. It allows 100% foreign ownership of cellular services and 49% of all other services. Eight competitors to TELMEX have entered the long-distance market. The independent regulatory authority, COFETEL, has issued additional licenses for paging, microwave, PCS and wireless local loop (WLL). Satellite services were privatized in 1998. The government is now in the process of opening the local telephone market to competition. COFETEL has made no regulatory decision on VoP services.

NAFTA eliminated tariffs on 80% of US telecommunications equipment exports to Mexico and opened up the value-added services market to foreign investment. NAFTA provides US investors with protections such as the free transfer of funds and arbitration. 

www.telecom.ita.doc.gov  www.wto.org  www.ftaa-alca.org  Department of State

AT&T-C. Arcos Department of Commerce NTIA www.oas.org  www.iag.interactive.com