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The Telecom Sector in Argentina: Reform and Counter-reform Santiago Urbiztondo, FIEL and UNLP

The Telecom Sector in Argentina: Reform and Counter-reform Santiago Urbiztondo, FIEL and UNLP ITS Conference Berlin, Germany September 2004. Content of Talk. Stages of privatization and deregulation in the Argentine Telecom Industry Performance Indicators

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The Telecom Sector in Argentina: Reform and Counter-reform Santiago Urbiztondo, FIEL and UNLP

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  1. The Telecom Sector in Argentina: Reform and Counter-reform Santiago Urbiztondo, FIEL and UNLP ITS Conference Berlin, Germany September 2004

  2. Content of Talk • Stages of privatization and deregulation in the Argentine Telecom Industry • Performance Indicators • 2002 crisis: Main indicators and regulations • Some specifics of Telecommunications • Sustainability of current situation • Developments during 2004 and perspectives

  3. Stages of Telecom Reform, 1990-2001 • 1990-1999: Privatization of ENTEL (national monopolist), creating two regional monopolies in basic telephony (7+3 years exclusivity, tariffs in US$), 3 different mobile operators (one of the owned by incumbents) and deregulating value added (data transmission) services • 1999-2001: Progressive end of exclusivity: from “administered competition” (protecting incumbents) to fully-free entry (assisting new incoming firms): impressive wave of investments halted by recession (particularly 2001, where GDP fell 4% and end of Convertibility Law was anticipated)

  4. Performance evaluation of whole privatization process is mixed • Different stories depending on structural-cum-design issues • As expected: Incentives for cost minimization resulted in big efficiency gains from past status quo • Major achievements in access, except in sewerage. Water supply through reform related to improved health indicators • Observed quality (reliability) improved substantially • General opinion polls showed increasing dissatisfaction with private provision of public services (various possible explanations: myths, generalization and contamination across reforms, corruption, poverty, unemployment, true mistakes, etc.)

  5. Scottish Flag

  6. Performance of the Telecom Sector, 1990-2000 • During strict monopoly period (1990-1999), significant improvement in quality and coverage; less visible benefits from elimination of deficit and rebalancing of tariffs in 1997 • Also, waiting for a phone went from 23 months to 2 weeks, and installation charge from 1,500 US$ to 250 US$, between 1990 and 1997

  7. Rebalancing, initial situation (hidden prices through 1.5 B US$ deficit of ENTEL in 1989, etc. created perception problems)

  8. 2002 Crisis: Duhalde Administration (Jan 02 – May 03) • Jan-02/Nov-03: Dollar went from 1 $ to 2.9 $ (3,8 $ in Jun-02), PPI +115%, CPI +45%, GDP -10% in 2002 +8% in 2003, Poverty from 20% to 55%, unemployment +20%, etc. • Jan-02: Law 25.561 (freezes rates in $, even natural gas and electricity upstream; it delegates renegotiation contracts to the Executive until Dec.2003) • Feb/Nov-02: Decrees creating Renegotiation Commission, setting rates in US$ for foreigners or external trade –gas upstream and transport, airports services to international flights–, postponement of deadlines, threats to firms and stock holders requiring abandonment of legal disputes terms to qualify for renegotiation, etc. • Summing up, not much progress (but understandable…)

  9. Some specifics of Telecommunications • Tariff freeze doesn’t imply short term shortages due to excess capacity. • Previous price-cap not binding for long distance (25% recovery of tariffs in 2002). Strong recovery of mobile segment since 2003 • Creation of fiduciary funds, of 2 types: (i) equipment and (ii) expansions • Acquisition of one operator partner by a local firm with an option to sell to the other partner in 2003. Political economy of operation. • Absence of important definitions with interconnection (asymmetric application of indexation, no required points for interconnection and technological freedom) • No implementation of universal service fund (pay or play) after 4 year of enactment, with constrained interpretation (no broadband services), meaning implicit protection to incumbents (to compensate freezing?

  10. Some Telecom Indicators, 1998 - 2003 • Fixed lines in service: from 7.1 M in 1998, to 8.1 M in 2001, to 7.7 M in 2003 (penetration of 0.21 lines per inhabitant). • Mobile lines: 2.7 M in 1998, to 6.7 M in 2001, to 7.8 M in 2003 (6.6 in 2002). • Pay TV customers: from 5.3 M in 1998-2001, to 4.7 in 2003 (4.5 in 2002) • Homes with Internet: from 0.2 M in 1998, to 1 M in 2001, to 1.1 M in 2003 (14% of 100 homes) • Dial-up connections: from 0.3 million in 1998 to 1.3 million since 2001 • Broadband connections: from 6 thousand in 1999, to 13 thousand in 2001, to 286 thousand in 2003 (cable-modem 113 th., ADSL 152 th., FWA 20 th, satellite 750) • Hardware Investment in Telecom: from 2 billion US$ per year 1998- 2001, to 160 million per year in 2002-2003 • Total Information Equipment and services: from 3.5 B US$ in 1998-2001, to 1.1 B US$ in 2002 and 1.6 B US$ in 2003

  11. How sustainable is the status-quo? Pending Conflicts at ICSID (November 2003) Number of cases Countries 16 countries (Algeria, Saudi Arabia, Bolivia, Peru, Philippines, Venezuela, etc.) 1 2 6 countries (Chile, Jordan, Kazakhstan, Morocco, Mexico and Pakistan) 3 3 countries (Congo, Ecuador and Egypt) Argentina 31 as of today 23 70% involve public utilities post-devaluation, including provincial concessions; number growths monthly; demands currently add up to US$ 16 Billion

  12. Considering recent experiences where devaluation was pronounced…

  13. The deterioration of real tariffs (considering the electricity sector) in Argentina is more striking…

  14. Developments under Kirchner administration and perspectives • In general, the current administration • Has not explicitly defined how the 90s’ incomplete contracts should be interpreted (the value of existing assets, etc.), but • Continues to freeze tariffs even though GDP recovered 8,3% in 2003 and 7% projected in 2004, • Weakens further existing regulatory institutions, • Concentrates investment decisions (all regulated sectors), • Mixes regulation and provision (new public firm in Energy), • Discriminates between new and old investments (opportunism and confiscation of quasi-rents), • Damaging future competition and feeding a “self-fulfilling prophesy”: without private “spontaneous” investment, there is no need for a predictable regulatory framework  public decisions are inconsistent with private investment, and  there will not be spontaneous investments ... • Perspectives for Telecom sector, then, not clear…

  15. The Telecom Sector in Argentina: Reform and Counter-reform Santiago Urbiztondo, FIEL and UNLP ITS Conference Berlin, Germany September 2004

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