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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)

Country 1997 1998 1999

Argentina 475 450 551


Brazil 1,337 1,123 1,299
Colombia 387 384 177
Mexico 2,168 2,598 3,007

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 Telefónica, 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 Telefónica
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 Andrés 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