 Telecoms
The Rising Star of Venezuela
One thing investors are looking for is the condition
of communication networks.
Before the partial privatization of local telephone
company CANTV in 1991, Venezuelans were used to
waiting up to half and hour for a dialing tone
and up to a year to have a line installed in their
home. After an international consortium headed
by GTE bought the company, services improved beyond
recognition. A decade later the second revolution
is just around the corner with the deregulation
of the market. After dominating Venezuela's telecommunications
market for 70 years, CANTV finally gave up its
much cherished-monopoly on November 27, 2000.
"The average Venezuelan citizen has no idea what
a fair rate for a minutes call to Spain is," says
William
Nazaret President of local cell phone provider Digitel
. "The auction is very important."
In the last few years the telecommunications sector
has showed strong growth. In 1997, telecom GDP
increased 85% to the year previously to end at
$791 million. In 1999 investments had risen to
almost one billion dollars while for 2000 investment
is expected to hit $1.2 billion.
With cell phone use in Venezuela only reaching
20% of the population, compared to 50% in France
and 70% in Finland, the country is still a virgin
market. With the growing use of WAP technology
via cell phones, industry insiders say there is
no end in sight.
"The Internet is just beginning to blossom, there
is a whole revolution building around Internet.
Communications is a business and an industry for
the 21st century. I do not think there will be
a year in which this industry will not grow,"
says Enrique
Garcia , president of Telcel
, Bell South's Venezuelan subsidiary for cell
phones, which boasted three million customers
in 2000.
The government and business is betting that a
real recovery in the economy will create an even
bigger market for telecom services as well as
10,000 new jobs.
Telecom companies will give 240 billion bolivars
to the government’s coffers in 2000 in form of
a 0.5% tax that is levied on companies an increase
of 170 billion bolivars from 1999.
To smooth the way for investors, the archaic 1940
Telephone Law was replaced with a more up to date
version approved in 2000 to facilitate a smoother
entrance for telecom firms looking to compete
for a license to operate.
Among other things the law consecrates a free
market in basic telephone services as well as
access to the state's telephone exchange, establishes
the rights and obligations of the user and the
operator, and lays out the duties of the telecom
regulator Conatel.
"This law is very comprehensive, modern, up to date
and above all it was made with consultation with
the private and public sector. Everyone gave their
opinions and the law is probably one of the most
advanced in the world," says Telcel's Garcia
.
Observers underline that favors from the government
are no longer to be looked to in order to gain
competitive advantages, as was the case with previous
CANTV license. "A private investor should
not rely on favors, what they should be rely on
is the new legal infrastructure, and how is it
being enforced," says Linda
Wellstein , the managing partner at the Wilkinson,
Barker, Knauer LLP law firm. Wilkinson represents
local and international companies in Venezuela
and the region, specifically foreign wireless
companies wanting to get a foot in the door.
To kick off the deregulation the government held an auction for Wireless Local Loop (WLL) a technology that enable companies to offer local, long distance and international calls without laying cables, in December 2000. The new wireless local loop (WLL) technology will enable companies to penetrate parts of the country where laying cables is geographically difficult and costly. "There are a number of huge spectrum auctions that are going to be coming up for broad band, LMDS, wireless local loop that are very serious competitors. These are the licenses that you can come in over the existing wired cable fiber optic network, you can just plot it down in the cream skinny areas, the most populated areas and you can access with the least amount of capital," Wellstein says.
| An auction for Local Multipoint Distribution System (LMDS) technology which uses a wide band wireless format will go up for auction in early 2001. Some of the companies bidding in auctions for Band frequency B and C will be Genesis, Infonet, Netsat, Telcel and local cell phone operator Digitel .
Analysts note that Venezuela should not face the same problems as Mexico where deregulation did not bring the expected consumer benefits. In Mexico, state telephone company Telmex did not have to give access to its interconnection network at cost to the newcomers, making it difficult for companies to make that first move. "If you compare our system to Mexico it looks near perfect," says Digitel's Nazaret . "The current track record of this government in telecommunications is what it is and to be honest with you I don’t lose one hour of sleep."
 Venezuela, leader in cell phone technology
Digitel , owned by Telecom Italia, is the smallest cell phone provider in Venezuela with 200,000 users and has seen massive growth in a space of only a few months. From August to October 2000, its client base increased by 90,000 users. "When you start having that kind of momentum, any investor has to look," says Nazaret . Digitel is the only company currently using GSM technology in Venezuela. Investors can expect real expansion of the client base. Digitel says that it has calculated it will capture 15% of the market in 2001.
Scrambling to catch up with the new kids on the block markets remain jittery on how prepared CANTV is for the onslaught. Despite seeing a downturn in profits in 1999 due to the recession, registering $1.7 billion, the company says it has been preparing for the loss of its monopoly since the early nineties. Despite the impeding sense of doom, analysts say that while market share will inevitably be lost, the deregulation will force CANTV to rationalize its workforce and be more efficient in its operations. "We feel comfortable with the competition coming in, of course it will put pressure but I expect it will allow the creation of new services, and help the market grow. It will make us more efficient," says Guillermo Olaizola , president of Movilnet , CANTV's cell phone company that has 1.6 million cellular clients. "Now there are about three competitors, but with new coming in the market will be tougher. We will need to move faster and become more creative. We are preparing for this." CANTV currently operates 3.5 million fixed lines in the country and 80,000 public telephones serving a population of around 24 million. It plans to invest a total of $400 million in 2001 to keep abreast of technological developments including the use of Internet via cell phones. One of the ways that it intends to optimize on its strong position in the market is by beginning a pre paid service on fixed lines. CANTV says that a percentage of its 3.5 million fixed lines are not being used and is starting a pre-paid system whereby customers pay as they dial. With 80% of the population living on or below the poverty line most homes cannot afford to pay the 14.5% VAT or line rental, due to the success of the pre-paid cell phone market CANTV has opted to capitalize on dormant lines.
Operating in the Venezuelan cell phone market are
four companies, two of which are looking to win
licenses to operate fixed line services through
WLL technology; Digitel
, Telcel
, Infonet and Movilnet
. In addition to the traditional cellphone companies,
Globalstar
has invested more than 30 million dollars in an
earth station for Satellite Telecommunications.
Movilnet, CANTVs cell phone arm says that it will
be concentrating on WAP technology to tempt Venezuela's
500,000 Internet users to make use of their cell
phones to surf the net. "We want to stay up to date
with our technology; we want our network to have
the capabilities to be able to deliver this kind
of services. We think that the secret for success
is to find the services that the customer most values,"
says Movilnet's Olaizola
. "We have to really understand the capabilities
of the technology and be able to package this valuable
services together, this way the customers will be
pleased and value more everyday our service."
Room for innovation also reaps rewards in the Venezuelan cell phone market. Telcel's decision to use pre-paid cards for its cell phones enabling the nation’s poor majority, most of whom live in rambling shanty towns where fixed line cables have not been laid, has reaped impressive financial rewards. Telcel tripled its customer base to three million people in the space of three years. Only eleven out of 100 hundred people in Venezuela have a fixed phone line, according to national regulator Conatel. |
VENEZUELA
