The headquarters of Compañía de Telécomunicaciones de Chile S.A , a marvelous sky rocketing structure overlooking Santiago's Rio Mapocho, very vividly symbolizes Chile's thriving telecommunications sector. It speaks volumes of a socio-economic revelation that has stemmed from one of the best seen implementations of an international agreement and has now become an inspiration in the process of global telecommunications liberalization.
Chile can be easily called the prodigy of modern telecommunications era. In an article by Larry Luxner (Tele.Com, May 2006), Wayne S. Alexander (Executive, SBC International) says, “Chile has one of the most open and the most competitive markets in the world”. As a result, it naturally has one of the best and cheapest available technologies at its disposal and is actually providing class to its masses.
The Beginning
Chile has pioneered the cause of privatization and liberalization of communication services. The process began way back in 1970s with the introduction of National Telecom Act in 1978. It allowed for “licensing of telecommunication services in the country and also led to formation of the Subsecretaría de Telecommunicaciones (SUBTEL) , the agency that would be responsible for regulating and managing the industry”.[1] SUBTEL, in collaboration with several industry players radically changed the look of telecommunications in the country through the chronology of events as shown.
1979: Liberalization of long distance telephony
1981: Government monopoly over telegraph and telex services abolished
1992: Local telephony market liberalized
The timing of these events clearly elucidates the maturity and vision of the Chilean telecommunications policy evaluators and regulators.
It received a further boost from the February 1997 WTOs Basic Telecom Agreement. This is the most significant event to have taken place in the history of international telecom, as it set the pace for initiating liberalization of the services sector globally. In addition to the "General Agreement on Tariffs and Trade (GATT)," which regulates the trade of products, "General Agreement on Trade in Services (GATS)" was also established. [2] The ITU enlightened the WTO of telecom's dual role as a fundamental network means for economic activities and also as a distinct sector of economic activities itself. It was this realization combined with the gradual evolution of WTO during that period, that led to the above agreement.
Few of the major outcomes of the agreement:[3]
Liberalization became the fundamental principle in the area of telecommunications, on a global scale, including developing countries.
Through global liberalization of the basic telecommunications services such as voice telephone services, it aimed at the introduction of competition, the reduction of service rates, diversification of services and provision of universal services.
69 of 131 member nations (including Chile) adopted the agreement.
the Government of Chile committed to market access and national treatment for long distance and international wireline and wireless telecommunications services, including satellite services, by January 1, 1998
The Process
The WTO Basic Telecom Agreement acted as a catalyst and led to an explosion in Chile's telecom market. In lieu of the agreement, four reform models were adopted by countries globally: [4]
Model 1 : Privatization with full competition - NZ, Chile, Malaysia
Model 2 : Privatization with phased-in competition and regulation - EU, Japan, Australia
Model 3 : Liberalization without privatization - India, Colombia
Model 4 : Private sector participation without privatization or liberalization - China, Saudi Arabia
As anticipated, Chile threw open its markets to international participation so as to induce fierce competition among local and global players for the telecom equipments and services sectors. Chilean telecom market became a battleground for national service providers like CTC, Entel, Chilesat and international giants like Telefónica de España (Spain) and Stet (Italy) as well as BellSouth, Motorola, Qualcomm and others from the U.S. [5] The most significant factor that supported this revolution was once again the dynamism shown by the telecom regulatory authority, SUBTEL. The various associated policies evolved at the same, if not faster, rate as the emerging technologies. Dynamic spectrum allocation, calling party pays etcetera were some of the most innovative exhibitions of SUBTEL, that helped Chilean telecom keep pace with a fast developing global industry.
The Impact
The natural result was an immense improvement in the quality of services across various domains including legacy wireline telephony services, wireless mobile communications (including the personal communication services sector) and the Internet. This catapulted a chain reaction of price reduction, market explosion, competition enhancement and technology development. The intensity of the impact can be gaged by this statement from David Allen (The WTO Telecommunications Agreements: Policy between Trade and Networks), “30 percent reduction in prices for international calls from Chile to the United States led to a 260 percent increase in traffic volume on that route”.
Chile's telecom revolution justified, in every sense of the word, WTOs Basic Telecom Agreement goals. Today, “Chile's market for telecom equipment and services stands at nearly $6 billion, with annual growth over the next five years projected at 20-25% -- three times the global telecom growth rate. The Chilean phone network is already 100% digital, and carriers are tripping over themselves to install synchronous digital hierarchy (SDI) fiber optic networks from one end of Chile to the other”.[5] It has the highest rural teledensity in Latin America, truly accomplishing the ideals of universal quality service. The following graphs indicate some of the healthiest growth indices, across diverse telecommunication services, in the world.
Graphs modeled based on information from http://www.ita.doc.gov/td/oepc/Telarg.htm
Most significantly, this has kept Chile's GDP in a healthy shape since the telecom industry contributes an average of 14% to Chile's GDP.[6]
In totality, Chile epitomizes an ideal telecom liberalization scenario. There are lessons to be learned as to how a proactive policy facilitated by an international cooperation and backed by a sharp business acumen, can really boost a nation's core infrastructure industry and hence the nation's economy, in general. As Dean Alexander (director of Grant Thornton International's business center in Santiago) says, “The telecom sector in Chile will continue to expand for a number of reasons, including a lack of market entrance barriers; convenience for multinationals world-wide to set up their operations in Chile to manage the Latin American region; continuous upgrading of existing equipment and networks; establishment of strategic alliances between foreign investors and local partners, and the willingness of Chileans to adopt state-of-the-art technologies."
References:
[1]Telecommunication Regulation and Liberalization, http://www.american.edu/initeb/em0017a/Regulation.htm as on 2/10/2007.
[2] WTO Basic Telecom Agreement, February 1997, Outline
[3] WTO Basic Telecom Agreement, February 1997, Results
[4] Stefaan G. Verhulst, Markle Foundation, Introduction to Telecom Reform and Liberalization, August 2003.
[5] Larry Luxner, Modernized Markets: Chile and Argentina take two different paths, Tele.Com
[6] Aileen A. Pisciotta, Global Trends in Privatization and Liberalization (Ch. 23)
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