Download The Telecom Sector in Argentina

The Telecom Sector in Argentina:
Reform and Counter-reform
Santiago Urbiztondo, FIEL and UNLP
ITS Conference
Berlin, Germany
September 2004
Content of Talk
1. Stages of privatization and deregulation in the
Argentine Telecom Industry
2. Performance Indicators
3. 2002 crisis: Main indicators and regulations
4. Some specifics of Telecommunications
5. Sustainability of current situation
6. Developments during 2004 and perspectives
2
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$), 3 different mobile operators
(one of the owned by incumbents) and deregulating value
added (data transmission) services
• 1999-2001: Progressive end of exclusivity: from
“administered competition” (protecting incumbents) to fullyfree entry (assisting new incoming firms): impressive wave of
investments halted by recession (particularly 2001, where
GDP fell 4% and end of Convertibility Law was anticipated)
3
Performance evaluation of whole privatization
process is mixed
• Different stories depending on structural-cum-design issues
• As expected: Incentives for cost minimization resulted in big
efficiency gains from past status quo
• Major achievements in access, except in sewerage. Water supply
through reform related to improved health indicators
• Observed quality (reliability) improved substantially
• General opinion polls showed increasing dissatisfaction with
private provision of public services (various possible explanations:
myths, generalization and contamination across reforms,
corruption, poverty, unemployment, true mistakes, etc.)
4
Scottish Flag
Would you say that a better country is one where the vast
majority of things are made by public enterprises or private
enterprises?
70
PRIVATE
60
50
40
PUBLIC
30
20
2002-IV
2002-III
2002-II
2002-I
2001-II
2001-I
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
10
5
Performance of the Telecom Sector, 1990-2000
• During strict monopoly period (1990-1999), significant improvement in
quality and coverage; less visible benefits from elimination of deficit
and rebalancing of tariffs in 1997
Amount and Quality of Telephone Service, 1990-2000
1990
1992
1994
1996
Lines in service (thousands)
3,027
4,257
5,638
7,040
Public telephones (thousands)
23
36
57
80
Mobile telephones (thousands)
15
n.a.
241
667
Telephone lines per 100 people
11
n.a.
14
17
Digitalization of network
13%
28%
62%
85%
Waiting for a line (thousand pending)
312
n.a.
496
33
Gross investment by LSB (millions of US$)
-1,214
2,020
1,709
Employees (LSB)
40,772 36,293 31,289
27,264
Source: CNC
1998
7,588
114
2,671
20
100%
58
1,226
21,555
2000
8,350
154
6,381
21
100%
55
1,044
19,398
• Also, waiting for a phone went from 23 months to 2 weeks, and
installation charge from 1,500 US$ to 250 US$, between 1990 and
1997
6
Rebalancing, initial situation (hidden prices through 1.5 B US$
deficit of ENTEL in 1989, etc. created perception problems)
+20%
-39%
+320% (IPM)
+700% (US)
-28%
-70%
86
-15% (IPM)
89
90
91
98
t
7
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…)
8
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?
9
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 19982001, to 160 million per year in 2002-2003
• Total Information Equipment and services: from 3.5 B US$ in 199810
2001, to 1.1 B US$ in 2002 and 1.6 B US$ in 2003
How sustainable is the status-quo?
Pending Conflicts at ICSID (November 2003)
Number of cases
Countries
1
16 countries (Algeria, Saudi Arabia,
Bolivia, Peru, Philippines, Venezuela,
etc.)
2
6 countries (Chile, Jordan, Kazakhstan,
Morocco, Mexico and Pakistan)
3
3 countries (Congo, Ecuador and Egypt)
23
Argentina
31 as of today
70% involve public utilities post-devaluation, including provincial
concessions; number growths monthly; demands currently add up to
US$ 16 Billion
11
Argentina: pre and post-devaluation tariffs in the international comparison
Argentina
2001
Value in US $
Argentina
2002
Great
Britain
Lowest
International international
average
value
Telephony
Monthly rental
Local call (1 minute)
Average bill per year, fixed lines
12,5
0,026
718
4,2
0,009
412
14,7
0,05
570
8,8
0,07
650,4
1,6
405,3
0,93
304,5
Na
Na
Na
Na
31,8
112
55
35,5
116,8
57,6
31,2
69
33
94,2
367,8
133,1
94,3
407,8
154,3
91,8
367,8
133,1
Drinkable water and sewerage
Price per m3
Average bill per year
0,33
358,0
0,11
126,0
Electric power
Wholesale (spot) price, per Mwh
Final residential price, per Mwh
Final industrial price, per Mwh
19,5
89,0
48
8,76
30,0
15,6
Natural gas
Wellhead price, per 1000 m3
Final residential price, per 1000 m3
Final industrial price, for 1000 m3
43
158,4
68,8
18,1
52,8
22,9
Source: Urbiztondo (2003) with data from ITU, OFTEL, AASA, OFWAT, CAISE, FIEL, FIEL and Secretary of Energy.
12
Considering recent experiences where devaluation was pronounced…
Figura 2.b: Evolución del Tipo de Cambio
(moneda local/dólar estadounidense).
Promedio de cada Año.
6.0
Indonesia
Malasia
5.0
Año -1 =1.00
Tailandia
4.0
Corea
3.0
Brasil
2.0
Rusia
1.0
México
0.0
Uruguay
-2
-1
0
1
Año
2
3
Argentina
13
The deterioration of real tariffs (considering the electricity sector)
in Argentina is more striking…
Figura 5: Precios Finales de Energía Eléctrica
(respecto del índice de precios mayoristas)
Indonesia
1.3
1.2
Tailandia
Año -1 =1.0
1.1
Corea
1.0
0.9
Brasil
0.8
Rusia
0.7
0.6
México
0.5
Uruguay
0.4
-2
-1
0
1
Año
2
3
Argentina
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
16