2.1 Introduction

        Privatization and deregulation are occurring at a great rate in Latin American markets.  They are both important issues in Columbia for many reasons.  The Colombian economy has enjoyed uninterrupted growth since 1932 and the passing of the Great Depression.  Since then, its economy has not contracted but has grown faster and slower each year in real terms.   This economic stability is akin to that experienced by fully industrialized nations and is not something that is mirrored among other Latin American countries who have muddled through many regional and world financial crises.  Even during the 1980's Colombia achieved an average growth rate of 3.5% and during the Latin American region's debt crisis, Colombia was the only country not to restructure.  It remains to be seen how privatization and deregulation will fully impact the Colombian economy, however.   At this time privatization and deregulation are contributing positively to current and future economic growth.  (12)

2.2 Factors for Privatization in Latin American Countries

Factors of privatization consideration in Latin American countries are many and varied, but at this time three main trends can be noticed:

    Size-larger markets first.   While there are 21 mainland South American nations, only Colombia, Brazil, Mexico, Argentina, and Peru have populations that are larger than the metropolitan populations of New York, London, or Paris.  (13) It is only natural that these larger markets lead the process.  (Please see diagram below.)

    Timing-state of global markets, home funds available, competition through privatization in other countries.   Mexico, Brazil, and Argentina have been sources of interest for investors as privatization plans have unfolded.  Currently interest has moved to Colombia as a source of new opportunities.  This interest is created from a diminishment of investment opportunities available in Brazil, Mexico, and Argentina as well as through recent changes in Colombian privatization and deregulation.

    Sentiment opposing foreign ownership.  In Colombia, anyone can set up and operate a company that provides local telephone services.  Government has set the standard by allowing for a gradual increase in foreign ownership of telephony resources to eventually allow foreign investors to own a majority portion of what was previously under the control of the state telecommunications monopoly.

 

(14)   Telecommunications in Latin America (15)

The government has recognized the possibilities that deregulation presents to the country's IT system and has changed it government policies.

During the past five years the Colombian telecommunications sector has weathered significant changes with the bulk occurring during the years of 1996-1998 as a result of deregulation laws passed by the government.

Today, competition is allowed in practically all telecom markets as stated in Colombia's commitment to the WTO.  The only limitations that exist in telecom market access include: (16)

    In all telecom markets, a license is required for legal Colombian entities and a registration process for foreign investors.   Foreign investment in the various markets is permitted for up to 70%.

    Local and extended local telephony markets: Competition is permitted as long as coverage in the major cities is equivalent to present coverage offered.  If not, local coverage is allowed where there is no present local city coverage.

    Long distance, national, and international: Only licensed operators are permitted to route traffic, and any type of call-back services are illegal.  Again, foreign investment of up to 70% is permitted.

    Data transmission: Foreign investment is permitted for up to 70% of the market.

    Mobile and Cellular Services: Currently, 800 MHz band is utilized.  Until September 1, 1999 the country has been divided into three competing cellular regions, with two competing operators having exclusivity.   Foreign investment is permitted for up to 70%.

    PCS: Entry will be allowed commencing December 31, 1999.

    Paging and Trunking: Entry was allowed beginning June 30, 1997.

2.4 Colombian Strategies

     Joint ventures of private companies with existing local telephone companies as a way to quickly garner client bases and leapfrog a lack of infrastructure.

This strategy is displayed by Nortel in their joining with Empresa Nacional de Telecomunicaciones to provide a new digital infrastructure for Bogota.   Over a six year period Nortel will supply 220,000 lines in two of Bogota's five zones in exchange for a revenue sharing agreement.  Through this agreement Emtelco gains expertise and infrastructure while Nortel gains a ready-made client base.  In the end, both companies profit from this agreement.

      Direct competition of new private companies with existing local public companies.

This strategy was displayed in 1998 as two new private networks were created in Colombia: Caracol Television SA and RCN Television.  Caracol and RCN will compete against three state-run television networks with each new competitor planning to spend approximately USD $250 million over the next three years to launch their networks.

      Establishment of a Regulatory Body

The Telecommunications Regulatory Commission (TRC) is a regulatory agency established by the government to disband inefficient local monopolies and to gradually reduce tariff controls as competition becomes more established.  Currently, local telephone service providers may set their own customer rates as long as they cover the total cost of providing service and keep their rates below the ceiling created by the TRC.

     Forward to Internet Activity

      Back to Telecommunications Infrastructure

     Home to Main Colombia Menu