liberalization

Privatization and deregulation have had an enormous effect on the information/communication domain. Advocates have promoted these twin policies as the best way for nations to increase efficiency and introduce competition. The rapid growth in telecommunications in the Andean subregion is due to the ascendancy of these twin policies. Technological changes, national privatization efforts launched in the 1990s, and the liberalization of basic telecommunication services have spurred growth. Ecuador is playing catch-up, and continued liberalization and deregulation hinges on the sale of the state-owned telecom - PACIFICTEL and ANDINATEL (created when EMETEL was split into two companies in 1997). These two companies presently hold an exclusive right to provide local and international services. Three previous attempts to sell the companies failed due to political intrigue, accusations of corruption, and bickering between regulatory bodies. Cable, cellular, and value-added services are more competitive and the landscape continues to change rapidly. However, one must beware the dangers of a truly deregulated market. In "Chile Is a Telecommunications Jungle" by Jonathan Friedland, we learn that many businesses consider the Chilean market "a nightmare". Cable giant TCI withdrew from the market because, "It's really hard to see how you can make a business with this much competition." The rule seems to be, competition is good, just not too much competition; one should be cautious that privatization and deregulation will be the boon to Ecuador that most people expect.

Background

Privatization is a relatively new trend in Ecuador. The disinvestments of various business sectors have been carried out by the National Financial Corporation (the State’s Industrial Development Bank). Although Ecuador has pursued privatization goals since 1992, this pursuit has been mainly from a political perspective, with little accomplished from a tangible, economic viewpoint. Historically, the lack of progress originates from unstable finances and insufficient motivation, both domestically and internationally, to invest and manage the privatization process.

According to Ramiro Montealegre in his report: A temporal model of institutional interventions for information technology adoption in less-developed countries, published in the Journal of Management Information Systems, the following phases have characterized liberalization and deregulation of the telecommunications sector in Ecuador (direct quote):

In the 1980s, Ecuador's domestic telecommunications facilities were provided by EMETEL, the state-owned telephone company. Because these facilities were generally known to be inadequate and unreliable, a number of banks and petroleum companies negotiated with EMETEL and began to operate private satellite networks using very small aperture terminals (VSATs).

In 1990, the Ecuadorian Information Corporation, a nonprofit association, was formed by the Escuela Politecnia del Litoral, the Universidad Catolica Santiago de Guayaquil, the Junta de Beneficencia de Guayaquil, the Fundacion Privada Ecuatoriana, and the Banco del Pacifico, the country's largest commercial bank and the operator of its largest private satellite network. The objective of the Ecuadorian Information Corporation was to install and manage a computer network that would enable students, researchers, and the general public to communicate with others throughout the world, and would provide access to libraries and scientific databases worldwide.

The project of developing an Internet connection and national network, EcuaNet, came into being after the Banco del Pacifico offered Ecuadorian Information Corporation the use of its national and international communications system at no charge. EcuaNet was given bandwidth on the bank's satellite and microwave-based domestic networking infrastructure, which was primarily used for automatic teller machines and interbranch/intercity voice and data communication, and on its satellite link to Miami. The first stage of the EcuaNet project was completed in March 1991 when connection to the BITNET network was made, enabling its members to experiment with that type of connectivity.

In October 1992, Ecuador was connected to the Internet through SURAnet.7 Ecuadorians sent their traffic through this network for many months, while EcuaNet gained experience and maturity. Technical and financial support for this connection came from the Escuela Politecnica del Litoral and the Universidad Catolica de Santiago de Guayaquil. Private institutions also contributed equipment and funding, including Almacenadora del Agro, Factor del Pacifico, IBM del Ecuador, L.E.A.S.I.N.G. del Pacifico, MasterCard, Seguros Sucre, and the U.S. Pacific National Bank.

In February 1993, EcuaNet received financial support from NSF and began sending traffic through the NSF-Sprint/ICM router in Homestead, Florida. The Ecuadorian Information Corporation began to offer several different courses on topics related to the Internet to members of academic, public, and private institutions.

EcuaNet/Ecuadorian Information Corporation grew, and by 1996 it was composed of diverse groups, including universities, secondary schools, research centers and foundations, government and public institutions, members of the armed forces, professional associations, business, clinics, and hospitals (knowledge deployment). At that time several private Internet providers also began to appear.

The historical lack of governmental support, specifically from former President Rodrigo Borja, and worker opposition has not aided in the privatization process. Both groups warned of the potential negative effects of privatization, such as higher unemployment rates. However, in 1992 with the emergence of the Duran Ballen administration, a new agency was formed to oversee the deregulation process, the National Council of State Modernization, CONAM. This agency maintained that privatization efforts should be concentrated in the following areas: national telephone company, port services, Ecuatoriana de Aviacion, military services and PetroEcuador.

Although the Duran Ballen administration took a more supporting role towards privatization policies in Ecuador, the administration viewed itself as a subsidiary and economic regulator, not as the “engine of development…as this is the role of the private sector.” A draft bill of State modernization was constructed with the following as the main criteria:

In order to achieve the services objectives set in the National Telecommunications Development Plan for 1998 through 2010, investments of over USD $4 billion are required, an average of USD $300 million annually, of which 70% corresponds to investment in the development and modernization of the fixed telecommunications services. Telecommunications sector authorities expect the bulk of the investment to come from private national and international firms aware of the highly attractive opportunities in the telecommunications arena provided by the new legal framework, and advantageous pricing and investment policies.

Liberalization Status Table (Source: IADB)

Infrastructure Aspect	Liberalization Status	Comments
Local Service:	Monopoly	EMETEL (Pacifitel and Andinatel) presently holds an exclusive right to provide local services; a right that its two constituent companies will hold until 2003 pending privatization efforts.
Long Distance:	Monopoly	EMETEL (Pacifitel and Andinatel) presently holds an exclusive right to provide long distance services; a right that its two constituent companies will hold until 2003 pending privatization efforts.
Value-added:	Transitioning to competition	EMETEL’s monopoly expired at the end of 1997. Several smaller firms now compete.
Cable:	Competitive	Two systems compete for customers in some areas.
Cellular:	Competitive	Two companies hold licenses to provide cellular services.

According to information from the Andean Community, the Andean countries agreed to deregulate all telecommunication services, with the exception of sound radio and television broadcasting, as of January 1, 2002, in order to remove all obstacles to free trade in the sector. This is one measure leading to the creation of a common market no later than 2005, a target date set by the Cartagena Presidential Summit in May 1999 and later ratified in Lima in June 2000.

The draft Decision, entitled "Provisions Regulating the Integration and Liberalization of the Trade in Telecommunications Services in the Andean Community" (CAN), establishes principles and commitments, together with a liberalization timetable. A liberalization timetable, divided into two stages, was prepared for those countries that have not yet completed the liberalization of their markets. During the first stage, starting on January 1, 2000, "restrictive measures concerning telecommunications services other than local basic, national and international, and mobile land telephony will be removed." In the second stage, to run as of January 1, 2002, all telecommunications services, except for sound broadcasting and television, will operate without restriction. It was also agreed to grant Ecuador a longer period in which to liberalize certain services.

They will also apply to measures adopted or maintained by a Member Country that affect the provision and the trade in telecommunications services and to all provisions concerning standardization of the connection of terminals or other equipment to public telecommunications transmission networks (Source: Andean Community).

The Andean Community also provides action guidelines for boosting telecommunications and information technologies including:

The Andean Committee of Telecommunications Authorities (CAATEL) has moved ahead in several of these areas. At its Tenth Regular Meeting, held on July 4 and 5, 2000, the Committee approved a Working Plan for the July 2000 to July 2001 period that contains four priority tasks, the methodology for carrying them out, the working groups in charge of boosting those tasks, and a timetable.

The approval of Andean Community Commission Decisions 479 and 480 complemented and enlarged upon the regulatory framework for the establishment, operation, and development of the Andean satellite systems. Decision 479 empowered authorized enterprises to establish, operate, and develop satellite systems indirectly, in exercise of the rights granted to them under Community authorizations, and to adopt business schemes involving an association with third parties, in keeping with Andean Community provisions. Decision 429 gave the Andesat Simón Bolívar Andean multinational enterprise the Community’s first authorization to carry out an Andean satellite project and to utilize the Andean Community’s orbit-spectrum resource commercially. The enterprise is made up of 44 Bolivian, Colombian, Ecuadorian, Peruvian, and Venezuelan firms that have taken on the commitment to execute the project by drawing on their own funds consisting of roughly 350 million dollars. ANDESAT S.A. EMA has made significant headway toward the establishment, operation, and development of the satellite system and expects to put the Simón Bolívar satellite into orbit and have it operational by the third quarter of 2003 (Source: Andean Community).

Most recently international investment banks Wilburg Dilon Read (Swiss), Credit Suisse First Boston (Swiss-US), Deutsche Bank Securities (Germany), JP Morgan (US) and Robert Flemings & Co. Ltd. (UK), have presented offers to Ecuador's special privatization committee, Conam, to manage the sale of Andinatel and Pacifictel. Conam and the World Bank, which is helping Ecuador in the privatization process, have approved the shortlist of interested investment banks. The investment bank must define the privatization mechanism for the sale of 51% of the company to an outside investor, as well as assuring that 12.5% of the company's equity is reserved for employees. Conam aims to privatize Andinatel and Pacifictel no later than the forth quarter of 2001 (Source: Business News Americas).

Summary

Background

Liberalization Status Table (Source: IADB)

Comments