World Dialogue on Regulation

In the paper “Industrial organization and competence in Latin America telecommunications: business strategies” by Judith Mariscal and Eugenio Rivera, the authors affirm that the industry of telecommunications in Latin America has suffered important transformations in the last decade. Among others, there were pro market reforms that privatised and liberalised the sector in most Latin American countries. This document aims to explain the transformations undergone by the telecom sector and to identify the trends of the IT industry for the near future. It analyzes the evolution of the sector in Latin America comparing business strategies, the performance and the structure of market in which the two large players operate; looking at the influence of regulatory frameworks and policies on the companies’ structure and business performance.

At present, however, the new fact is that those starting players are not on stage anymore. It was not foreseen at that time, for instance, that the largest US companies would give up LA markets. It was assumed that the global dominance of US Telcos by that time would let them to take advantage of privatization processes and liberalization of the industry to reach the supremacy in the region. Nevertheless, with the acquisition by Telefónica España of Bellsouth operations in 1994, the sale of Iusacell by Verizon and Vodafone and the acquisition by Telmex of ATTLA and Embratel, US presence practically disappeared.

Nowadays, two companies, Telefónica de España and Group Carso Global Telecom (owner of Telmex and America Mobile) are the two unique large players in the telecommunications market in the region.

Two different periods are studied in this work, since the process of privatisation and liberalisation of the industry that started in the end of the decade of 1980. From this analysis, the authors identify a new phase in the development of the sector in the region. In this period, beyond the consolidation of the two large companies, it is possible to identify:

• The leadership of the mobile phone system as a mean to enter in new markets and to consolidate positions in countries where dominant position belongs to fix telephones companies.
• The importance of broad band internet is radically transforming the market for voice communication. The fast development of the broad band in its associated modalities of cable TV and ADSL, implies a significant growth of the VoIP, that could radically alter traditional telephone rates.
• New trends to restructure the internal organization of the companies to face the convergence challenges. Corporate strategies imply new synergies between the different companies which had been organized around the traditional segments of telecommunications.
• Consumers demand more and more integral communication services and therefore, companies' structures seem to be more and more an obstacle. Because of this, under the legal structure of the companies, groups begin to operate under new forms. The companies are more and more prepared to capture heavy users of telecommunications, by introducing more sophisticated packages of services, mobile internet, electronic wallets, regional roaming, mobile television, etc.
• New trends aim to introduce similar regulatory frameworks in the region. By regionalising operations, national regulatory advantages are less and less attractive, because companies must afford loses in those countries where they do not have operations and the same regulatory frameworks avoid any development. On the other hand, the strong trend to convergence with unified operations of different segments (fixed, LD, mobile) stimulates the cut of regulatory differences in most countries of Latin America, which avoid the possibilities of optimizing the use of different networks.

This document has been published by the Series Productive Development in the framework of the activities regulate of the Division of Business and Productive Development of the United Nation's Economic Commission for Latin America and the Caribbean (ECLAC) . Then date of this publication is December 2005.

About the authors: The authors of this document are researchers and professors in the Centre of Investigation and Economic Teaching (CIDE) of Mexico City. D.F. Likewise, they participate as investigators in the research program in telecommunications TELECOM-CIDE, directed by Judith Mariscal.

Judith Mariscal Avilés has a PhD. in Public Policies of the Lyndon B. Johnson School of Public Affaire, University of Texas, Austin; Magister in International Political Economy in the CIDE and Bachelor in Economy by the ITAM. She is also member of DIRSI.

Eugenio Rivera Urrutia is a PhD in Economics and Social Sciences of the Freie Universität Berlin (FU Berlin). He was President of the Antitrust Preventive Commission Office in Chile and he was chief of the Division of Regulation at the Department of Economy of Chile and consultant of the IABD, FAO, World Bank and UNDP.