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Climate hampers Latin telecom market's growth Jim
Landers WASHINGTON — Internet use is spreading rapidly through Latin America, but Mexican consumers and some others could lag behind because investors are discouraged by weak regulation of powerful phone companies. Several U.S. telecommunications companies, analysts and federal officials complain that Teléfonos de México SA, or Telmex, stifles competition. The former state-owned monopoly is now a private company with dozens of competitors for local and long-distance telephone service. Telmex still dominates the Mexican telecommunications market, however, and competitors are crying foul. Telmex in turn accuses new entrants AT&T Corp. and WorldCom Inc. of cherry-picking its corporate customers without investing in infrastructure.
The two sides are caught up in lawsuits in Mexico and a trade dispute
that has gone to both President Clinton and President Ernesto Zedillo. Regulators
have also been unable to untangle telecommunications in Bolivia, Costa
Rica, Uruguay and Venezuela, where telephone monopolies or near-monopolies
continue to collect high prices. About
16 million Latin Americans are now online — about 3.2 percent
of the region's 500 million population. The rate is doubting annually,
and Spanish has become the second language of the Internet after English. Without
big investments in telecommunications, however, growth could hit a
wall. And some investors say they will shy away if they don't have
the opportunity to compete. "The
moment's here, ripe to be taken," said Cresencio Arcos, regional vice
president for Latin America with AT&T Corp. "There
is a concern, though, that only a handful of Latin American countries
are going to make the right public policy decisions because Internet
technologies challenge the existing powers and their exorbitant, non-cast-based
tents." From
the U.S. perspective, Mexico is the country of greatest concern. Officials
warned last month that the United States might sue Mexico before the
World Trade Organization because it has not opened its telecommunications
market adequately to foreign competition. The Clinton administration
has set a Friday deadline for Mexico to act. A
similar threat against Japan was resolved last week when the government-controlled
local telephone monopoly NTT agreed to cut in half the fees it charges
foreign companies to use its circuits. Some
analysts blame a lack of competition for high prices in Mexico. Mexican
consumers pay nearly four times as much as U.S. consumers rot
a basket of telecommunications services, according to a February study
by the Alexis de Tocqueville Institution, a nonpartisan research group
based in Arlington, Va. The
basket of 2,000 minutes a month of local calls, national and international
long-distance and unlimited Internet access was priced in the study
at just under $45 in the United States. The Mexico price for the same
basket was more than $160. Bolivia had the highest-priced basket in
the study: £302. The
Organization for Economic Cooperation and Development, which represents
29 of the world's wealthier nations, last year found Mexico's phone
charges were twice the organization average. Meanwhile, the number
of telephone lines for every 100 people in Mexico is among the lowest
in Latin America. Daniel
E. Crawford, ventures president for WorldCom, faults Telmex for the
high prices and poor service. And he says there's much more at stake
than a squabble between giant telecommunications firms. "Telecommunications
is a springboard for a mammoth rollout of the Internet all across
the world." Mr. Crawford said. For the economies of Latin America,
telecommunications is the heartland of business today." Telmex
general counsel Javier Mondragon faults WorldCom and AT&T for
raising long-distance prices in Mexico and slowing telecommunications
investment. "If
there is something that could stop telecommunications investment in
Latin America, it is the long-distance carriers' behavior," he said.
"They want others to do die investments, while they want the cream
of the At
present, Internet providers are multiplying throughout Latin America,
and prices are falling. Mexicans can get unlimited Internet access
for $18 a month, the de Tocqueville Institution study found. But
U.S. telecommunications firms complain that Telmex won't supply circuits
for dial-up Internet access when they ask for them. Jorge
Nicolin, president of Mexico's Federal Telecommunications Commission
or Cofetel, said Telmex is reluctant to give lines to companies that
have not paid millions of dollars owed for long-distance interconnections.
The U.S. companies say those payments have been suspended by the courts
while they hear arguments that the rates were designed to price Telmex's
competitors out of the market. Telmex
is one of the biggest firms in Latin America and one of the most profitable.
The Mexican government in 1990 sold majority ownership for $1.76 billion
to a group led by Carlos Slim Helu's Grupo Carso. San Antonio-based
SBC Communications Inc. holds 10 percent. In 1999, Telmex reported
earnings before extraordinary items of $2.6 billion on sales of $10.05
billion. Contract
disputes U.S.
firms argue that under World Trade Organization rules for telecommunications
trade, Telmex should make its circuits available to foreign competitors
for a cost-based fee. Mr. Arcos said Telmex is charging its foreign
competitors 19 cents a minute for circuit access that costs Telmex
only 6 cents a minute. Mr.
Mondragon disputed those figures and said the big U.S. firms were
avoiding their contractual obligations. The
FCC fined Telmex $100,000 in January because the fees charged to its
competitors in Mexico were not compatible with the agency's terms
for Telmex to do business in the United States. As
U.S. trade officials see it, the problem is a weak referee. Mexico's
Federal Telecommunications Commission has struggled for years to compel
Telmex to change to a cost-based fee structure arid to provide more
circuits to competitors. Telmex has used the courts to keep Cofetel
at bay, winning more than 200 injunctions against the regulatory agency. "Telmex
is a telephone monopoly that is not regulated the way it should be
regulated," said Deputy US. Trade Representative Richard Fisher. "Telmex
needs to be fiercely regulated." Mr.
Nicolin said Mexico has made progress on all the issues that U.S.
officials are raising. Competitors
now hold 30 percent of the long-distance market. Cofetel is hearing
Telmex's arguments about dominant cattier rules proposed on March
27, but meanwhile the company has promised to provide new lines for
Internet providers on a first-come, first-served basis, Mr. Nicolin
said. "We
are one of the three countries with the fastest growth of the Internet,"
he said. "Most of the problems are from the impressive growth
of the Internet in Mexico. President-elect
Vicente Fox has said he will ensure that Cofetel has both the autonomy
and authority to regulate Mexico's telecommunications companies. But
Mr. Nicolin said one of the problems — filing for injunctions—
needs legislative action. "It
is easy to get injunctions. This is a problem we face not only from
Telmex but the rest of the carriers as well," be said. Legislation
limiting injunctive relief has been introduced in Mexico's Congress. Mr.
Fisher was scheduled to meet Monday and Tuesday with Mexican officials
in Mexico City. The meetings probably will decide whether the United
States lodges a WTO complaint against Mexico. "Sometimes,
both people think they are right, and when both people think they
are right, they get stubborn." Mr. Mondragon said. 'You need something
or someone to break the stalemate. I hope Mr. Nicolin will help us." In
contrast to the fight an Mexico, FCC Chairman William Kennard last.
March lauded the efforts of Peru, Jamaica, Argentina and Brazil to
open their markets and promised technical support to their regulators Argentine
President Fernando de Ia Rua took office in January vowing to bring
competition into telecommunications. By March, tong-distance prices
were down 56 percent. Competition
has forced prices down for Internet access as well. Consumers
in Argentina and Chile pay less than $15 for unlimited Internet access,
the de Tocqueville Institution found. But in Costa Rica, where the
government has maintained an Internet service monopoly, the cost of
unlimited Internet access last year was $95 a month. While
surfing the World Wide Web and trading e-mail are the most popular
Internet pastimes today, the Internet also offers consumers a way
to make telephone calls and send faxes at little or no cost. Rob
Stephens, director of Latin American business development with Internet
telephone service provider iBasis Inc., remembers a conference in
Brazil where the speakers description of the future of the Internet
brought one applause after another — until he said it would
drive telephone call charges to zero. "That
line brought dead silence," Mr. Stephens said. "The big incumbent
telecoms are all pro-Internet when it generates more revenues. But
when it challenges the notion that you have to pay for telephone service,
they feel threatened by it." Ecuador
and Colombia have effectively banned using the Internet to make telephone
calls, Mr. Stephens said. "In
Europe and Asia, it's very easy to get these licenses," Mr. Stephens
said. "Asian countries are worried about content. Latin American
countries could give a flying hoot about content. Their concern is
how it will affect the underlying companies." Mr.
Stephens' firm entered the Mexico market in April with long-distance
provider Operadora Protel SA, a Telmex competitor in the commercial
long-distance market in 51 Mexican cities. The partners are now routing
long-distance telephone calls over the Internet rather than through
more costly telephone switches. The
Internet will become a highway for voice traffic only if Latin America
invests heavily in high-speed connections known as broadband, Mr.
Kennard said in Peru earlier this year. "To create ubiquitous broadband, we must create transparent, effective regulatory regimes that ensure full competition," he said. "This inevitably means that regulators must curb the power of powerful incumbent carriers to create a level playing field for new entrants."
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