Latin America has come a long way since the economic recession of 1999-2003. From a negative GDP growth of 0.4% in 2002, the region has been registering average GDP growth levels of around 5% in the past three years or so. But this is still not enough to overcome the region’s social and economic problems, which include high levels of political conflict or crime in some countries, as well as significant inequalities throughout most of the region, between the rich and the poor and between rural and urban populations.
This has led to dissatisfaction with the existing economic models, prompting two countries, Venezuela and Bolivia, to re-nationalise their incumbent telcos in early 2007.
The question of whether state-owned or privately-owned operators are more likely to improve a country’s teledensity is at the forefront of telecom debates in Latin America.
The fact is that most state-owned companies have proved to be inefficient, obsolete, and corrupt, but there are exceptions to this reality in Latin America. Uruguay’s Antel is often quoted as a notable example of a state-owned operator that has provided the country with 100% telephony coverage, and is reasonably advanced technologically. In Costa Rica, the state-owned monopoly telco ICE has been criticised for poor service quality and obsolescence, yet the country has one of the highest fixed-line teledensity rates in Latin America – considerably higher than would be expected from its GDP per capita compared with the rest of the region.
On the one hand, private operators have no interest in areas that are not going to be lucrative in the relatively short term. Therefore, they normally avoid investing in rural or economically backward areas. This ensures that poor populations remain poor, since the presence of communications infrastructure is an important factor for development. Yet, in the long run, poverty will be a handicap for private investors, since it restricts the number of people able to afford telecom services, thus lowering the saturation threshold.
On the other hand, competition among private operators appears to have worked well in many countries, particularly in Chile, where early privatisation and liberalisation have made its telecom market the most mature in Latin America. Like Uruguay, Chile has 100% telephony coverage.
If we use Uruguay, Costa Rica and Chile as examples, we find that fixed-line teledensity is higher in the first two, while Chile is lagging behind in this sector. In the mobile market, Chile has the highest penetration rate in Latin America, while Costa Rica lags far behind with a mobile penetration that is much lower than what would be expected given the country’s relatively high GDP per capita. Until 2004, Uruguay’s mobile penetration was considerably lower than the Latin American average. Unprecedented growth in 2005-2006, however, brought mobile penetration to a level that matches the country’s GDP per capita.
The fact is that competition in the mobile market does appear to stimulate rapid expansion of telecom access in developing nations, while the nature of fixed-line infrastructure makes competition more difficult. Besides, having duplicate networks ends up being a waste of resources in countries that cannot afford wastage. Therefore, there could be an argument for nationalising the fixed-line infrastructure, if it can be managed efficiently, but leaving the mobile market open to competition. The other solution would be to introduce real competition in the fixed-line market by unbundling the local loop, something that has yet to happen in Latin America.
Latin America Annual Publications