Economy affects telecom sector, especially in LatAm

The global telecommunication industry has been significantly hit by an economic slowdown, causing a significant increase in debt levels and in capital constraints, and Latin America is being especially hard hit, according to panelists at the eVolution Argentina 2001 conference held here last week.

The estimated total debt of the telecom sector worldwide has increased from US$255 billion in 1998 to $655 billion by the end of 2000, said Gustavo Ferraro, managing director of Salomon Smith Barney Inc.'s Latin America Telecommunications and Media Investment Banking Department. This has changed the focus of the carriers, which are now devoted to debt restructuring and consolidation, and facing technological uncertainty about third generation (3G) services, Ferraro said.

On a brighter note, Salomon Smith Barney forecasts that the telecom industry will double its participation in the global gross domestic product (GDP) within the next seven or eight years, which will lead to higher margins and increasing returns in the next four or five years. Still, carriers will reduce their capital expenditures to between 5 percent and 15 percent of their annual revenue in the coming years, down from about 30 percent in 1999 and 2000.

In Latin America, the economic recession and financial uncertainty of the region have further hurt telecom investment and growth, he said. However, the market's consolidation is already almost completed, in terms of bankruptcies, acquisitions and mergers. Carriers are investing the most in Brazil and México, while Argentina comes in a distant third in this category, he said.

Argentina's telecom development is getting stalled because of the country's very rigid economic framework, said Pablo Gerchunoff, professor and researcher at the Torcuato Di Tella university in Argentina. If the government manages to solve the present financial crisis, Gerchunoff said, then the middle-term possibilities of development and economic expansion look good, in spite of the almost 50 percent public debt/GDP ratio.

Argentina's only chance for recovery is to fully enter into the digital era, said the Argentine Secretary for Communications, Henoch Aguiar, on a separate panel. Aguiar highlighted that Argentina's international data connectivity has impressively increased from a mere 500M bits per second three years ago, to about 10,000G bps (10T bps) now. And Argentina boasts a full 50 percent of all university graduates in Latin America. However, a very aggressive national policy is necessary to close the digital gap, and enter fully into the "e" world: e-laws and e-government. Contrary to other views that speak of electronic commerce first, Aguiar said that e-commerce will expand and take hold after all these previous steps are taken.

This event will also be held in México on June 11 and 12.

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