Argentina to Benefit From More Telecom Competition

FORT LAUDERDALE, FLA. (03/29/2000) - Things are going well and about to get better in Argentina's telecommunications market, according to a recent report from credit-rating company Fitch IBCA.

The number of telephone lines per 100 people increased in Argentina from 10.66 to 23 -- the second-highest line penetration in the region -- between 1990, when Argentina's government privatized its state telco and introduced competition to the telecom market, and mid-1999, according to the report.

Wireless subscribers had reached 2.8 million in 1998, compared with only 15,200 in 1990, while the telecommunications network reached a 100 percent digitalization level in mid-1998, compared with 13.2 percent in 1990, Fitch IBCA says in its report.

Now Argentina is taking decisive steps to increase the level of competition in the market, a move expected to drive prices down and increase the quantity and variety of services available to businesses and consumers.

"Fitch IBCA foresees the continued growth of the Argentine telecommunications sector fostered primarily by intense competition in the data transmission and long distance sectors," the report states.

After privatizing its state telco, Argentina established a duopoly system for basic services that was in place until late 1999. During that time, Telecom Argentina served the northern half of the country, while Telefónica de Argentina served the southern half. But now Telecom, which is owned by Telecom Italia SpA and France Télécom SA, and Telefónica, which is a subsidiary of Spain's Telefónica SA, can provide services anywhere and thus compete with each other in this country of about 37 million people.

Additionally, two cellular operators -- the GTE Corp.-backed Compañía de Telecomunicaciones Integrales (CTI) and Compañía de Teléfonos del Plata (Movicom), a BellSouth International subsidiary -- have been awarded licenses to provide basic services. Several other carriers are expected to join the basic-services fray in November 2000, according to the report.

"Argentina's telecommunications sector is in the early stages of a monumental transformation from a dual monopoly system to one of rational competition," the report states.

Data transmission, long-distance services and broadband services are expected to be high-growth areas in Argentina in the near future, according to Fitch IBCA.

Although the two incumbents have improved significantly the country's telecommunications infrastructure, they took advantage of their duopoly power and kept prices high. But the newly elected president promised to strengthen the telecommunications regulatory landscape to foster competition, according to the report.

"Argentina's long distance and local rates remain high compared with other Latin American markets. This is attributable to a historically anti-consumer, pro-incumbent regulatory authority that deferred to political pressure. Should the newly elected Alliance party act on its pre-election pro-competition promises, heightened competition would ultimately lead to lower prices, especially for long distance minutes," the report states.

The telecommunications services market in Latin America is expected to grow from $40 billion in 1998 to $92 billion in 2004, according to market research company Pyramid Research Inc. in Cambridge, Massachusetts.

Fitch IBCA, based in New York City, can be reached at +1-212-908-0500 or at http://www.fitchibca.com/.

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