ANALYSIS-Incoming Argentine telcos face war of attrition
By Brian Winter
BUENOS AIRES, Oct 17 (Reuters) - With all the lofty expectations of the beginning of a marathon, more than a dozen players are tensely lining up to compete in Argentina's telecommunications sector after it is fully deregulated in November.
But analysts say that savage competition will eat some smaller competitors alive, predicting titans with rock-solid financial backing may be among the few left standing after even the first few miles of the race.
A slew of telecom companies will jostle for position in Argentina's long-distance and local fixed telephone market when the South American country's $11 billion telecommunications sector is fully opened to competition on Nov. 9.
Analysts agree the terms of the deregulation mean -- at least theoretically -- endless possibilities for competition.
"The rules are so lax that almost anyone can, if they want to, enter and offer telecommunications in Argentina," said Roger Heale, an analyst for Raymond James Argentina.
But the newcomers only wish the game were that easy.
Investors worldwide are increasingly demanding quick results from telecom companies, meaning the enormous initial investment required to topple existing giants will be that much harder to scrape together, analysts say.
Plus, many of Argentina's 36 million people say they plan to wait for the chips to fall before jumping ship from Telecom Argentina (BUE:TEC2) or Spain's Telefonica (BUE:TEF) (MADRID:TEF).
The two companies enjoyed a nine-year monopoly on fixed-line services after the privatization of the sector in 1990 and analysts say they still hold 97 percent of that market.
"It's a real hassle to go through all the bureaucracy of getting your telephone changed," says Mercedes, a young Argentine woman who works in graphic design, as her bus rockets through a yellow light in downtown Buenos Aires.
"As long as the prices go down -- and people say they will eventually, although I have my doubts -- I think I'll just stay with the company I've got now."
Mercedes' sentiment, not uncommon, is just the thing that sends chills down incoming companies' spines.
"Globally, a number of these alternate carrier companies are even going bankrupt," said Michel Morin, a Latin America telecom analyst for Merrill Lynch.
"The environment for these companies today is not very positive."
SURVIVAL OF THE FITTEST
Still, the Argentine government expects over $4 billion in fresh telecommunications investment to flow into Latin America's third-largest economy over the next 18 months.
Among the companies now aiming to enter or increase their presence in the Argentine market are BellSouth Corp (NYSE:BLS) subsidiary Movicom, Impsat Fiber Networks Inc. (NASDAQ:IMPT), Nextel Communications Inc (NASDAQ:NXTL) and PSINet (NASDAQ:PSIX).
Most analysts agree that the terms of the long-awaited deregulation, unveiled by the government in June, will transform Argentina into one of the world's most competitive telecom markets.
"They'll be even more (open) than European markets," said Heale, citing low user fees to use other companies' networks as one of the main keys to the deregulation. "They've made it very easy for new entrants to have access lines."
Argentina's Communications Secretary Henoch Aguiar has predicted long-distance costs will fall 50 percent in the first four months of competition. Local calls should also decline, although at first only for corporate clients.
Argentina's teledensity, the number of phone lines per 100 people, should increase to around 35 by 2003 from a current 21. The average in the European Union is about 52, Aguiar said.
Several analysts cited Techtel -- whose backers include Bell Canada (TSE:BI), SBC Communications (NYSE:SBC) and Telefonos de Mexico (NYSE:TMX) -- as an example of a company with sufficient funding to enjoy success in the Argentine market.
But entrenched players Telefonica and Telecom have offered incentive programs and rate slashes to keep customers.
Already, long-distance prices have fallen between 50 and 60 percent this year, according to the government, after two mobile phone companies and Telefonica and Telecom were allowed to start competing against each other for local and long-distance services in November 1999.
Still, analysts say that small companies can hold their own by appealing to niche markets and keeping costs low. And for those determined to invade the original companies' turf, they had better come with ample funding and patience. buenosaires.newsroom@reuters.com)) |
