Doing Business : Investors Dial Up Chilean Market : There is fierce competition since the government ended the long-distance monopoly.
Overseas telephone rates have dropped by as much as 75%. Full-page newspaper ads and prime-time television commercials are trumpeting the low cost of calling anywhere. Two Baby Bells from the United States are among companies investing millions of dollars in Chilean offices, equipment and personnel to compete for long-distance dollars.
Chile is carried away with the “multicarrier.”
This is the first country in Latin America to open up the long-distance market for multicarrier competition, called “equal access” service in the United States. Where a telecommunications monopoly once carried all long-distance traffic, now there are seven competing companies, including a subsidiary of Atlanta-based BellSouth and a joint-venture partly owned by Philadelphia-based Bell Atlantic.
Since customers freely choose which carrier to use by dialing a three-digit prefix, the companies are conducting hard-sell campaigns and giving big discounts in a battle for shares of a growing market worth $500 million a year. According to some estimates, the companies have spent a total of more than $30 million for advertising.
And so far, consumers are the winners. BellSouth, for example, is touting an introductory offer on calls to the United States at the equivalent of 44 U.S. cents a minute; it used to cost $1.63.
The Chilean telecommunications market is expanding by more than 20% a year. But somecompanies have their eyes on a bigger prize: As other Latin American countries open up to multicarrier competition, they calculate, experience in Chile will be valuable for competing in bigger markets.
A telecommunications monopoly called Entel had the whole long-distance market to itself until 1992. Then, new laws assigned portions of the domestic long-distance traffic to other companies but without competition.
Last year, the Congress passed the multicarrier law, permitting free competition for all long-distance traffic. The system began operations in Santiago in late October.
Entel, with its Chilean experience and name recognition, hopes to keep about 50% of the long-distance traffic. But with seven carriers competing, some are bound to be disappointed. Robert Barr, long-distance sales manager for Entel, predicted that only three or four of the long-distance carriers will survive the competition.
Like BellSouth and Bell Atlantic, Entel is jockeying for a competitive position in other Latin American countries. The Chilean company, with yearly sales of $235 million, already has investments or investment plans in Argentina, Peru, Colombia and Ecuador.
If all of Latin America goes for the multicarrier concept, as many executives predict, the competition will be for billions of dollars in potential revenue.
“The way the market is opening here is the way it is going to open all over Latin America,” said Francisco Javier Opazo, sales manager for the new Chilean long-distance carrier Iusatel. “This is a chain that little by little is forming its links.”
Iusatel is partly owned by Bell Atlantic. The Baby Bell and Mexico’s Grupo Peralta own Iusacell, the leading Mexican cellular telephone company, which has 51% of Iusatel. The remaining 49% is owned by Chilean investors.
So far, Iusatel’s investment in Chile is more than $15 million. Opazo said the company hopes to win at least a 15% share of Chile’s long-distance traffic, while gaining experience in preparation for multicarrier competition in Mexico and other Latin American countries.
The Mexico long-distance market is worth more than $4.5 billion a year, he observed, and with the North American Free Trade Agreement, an “explosion of growth” is expected in U.S.-Mexico phone traffic.
BellSouth has invested about $40 million in its Chilean long-distance project, according to general manager Gerald B. Breed.
He said the company is targeting 20% of the market, with emphasis on traffic with the United States, where the Chilean subsidiary has “connectivity” with AT&T;, MCI and Sprint.
Calls between Chile and the United States account for nearly one-third of this country’s international telephone traffic.
BellSouth also has a cellular service here with 30,000 phones and interests in cellular systems with more than 160,000 phones in Venezuela, 130,000 in Argentina and 4,000 in smaller Uruguay.
Roberto Peon, BellSouth president for Latin America, said that when Chilean long distance became a multicarrier market this year, BellSouth decided to expand into the area.
“It made sense to us since we already have a cellular company here,” Peon said.
“We definitely want to continue to expand in Latin America--it’s one of our best performing divisions.”
Latin Americans use their phones at least twice as much as Americans, Peon said. “It’s cultural,” he said. “People just speak more. They visit more, talk more.”
Latin Connections
Chileans telephone the United States more than any other nation.
Main Long-Distance Routes from Chile
(% of outgoing international calls)
United States: 31%
Argentina: 15% Brazil: 6%
Spain: 5% Peru: 3%
Germany: 3% Other: 37%
SOURCE: Iusatel
