PREMIUM LEGAL RESOURCES
ASK A LAWYER
We must begin with the fact that telecommunications
are without a doubt one of the driving forces behind the economic development
of our countries. For this reason, the demand for improving the infrastructure
of these services has notably increased. For decades telecommunications
all through Latin America were state-owned through public companies. Their
development levels have been inferior to those of more developed countries.
The rapid technological development of this industry is at a global level.
Its rapid growth in economic terms (103% in 1994) and the impossibility
for the State to adapt to these changes whether technological or economic
in nature, has brought about as a consequence, the transformation of this
industry and the need for its privatization, deregulation and globalization.
These changes have been taking place in Latin America since the mid 1980's
and have been accompanied by a series of political and economic changes.
Chile privatized the "Compania Telefonos
de Chile" as part of a political scheme in which the transfer of companies
that had been in State hands to private sector companies was being sought.
The development of this industry in Chile has been so successful that at
present it is now among the countries that are interested in "exporting"
their know-how and investing in foreign countries.
The need for economic development in which
telecommunications have a direct influence has forced countries like Mexico
(1990), Argentina (1990), Venezuela (1992) and Peru (1994) to privatize
their companies too. Presently, the advantages of transferring communications
to the private sector are undeniable, to such an extent that countries
in Latin America that have not privatized are in the process of doing so.
Although the common goal is the same, different
countries have undergone different processes and mechanisms for transferring
telecommunications to the private sector and thus obtaining greater competitiveness
for improving their services. Each country that has privatized has enriched
itself from the experience of its predecessors and has improved its regulatory
In general terms, we can say that the efforts
of these privatizations in the telecommunication sector have been very
positive. The industries have quickly demonstrated improved services and
technological advancement to the benefit of their users.
The regulatory problems of the controlling
entity is also being solved globally. The UIT has had an important role
in promoting the internationalization of the norms regarding telecommunications.
Year of Restructuring: 1991
Scheme: Privatization through the sale of 60% of the stock of the companies
created by law.
Concessions were awarded in exclusivity for between 6 and 10 years.
Cellular phone services were open to free competition from the beginning.
Restructured Companies: ENTEL was divided into two companies (by sectors,
north and south) and were acquired by the following companies:
1. TELECOM-STET (Italy) /FRANCE TELECOM
-Perez Compac 25%
2. TELEFONICA-TELEFONICA DE ESPANA
-Perez Compac 14.6%
In almost four years, nearly all of the
Argentina public companies have been transferred to the private sector.
In Argentina, there were differences in methodologies and privatization
modes. The Argentina process seems to be antagonistic toward cases like
the one in the United Kingdom where democratization of property was achieved.
In Argentina, an accentuated concentration of property occurred in a reduced
number of economic agents.
To conclude, we can note that in the global
system of privatizations, the lack of official concern for diversifying
the property of privatized companies has allowed for the concentration
and centralization of capital which in turn goes against the purpose of
privatization, which has as its essence the free competition in the marketplace.
In the telecommunications sector, 60% of
the stock was sold to international operators and the remaining 40% was
divided among the workers belonging to the telephone company cooperatives
and the public in general.
The price for the privatization was 1,672
million dollars for the whole company. Thus $1,003 was paid for 60% of
the stock. 214 million dollars was paid in cash, 380 million was financed
and the rest was paid in foreign debt bonds.
This process was characterized by its speed
(which was completed in only a few months).
**It is important to point out that at the moment legislation is underway
that intends to regulate telecommunications in general in the post-privatization
Year of Restructuring: 1995
Scheme: Capitalization. The right to contribute to ENTEL's capital
was sold. (ENTEL being the state company.) Equivalent to 50% holding with
the right to administrate the company. The remaining 50% is being divided
among Bolivians to promote widespread share holding.
Cellular communications are offered at a national level by ENTEL. While
in La Paz the TELECEL Bolivia company has a monopoly on this service until
July of this year when new concessions will be awarded.
Restructuring Company: ENTEL by STET (Italy)
The Bolivian government considered in all
its process of privatizations the following criteria: objective data including
investment plans, financial indicators, experience in project financing,
quality as operators, and the consideration of a partner that will make
the biggest capital contribution to the company. Before the restructuring
process, Bolivia had the lowest line density in Latin America - four lines
per 100 households. The target is to raise line density to 16 per 100 households
within ten years.
ENTEL has a variety of services including
the long-distance monopoly, and a local service license with competition
since most local traffic is handled by 22 cooperatives sprinkled throughout
Until recently a constitutional prohibition
was in place for the participation of private companies, local or foreign,
in the rendering of telecommunications services. Recently, this prohibition
was overruled through the modification of Article 21 of the Constitution.
Nevertheless, the text of the reformed article states that only congress
will be able to regulate the topic of telecommunications within the constitutional
context, through the issuance of a law. Because of this, the constitutional
monopoly shall be in place until such time as Congress expedites a law
that establishes the conditions under which participation will be granted
capital in this sector. At the moment, a legislation project presented
by the Executive power exists, but a legal framework is not yet available.
It is worthwhile to point out that the Telecommunications
Law of the Government contains limitation on the participation of foreign
investment in the Brazilian telecommunications sector. This limits foreign
participation to 49%. At the moment an alternate text has been presented
which contemplates the participation of foreign investment in function
of reciprocity, that is, considering the limitations which Brazilian companies
might have in the telecommunications sector of other countries.
Year of Restructuring: In process
Scheme: Telecom and the Bogata Telephone Company must be privatized
within the next 2 years.
At the moment 2 concessions for long distance
services (national and international) for a renegotiable 10 year term with
a Government commitment not to award new licenses. The party awarded the
concession shall have to pay the Colombian Government an annual fee equivalent
to 2% of the gross income of the company.
In 1995, the Government awarded six cellular
communications concessions through an international auction process in
which international operators associated with local investors participated.
A monopoly exists in Columbia for long distance
services, the same which is provided by Telecom, the State company. Local
telephone service is provided by several companies in each city. Recently
the Government has initiated a process through which it will associate
with suppliers of telephone equipment in order to install and operate local
Year of Restructuring: 1988
Scheme: Privatization through the sale of stock in companies created
Competition exists in cellular communications and soon personal and
digital services will be offered.
Restructured Companies: The Compania de Telefonos de Chile was sold.
COMPANIA DE TELECOMUNICACIONES DE CHILE to Telefonos de Espana
ENTEL to STET (Italy)
The price paid was 478 million dollars ($1,400 per line).
In Chile, free competition exists in the
national and international long distance telephone service. Presently there
are no less than six companies (many of these with foreign capital that
provide the service).
In the local telephone sector, competition
also exists, although approximately 80% of this market is controlled by
one company which has Telefonica de Espana as a shareholder.
The awarding of concessions to operate telecommunications
services requires that the concessionees be companies constituted in Chile
and domiciled in this country requiring that the concessionees of public
telephone service establish a multi-carrier system that allows the user
to choose national and international long distance service with the company
of their choice.
Chilean law allows the same company to provide
local and long distance telephone service if and when it does so through
independent subsidiaries constituted as open chartered companies.
Year of Restructuring: In process
Scheme: Privatization by means of the sale of 35% of the stock (and
control) of each of the two companies resulting from the subdivision of
Several important points:
In Ecuador a legal reform was undertaken which resulted in the expedition
of a Reformatory Law to the Telecommunications Law in which the procedure
for the privatization of telecommunications was established.
Process for Privatization:
1. The State Communications company EMETEL (Empresa Ecuatoriana de Telecomunicaciones)
will be transformed into a chartered company. (At the moment the title
of transformation in the Mercantile Register is pending registration.)
2. Once converted into a chartered company (private law) it will be
subdivided into two companies, one for each region of the country. The
companies that result from this subdivision will operate under an exclusive
regime within their region for which the concession was granted for a period
of five years. It is important to point out that the two-company scheme
was established in order to prevent the occurrence of the State monopoly
becoming a private monopoly since the regulations give the possibility
that after 5 years the two companies will compete on a national level.
3. Parallel to this, the following steps have also been taken within
the process: 3.1 The interested operators have been convened to participate
in the process by presenting their credentials for pre-qualification. These
documents must be presented before November 29, 1996. The prerequisites
for qualification are the following:
Bidders must be experienced network operators with demonstrated efficiency
Art. 49 requirements for Qualification
Technical and service:
Number of local lines in the network
Average repairs in 24 hours
Average international incoming calls
Average of new customers served in 30 days
Dialing tone delay
3.2 Emetel's evaluation and the way in which the company will be divided
is almost ready.
3.3 The Bid documents (bases, contract, etc.) are ready. The Joint Ventures
that participate, led by an international operator must sign a purchase-sale
contract before presenting their offer in such a way that once the winners
are established, only the information pertaining to the bid shall be included.
A minimum referential price shall exist. 3.4 The two highest bidders for
each of the companies shall have the option of increasing their bids in
the second round. 3.5 The concession shall necessarily include an expansion
plan that considers network expansion, social proposals, efficiency in
completing calls and repair service, and a short period for satisfying
new customers' needs.
Year Of Restructuring: 1990
Scheme: Privatization through the sale of stock for the majority share
holding of TELMEX.
Companies that were privatized: Companies that participated in a joint
France Cable & Radio
Price Paid: 1,734 million dollars ($1,489 per line)
Several important points:
The case of Telmex is atypical of telephone
companies in Latin America, because it was not nationalized and has always
had private investors. The patrimonial participation of the State began
in 1963 through credits that were later capitalized in a series of preferential
stock emissions. In 1972 the State represented 49% of the capital.
Two key political elements were present:
workers rights were guaranteed and national capital majority control was
also guaranteed. The Mexican partner maintains 51% and the international
operators the remaining 49%.
By 1989 it was determined that Telemex required
an investment of 10 billion dollars that the State could not front and
so the privatization process was begun.
Year Of Restructuring: 1994
Scheme: Privatization of the local and long distance telephone service
through the sale of 35% of the stock of ENTEL and 20% of the Stock of ("Compania
Peruana de Telefonos CPT) and the right to subscribe in the capital increase
of CPT until it has 35% of its shares (with the control of the companies).
They hold a 20 year lease, with exclusivity for 5 years.
The cellular telephone and public service are provided under the free
competition regime by Telefonica. Cellular 2000 also provides these services
and therefore competition exists.
Telefonica del Peru also holds licenses (without exclusivity to operate
cable and paging services.
Restructured Companies: ENTEL and Compania Peruana de Telefonos CPT
were sold to TELEFONICA DE ESPANA.
Telefonica de Espana paid U.S. 2,002 million dollars. 1,391 million
were paid for the shares, U.S. $610 million will be invested in the privatized
company. (U.S. $13,300 per line)
The State will offer the companies workers 10% of the remaining shares,
and will sale the remaining 55% in the stock market.
The telecommunications law and its regulations
exemplify the principle of free competition in the provision of telecommunications
services, allowing free access to private investment, national as well
as international, to these activities. The Constitution also allows this
The highest price ever paid for a telecommunications
company was paid for ENTEL. The reason for this payment was that Telefonica
established in its offer a management fee that gave them the possibility
of making a higher offer and still doing great business for the company.
Year Of Restructuring: 1991
Scheme: Privatization through the sale of 40% and the control of the
Compania Anonima Nacional Telefonos de Venezuela, CANTV, it was leased
for 35 years extendable by an additional 20 years.
11% was sold to the worker. The remaining 49% will be sold in the Caracas
Stock Exchange between 1996 and 1997.
The concession of the mobile cellular service previously awarded to
Bell South Enterprises (1.991) under an exclusive regime.
Restructured Companies: CANTV was sold to a Joint Venture led by GTE
(General Telephone and Electronics)
The following companies participated in this Joint Venture:
Telefonica de Espana 13%
Electricidad de Caracas 13%
Consorcio Inversionista Mercantil 10%
The consortium led by GTE paid U.S. $1.885.000.000
dollars for 40% of the stock (U.S. $3,000 per line).
Previous experiences were taken into consideration.
The price paid for an installed line was the highest to date, more than
$2,370 dollars per installed line compared to $1,900 dollars in Mexico.
The labor theme was handled appropriately
in order to prevent social problems with this group. The sale of shares
was offered to this group. The international operators were pre-qualified,
and the rule that they would lead the joint venture was established. This
guaranteed a clearer control structure and better access to technology
than that which occurred in Chile, Argentina or Mexico.
An expansion and service quality improvement
plan was established along with a method for the periodic revision of tariffs.
The exploitation of non-basic services was opened to free competition as
in the case of Chile. A regulating entity was duly created, separate from
the corresponding Ministry. In brief, the positive experiences were reused
from the privatization process in Chile, Mexico and Argentina as well as
those in the United Kingdom.
This article is produced by Interlaw,
Ltd., An International Association Of Independent Law Firms In Over
75 Commercial Centers. Member firms are represented in Europe, the Americas
and throughout the Asia-Pacific region. More information on this topic
may be obtained from the Interlaw Secretariat.
Interlaw Ltd. is not in any way affiliated with the Lectric
Law Library or the authors of any other content contained therein, and
does not endorse any materials appearing on this site which are not specifically
identified as originating with Interlaw, Ltd. or its members. This document
should not be construed as legal advice or legal opinion on any specific
facts or circumstances. The contents are intended for general information
purposes only, and you are urged to consult an attorney concerning any
legal questions you may have.
Brought to you by - The 'Lectric Law Library
The Net's Finest Legal Resource for Legal Pros & Laypeople Alike.