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Summary

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1. A decade of reforms

No region of the world has embraced the privatization of telecommunications as enthusiastically as Latin America. Of the 89 incumbent public telephone operators worldwide that had been privatized by the end of 1999, one quarter were in the Americas region. Even more impressive is the degree of private participation in the sector. While more than two-thirds of the countries of the Americas region have either partially or fully privatized their telecommunication companies, in other regions like Africa and the Arab States, this percentage drops to 28 and 33 per cent respectively (Figure 1, top chart).

Little more than a decade ago, Chile was the first country in Latin America to sell its state-owned telecommunication company. Ten years later, in nearly every country in the region, the major telecommunication operator is either fully or largely-owned by private investors. What lay behind the rush to privatize? Firstly, politics played an important role. A decade of economic crises during the 1980s left many Latin governments strapped for cash and unable to resist the demands of financial institutions. This led to further international loans being dependent upon privatization. The sale of monopoly phone companies turned out to be most lucrative, raising more than US$ 40 billion for governments of the region. Secondly, the proceeding was infectious. The practice spread to other countries and its introduction was facilitated by ensuing network growth, shorter waiting lists and better quality of service.

But the glitter of privatization has begun to fade. By itself, it was never enough to overcome the underlying socio-economic barriers to widespread telecommunication access. Unfortunately, the initial success of privatization misled policy-makers into believing that the solution to all their problems was the sale of the public telephone operator. Although the situation has improved Latin America still faces the hard fact that not much more than one-third of the region’s households have a telephone. A lack of competition, and performance targets set for monopoly providers which generally proved easy to meet, meant that prices have remained high. After the early years following privatisation, investment in the fixed-line network actually fell in many countries.

Now, however, there are signs that the competitive market structures that have worked so well in the mobile market are being adopted for fixed-line networks. This policy shift is coming as exclusivity periods granted to incumbent operators come to an end or as countries that are privatising for the first time, such as Brazil, choose to license competitors almost straight away. The negotiating process at the World Trade Organisation has played an important part in this change of direction. Out of the 33 countries that make up the Americas region, 81 per cent have committed to progressively liberalize their basic services market.

No region of the world has embraced the privatization of telecoms as enthusi-astically as Latin America

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Updated : 2007-08-28