Global Initiatives

Posted: 09/1997

Global Initiatives

Latin America:
A New Frontier for Those with Time and Energy

By Jason Gursky

While there still exist many profitable opportunities for
carriers and resellers in the U.S. market, many are discovering
that overseas markets offer larger growth rates for revenues and
profits. For example, AT&T, MCI, Global One, WorldCom, ACC,
Teleglobe and many other companies are focusing a tremendous
amount of energy on building networks and customer bases in
Europe in an attempt to be well established when the doors to
competition open in the region next year. However, many have
discovered over the past decade that Latin America is also a very
dynamic region for investing time, energy and money.

This is so primarily because the debt crisis of the 1980s has
passed, and the economies of most countries south of the border
are growing at rates significantly higher than that of the United
States. In Chile for example, growth rates have consistently
hovered around 8 percent per year since 1990, compelling some to
call the country South America’s "Emerging Tiger,"
reflecting on the rapidly developing countries of Southeast Asia.
Although most of the region suffered a small setback after the
Mexico peso devaluation in December of 1994, the region has
regained its composure, and investors are once again pouring
their money into stock exchanges, corporate bonds,
privatization’s, concessions and even sovereign loans.

Most of this newfound growth and success has come on the heels
of so- called neo-liberal economic reform measures that most
countries in the region have implemented since the debt crisis.
While oftentimes very painful for the citizens of these countries
because of the subsidies and state-sponsored jobs they usually
cut, this growth and success have led to many opportunities for
foreign investors as governments have sold off state-run
companies and allowed for competition in many sectors. This is no
exception for the telecommunications industry. In the past decade
nearly every country in the region has privatized the once
state-owned telephone companies, allowing companies like SBC,
Sprint, Telefonica de Espana, AT&T and Telecom Italia the
opportunity to take stakes in companies who are experiencing
phenomenal growth rates in both domestic and international long
distance traffic. (See Table 1 and Table 2 for growth in
international traffic.)

There are several reasons for the growth in these traffic
levels. First, increased economic activity. As an economy grows,
so does the level of telephone usage by its inhabitants. This is
further emphasized by the worldwide trend of economic
integration. As countries form treaties to make trade amongst
themselves easier, companies find that international expansion is
a worthwhile option. Latin America is no exception. Mercosur
links Brazil, Argentina, Uruguay, Paraguay and Chile. The Andean
Pact links Bolivia, Peru, Ecuador, Venezuela and Colombia. The
countries of Central America and the Caribbean have formed a
treaty organization called Caricom. And of course, Mexico has
linked itself to the United States and Canada. This integration
has resulted in increased cross-border economic activity, and
thus telephone traffic.

Additionally, increases in tele-density are contributing to
growth rates in traffic. While there are nearly 60 phone lines
for every 100 inhabitants in the United States, in most countries
in Latin America there are less than 15. Ten years ago, this
figure was under 10 per 100. In Mexico, the most recently
deregulated market in the region and a hot spot for U.S.
investment, only one of three households has telephone access.
This compares to 100 percent in the United States. As
underdeveloped phone systems are built out over the coming decade
in the region, the levels of both international and domestic
traffic will continue to increase as they have done over the past
decade, and will contribute to growth rates in traffic much
higher than those found in the United States.

Finally, competition also increases the levels of telephone
usage. Chile is the perfect example. Limited competition began in
1992, and in October 1994 the "multicarrier" market was
initiated, allowing the end user casual access to any of the
half-dozen telephone companies. A customer needed only to pick up
a telephone and dial the three-digit access code of the carrier
of their choice before dialing the destination number. This is
similar to the 10xxx product in the United States. With so many
choices at hand, the carriers decided large marketing campaigns
and price wars were the way to differentiate themselves from each
other. As a result, usage of long distance became an affordable
option to most anyone in the country, particularly international
long distance. Between 1993 and 1995 the level of outgoing
Minutes of Telecommunications Traffic (MiTT) increased 121.9
percent (See Table 1). Such growth rates, while extraordinary,
are not out of reach in any monopoly market recently turned

This is significant for the potential investor from the United
States because over the next decade, most countries in the region
plan to open their telecommunications markets to similar
competition. The most widely known is the deregulation occurring
in Mexico today. AT&T, MCI, IXC and Sprint (through Temex)
are all investing heavily for a share of not only the current
market, but also the growth of traffic that is expected to come
from the three factors outlined above (i.e. increased economic
activity, increases in tele-density and competition). By the end
of the century, Peru, Colombia, Argentina and several of the
Central American countries will more than likely subject their
monopolies to some sort of competition. Brazil, the telecom
manager’s most desired market due to its size (more than 155
million people), will privatize by the end of the decade and
subject the market to competition during the first 10 years of
the next century. While the growth rates of Chile may not be
equaled anywhere else, there will be both large and small pieces
of the telecommunications pie to carve for companies willing to
step in and compete.

Where then, does the small- to medium-sized U.S. telephone
company or reseller fit in this rapidly changing region of the
world? In nearly every niche of the market, if it is willing to
invest time, energy and a little money. However, Latin America is
not the United States. There are barriers to entry, such as
language, culture and non-transparent and unenforceable laws, and
a myriad of other factors such as delays in customs houses,
complicated tax laws, ownership laws, etc., that must be overcome
before success can be claimed.

Country-by-country details on these issues can be accessed
through research with government organizations or specialized
consulting groups. To further clarify the variety and caliber of
opportunities in this region, the remainder of this article is
dedicated to outlining the distinct regions within Latin America
that exist, some of the market niches that can be leveraged by
the smaller players, the general barriers to entry that will be
encountered in trying to enter the markets, and finally some of
the general keys to success in investing and beginning operations
in the region.

Introduction to Latin America 101

Although Latin America is often thought to be a homogenous
group of countries sharing a similar language and culture, it is
in fact made up of unique countries and regions with many
historical, cultural and language differences. These differences
should contribute significantly to how a potential investor
approaches the region.

In general, the region is most often divided into the
following regions:

Mexico and Central America–While geographically
similar and near each other, Mexico and the countries of Central
America (Honduras, Nicaragua, Guatemala, Costa Rica and Panama)
are quite different. Mexico, a country of 80 million people, has
been ruled by the same political party (the PRI) since the 1930s,
while the Central Americans (Costa Rica being the exception) have
experienced numerous changes in government regimes and oftentimes
decades-long civil wars. Mexico has a diverse economy, supporting
manufacturing, mining, agriculture and services, while the
Central American economies are largely dependent on agriculture.
Mexico, except for its southernmost provinces, is largely a
mestizo population a mix between Spanish and Indian ancestors.
The Central American countries have populations that are near
half-indigenous and, as a result, many different languages other
than Spanish are spoken in these countries. In the realm of
telecommunications, Mexico, behind Chile, is at the forefront of
Latin American deregulation. The Central Americans, on the other
hand, are at the beginning of the privatization/deregulation

The Caribbean–This sub-region of what is considered
Latin America by most, contrasts heavily with the other
sub-regions. Obviously mostly island countries (Venezuela,
Suriname, Guyana and French Guyana are found in the northernmost
part of South America), most of their economies are dependent on
tourism and have very little indigenous manufacturing, mining and
agriculture. Most of the populations are of African descent due
to the heavy concentrations of sugar plantations that existed on
the islands during Spanish, Portuguese, English, French and Dutch
colonial rule. Most countries speak the language of their
colonial ancestors. As far as telecommunications is concerned, a
large number of islands are dominated by Cable & Wireless of
Great Britain. However, privatization and competition have
occurred in some countries such as the Dominican Republic.

The Andean Countries–Colombia, Peru, Ecuador and
Bolivia are dominated by the second highest mountain range in the
world, the Andes. With the exception of Bolivia, which no longer
has a coastline due to a war it lost last century to Chile, all
countries have three distinct regions within themselves: the
coastal region, the mountain region and the Amazon jungle region.
The people of each region follow different customs and many speak
different languages (all sharing Spanish as their common
language), and they are economically dependent on different
industries. As well, the populations who live in the mountains
are more indigenous than those living on the coast. This makes
doing business in Quito, located in the Andes, quite different
from doing business in Guayaquil on the coast. All of the
countries have privatized their telephone companies, and Peru and
Colombia are forming concrete plans for competition.

The Southern Cone–This region is made up of Brazil,
Argentina, Chile, Uruguay and Paraguay. All are very different
from each other, not only in history (Brazil was a Portuguese
colony and the language spoken is Brazilian Portuguese) but also
in culture, geography and economy. Brazil is a huge country with
various levels of development (Sao Paulo) and underdevelopment
(the northeast of the country and the jungle regions), different
races (African, indigenous and European descent) and different
cultures (each corresponding to the ancestral heritage of the
groups previously mentioned). Argentina, while mostly rural and
dependent on agriculture, possesses Latin America’s most
cosmopolitan city, Buenos Aires. Paraguay and Uruguay are small
countries with small economies that are often overlooked by the
outsider. Chile, the world’s skinniest country, has so many
different climatic zones and economies, from the driest desert in
the world and the copper-rich mines located in its north, to the
grape-growing central valley, to frozen lands of Antarctica, that
it would take an entire book to describe them all. As well, each
differs significantly in the development of telecommunications
competition. Chile, according to many experts, has the most
competitive telecom market in the world, while Brazil has one of
the most monopolistic. Argentina has privatized, but no real
competition exists. Uruguay and Paraguay are just beginning the
whole process.

Latin America is obviously a very diverse region. The Inca
descendants living in the Bolivian antiplano have very little in
common with the Caribbean islander or the second-generation
European in Buenos Aires or Santiago. As well, the "Banana
Republic" economies of Central America have very little in
common with the increasingly diverse economies of the Southern
Cone and Mexico. A North American telecom manager must thus be
intimately familiar with these differences not only when
introducing and marketing new products, but also when attempting
to maintain and grow a company in the region.

Opportunities Abound

With so many differences in history, culture, language, and
telecom deregulation, do concrete opportunities exist for the
U.S. carrier or reseller? Yes. The following is a brief and
non-comprehensive list of a few of them:

Prepaid Cards are probably the easiest way to enter a market
and gain market share of international traffic. The cards can be
targeted to people traveling to the United States, or if an 800
number can be arranged, to people in-country making international
calls. The most important factor is finding the right
distribution channels.

Call Back is the classic example of how U.S. companies have
entered the regional market. With monopoly practices and pricing
still found in most countries, there are opportunities for
callback growth. Again, the key is distribution channels.

Paging can be found in various levels of market development
throughout the region, from the paging-crazy country of Venezuela
to the young markets of Central America and the Andes. While this
product requires expensive capital outlay, resale is not out of
the question for companies who feel they know the markets.

Internet Access is still a very small market in comparison to
the United States, so the growth rates in the region are
exciting. The easiest way to enter this market is to offer
independent Internet service providers or the local monopoly
access to the U.S. Internet backbone. The vast majority of
Internet traffic in Latin America is hubbed through the United
States, thus allowing those with superior access to the backbone
there an advantage in winning Internet traffic. The key is to be
able to access U.S. teleports and the network access points
(NAPs) at a reasonable cost. Competition will be stiff in
competing against global carriers like Teleglobe, MCI and
AT&T, but those with a proven product and customer service
should be able to win business.

Long Distance will offer many opportunities through the
traditional 1+ product in the region. In some countries, however,
the financial barriers to entry will be prohibitive, as many
governments have decided to sell the concessions needed to offer
such services. Large companies such as MCI, Telefonica de Espana,
Telecom Italia and Bell South, among others, are sure to offer
large dowries to enter the market. That being said, some
countries will follow the Chilean model, whereby nearly anyone
may apply for a free concession as long as they have a year or so
to fulfill all of the requirements.

Resale of Long Distance is not yet a strong niche, but once a
market has opened and more than one long distance network has
been built in a country, resale opportunities will more than
likely become available. This has occurred in Chile, where the
three national long distance networks that have been built can
together handle more than twice the long distance traffic that is
produced by the country’s 14 million inhabitants. Because
carriers who build such networks want to keep them near capacity,
they are often open to both traditional and non-traditional
manners to increase traffic over the networks. Resale is the one
of the easiest ways.

Wireless Local Loop may be the answer for companies with
technical expertise. The growth of wireless local loop in Latin
America over the next decade will be stimulated by the need for
telephone companies to install large numbers of telephone lines
and by their ability to do it quickly and in a cost-effective
manner. Many licenses have already been issued throughout the
region, and more are to come for secondary cities.

Wholesale is a market dominated by companies such as
Teleglobe, AT&T, MCI, Telefonica de Espana and Telecom
Italia. However, new companies that enter the telecom market in
each country will need to terminate international calls and gain
access to many of the products the former monopoly offers in
order to compete. Carriers willing to establish facilities with
new carriers and who can offer attractive prices for
international transit, refile, Internet access and products such
as paid 800 and international toll-free service will be able to
garner new clients, and thus a piece of the growing Latin America
telecom pie.

Entering the Region: Barriers and Keys to

Identifying opportunities in the region is fairly easy.
Actually implementing a plan to take advantage of them is much
more difficult. Barriers to entry ranging from government
bureaucracy, corruption, and economic elites stand in the way.
Thus, knowing the culture of a country and the right people
becomes very important. For example, some governments are known
to be so corrupt that it is near impossible to get things done
without "befriending" the person who makes the
decisions. However, this is not true everywhere. An attempt to do
this in Chile would land you in jail overnight. Knowing the
culture of each country will save you both money and time.

Economic elites are also very important actors in attempting
to do business in Latin America. As most casual observers know,
income distribution in the region is very unequal, and power,
both political and economic, is very concentrated. There are very
few middle-class, middle managers who have the power within the
government or within a company to help push through the types of
new business opportunities most U.S. telephone companies are
looking to implement. Most important decisions are made by
ministers in the government and general managers in the private
sector. El Salvador is probably the most extreme example, where
14 families reportedly control nearly 80 percent of the country’s
entire economy. Without access to these elites, realizing the
full potential of any venture will be limited.

Language, government customs agents and investment and
repatriation laws, to name just a few, are also significant
barriers to entering a Latin American market. Knowledge of
Spanish, and Portuguese, if doing business in Brazil, are
imperative. While the general manager of a company may speak
English, many of the supporting actors will not, making business
relationships awkward and slow moving without proficient
knowledge of the languages spoken in the region.

Moving expensive capital equipment, such as switches and earth
stations, through government customs can also be difficult.
Import laws are just as complicated as those found in the United
States, and when the corrupt behavior of customs officials and
unions often found in the region is taken into consideration,
importing such equipment appears a daunting task. Investment and
repatriation laws can also act as barriers to entry. Most
governments have passed legislation requiring capital investment
to remain in the country for a specified period of time. As well,
many restrict or heavily tax repatriated profits. All of this
speaks nothing of whether deregulation has occurred in the
country and if the type of business a U.S. carrier would like to
do is legal.

Thus, there are several keys to success to doing
business in the region:

  • Know the laws of the country. Without expert legal advice
    about what can and cannot be done, attempting to
    establish business in the region is foolish.
  • Know the culture and the language. Doing business, more
    so than the United States, is highly dependent on
    relationships. Without knowing the culture and the
    language, establishing such relationships will be very
  • Establish strong contacts among the political and
    economic elites in the industry. Without them on board,
    business will move and grow slower than desired.

There are three basic ways to achieve these keys to

  • Enter a joint venture or marketing agreement with a local
    company. Well-established companies already have the
    contacts and business infrastructure in place. While not
    necessarily telecom experts, companies that have access
    to distribution channels for such products as prepaid
    cards, callback, pagers and traditional long distance are
    the most attractive. As well, a joint venture with a
    local company will allow the opportunity to more easily
    offer new products and services when regulation permits.
  • Partner with a North American company that has already
    established itself in the region. Successful callback
    companies, for example, already have distribution
    channels in place and a branded name in the countries in
    which they operate. As well, the more successful
    callbackers are intimately familiar with local laws, may
    already have local licenses where allowed and certainly
    know the languages and cultures of the region.
  • Go it alone. Hire the people who speak the language, know
    the culture and are business-savvy. This alternative, of
    course, requires time and patience. And because time can
    equal money in business, this option should be carefully


Due to increased economic activity, integration, local phone
lines and competition, Latin America is and will be a dynamic
place for U.S. carriers and resellers to invest time, energy and
money. However, success at home does not translate to success
abroad. Both time and energy are required to find the right
partners, establish and build relationships with governmental and
economic elites, manage government and private sector bureaucracy
and become knowledgeable of the laws, culture and customs of each

As many larger carriers have learned, throwing money at
investments and managing projects themselves from headquarters
does not always produce the desired results. Only those who
partner with experienced companies in the region or who recruit
or develop their own Latin Americanists will be able to enter and
survive in the region.

Jason Gursky is the Gerente Comerical for PTT Chile, a
subsidiary of El Segundo, Calif.-based Justice Technology.
For information, call (310) 526- 2026.

Leave a comment

Your email address will not be published. Required fields are marked *

The ID is: 67712