Argentina Frequency Return Opens Sliver In Mobile Market

BUENOS AIRES -(Dow Jones)- Argentina's fiercely competitive cellular phone industry hasn't seen a major fresh face since 1999, when the country's Personal Communications System market opened for competition.

Now, seven years later, a tiny space is opening for a new player.

As part of Argentine anti-trust authorities' approval of Telefonica's 2004 purchase of BellSouth's Latin American assets, the newly formed company - Movistar - had to return a total 42.5 megahertz to the state. The transfer will take place in five installments between late 2005 and 2008.

Movistar's gradual shedding of the excess frequency could give new groups a foothold in a market dominated by three incumbents: Movistar, Telecom Argentina's Personal unit and CTI Movil, a subsidiary of Mexico's America Movil. A handful of established companies are expected to vie for the Movistar bandwidth, as is a domestic telecommunications cooperative that has the backing of President Nestor Kirchner's administration.

What remains unclear is how the government will regulate the return of the frequency. After many delays, the Communications Secretariat published the schedule for the transfers in late December. The first installment was completed at the end of December as planned, a Movistar spokeswoman said. The next installment, which comprises coveted frequencies in the city of Buenos Aires and greater Buenos Aires, must be returned by July 31.

The government's resolution didn't establish how the state would re-distribute the frequencies. However, it's widely known the administration wants Comarcoop, the national telecommunications cooperative, to enter the cellular phone market and grow into a viable fourth operator. Argentina's cellular phone market numbers just more than 18 million users.

Comarcoop "is really a company that was created specifically to operate the spectrum that was going to be freed up," said Enrique Carrier, a telecoms analyst based in Buenos Aires.

The government's grooming of Comarcoop fits with the administration's efforts to see friendly domestic groups increase their presence in the utilities sector. Kirchner has been a harsh critic of the foreign companies that bought up stakes in Argentine public services during the previous decade's privatization wave, saying multinationals were profit-hungry and provided poor service.

Juan Gnius, the vice president of Signals Telecom Consulting in Argentina, said in a report the government's initial plan is to transfer the ex-Movistar frequencies directly to Comarcoop. The cooperative's strategy, he said, is to first set up service in rural areas where the three main companies don't operate.

Yet the hurdles facing Comarcoop are plentiful. The cooperative represents hundreds of smaller groups spread all over the country with varying political agendas, budgets and operational needs. Even if the government doesn't make Comarcoop pay for the bandwidth, the cooperative will still need significant capital to develop infrastructure, centralize activities among its members and begin providing cellular service.

"The whole Comarcoop issue is really very green," Carrier said. "There's an opportunity because the frequencies have been made available, but it's not simple at all. It's incredibly complicated to put so many members, a federation of small operators, in agreement...There haven't been very many details on this."

With these limitations in mind, the cooperative might choose to court a more experienced and deep-pocketed provider as a partner. Among the names floated in local media so far are Hong Kong-based Hutchison Whampoa and CTI Movil, which has the smallest client base among the three incumbents. Hutchison, which lost the initial tender in 1999 that carved up the cellular market between the current incumbents, applied in July for a license to provide mobile services. The Communications Secretariat rejected that request early last month.

"The arrival of Comarcoop to the market could open...the door for other established players in the telecommunications market that would see an association with the cooperative as an opportunity to incorporate mobile services into its portfolio," Gnius said in his report.

But these companies might also choose to go it alone. Much depends on how the government decides to distribute the ex-Movistar frequencies. Further complicating matters, this process is expected to take the better part of a year, as officials have moved very slowly already. The National Communications Commission's publication of the schedule for returning the frequencies was supposed to be completed in February 2005 but was released in December.

Analysts say the Communications Secretariat could face a storm of protest from other companies if the frequencies are transferred directly to Comarcoop, especially since current operators paid for the bandwidth they're using.

"The appearance of other interested parties will inevitably force an open and transparent tender or bidding process for the frequencies," Carrier wrote in a Friday note. "May the best one win, as it should be."

Meanwhile, another new player in the telecommunications sector, although only in name so far, is local power transporter Transener. Two weeks ago, shareholders approved a change to the company's charter to include the provision of telecommunications services.

The news sparked a rally in Transener's shares. Analysts say the company has no near-term telecom projects in the works, though it could be interested in partnering with a more established company in the sector. Future possibilities for Transener could include outfitting its power lines with the ability to transmit data, thus allowing the company to better monitor its own network, or lease that capacity to other groups.

-By Wailin Wong, Dow Jones Newswires; 54-11-4311-3125; wailin.wong@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 15th February 2006