Chile's Operators Face Increasing Competition - Report

An advanced regulatory framework and relatively stable economic conditions have lead to a highly competitive environment for the telecoms in Chile, Moody's Investors Service says in a new report. "While beneficial for telecom customers, the robust competitive environment is working to dampen what are otherwise strong operating margins among the major carriers," says Moody's Senior Vice President Dennis Saputo. "In the case of the local wireline segment, a challenging regulatory environment is also a check on performance."

Saputo says the greatest threat to the country's two largest carriers, one-time state-owned monopoly CTC, and Entel, continues to be "macroeconomic" - an economy whose growth is slowing down because of the external environment and weak domestic spending.

Chile's current tariff structure is due to expire in 2004, and Moody's expects changes then to ensure a competitive balance. The revamping could offer some relief to CTC, but impose new costs that the wireless and long-distance companies may find difficult to pass on to customers in light of the competive environment.

In the wireless and long-distance segments, Moody's believes the market has more competitors than it can bear over the long term. Some consolidation therefore should occur, particularly among the smaller long-distance companies.

Chile's wireless market has been the country's fastest growing telecom segment over the past several years, and penetration rates have climbed to about 35%. Moody's says wireless could partially replace the wireline network, given Chile's rugged terrain and relatively low wireline penetration rates.

"The wireline telephone carriers will continue to bear the brunt of the assault from technology alternatives such as wireless," says Saputo.

In 2003, Moody's expects wireless penetration to increase, while carriers increasingly look to grow profits over market share while at the same time finding it difficult to raise prices.

Meanwhile, in wireline, domestic long distance could further see declines in pricing, due to competition, that will more than offset increases in call volume and total minutes. Moody's notes that the two-largest long-distance providers, CTC and Entel, control over 75% of the domestic long-distance market and nearly two-thirds of the international market, leaving small market shares for the other 11 providers.

Saputo further explains that long-distance services in Chile are excluded from tariff regulation beyond the pricing of the long-distance carrier - local exchange carrier interconnection.

He describes Chile's telecommunication sector "as the most advanced in Latin America and one of the most advanced in the world, due to an effective regulatory regime that adapts rapidly to industry changes."

"The long-distance and wireless segments in particular are marked by a wide variety of carriers aggressively vying for market share," concluded Saputo."

Posted to the site on 16th April 2003