YOU ARE AT:AmericasAnalyst Angle: Government intervention jeopardizes Argentina's telecom development

Analyst Angle: Government intervention jeopardizes Argentina’s telecom development

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.

The Argentinean government’s intervention in the economy has increased significantly over the past year, causing some ratings agencies to cut the country’s credit rating in October. President Cristina Kirchner has implemented some unpopular measures, such as import controls and quasi-restrictions on dividend payments by corporations and banks.

After the government re-entered the oil market through the re-nationalization of YPF last May and intervened in the electricity market, telecommunications is the next sector that is seeing an increased government presence:

  • In March, the government asked operator Telecom Argentina to reinvest capital, which would have gone toward dividends, in an attempt to stem capital flight and mitigate depreciation of the overvalued peso. However, the operator defied government pressure and paid dividends totaling U.S.$183 million to shareholders.
  • In August, the government requested that all mobile operators offer handsets featuring digital TV by the end of the year.
  • In September, the government signed a decree formalizing its decision that the state would begin to control part of the mobile phone sector.
  • Also in September, the government cancelled the auction that was to award mobile spectrum for 3G services in the 1900MHz and 850MHz bands and assigned the spectrum to the state-owned operator ArSat. The amount of spectrum represents approximately 25% of the total 3G spectrum in the country.
  • The government also announced it may create a committee to study cost structure in the mobile sector. This committee would be in charge of defining the cost structure for ArSat, but it will define cost structure for the other private mobile operators as well.

This is not the first time the government has intervened in the telecom market. In August 2010, the government started a battle with ISP Fibertel, a subsidiary of Grupo Clarín, for political reasons.

Now, despite the spectrum auction delay, the government’s granting of spectrum to ArSat was a setback for mobile operators that had been waiting for seven years to acquire the spectrum that was taken back from Movistar after its acquisition of Movicom BellSouth in 2005. Operators were demanding the additional spectrum to improve their service quality.

In April, five companies presented bidding offers for the 3G spectrum: mobile operators Personal, Claro, Nextel, triple-play operator Supercanal and Multitrunk, owned by the Roggio Group which is focused on infrastructure and services in the country. According to the government, only Claro presented a viable economic offer to acquire the spectrum; however, it believed that Claro would create a monopoly if it obtained the additional spectrum. Nextel is the most affected by this decision since Argentina is the only country in its Latin American footprint where it does not have a 3G license.

Argentina’s business environment is becoming tainted by growing political risk, with investors threatened by the increasing government presence in the telecom market. The prospect of dwindling investor confidence due to high uncertainty about government policies is likely to ultimately harm telecom investments in the medium to long term.

Additionally, ArSat is unlikely to have capital to invest in network infrastructure in the short term. Deploying a mobile network demands a significant amount of investment that is difficult to achieve by a state-owned company, especially when the country’s economy is not doing well. ArSat will need several years to roll out its mobile network and compete with its rivals equally in terms of network coverage and quality.

Argentina has a mature telecom market that is likely to have a fast uptake of the latest mobile technologies, but the government’s decision to award spectrum to ArSat undermines operators’ plans to launch LTE in the near future. Claro, Personal and Movistar were considering launching 4G services using the spectrum granted to ArSat. Now, the limited spectrum cap and lack of new technologies will challenge mobile operators ability to deliver high quality services while at the same time coping with the ever growing demand for data services.

Marceli Passoni is research analyst at Informa Telecoms & Media.


Editorial Reports

White Papers


Featured Content