Move over oil, telecom wants to be king. No sector in Venezuela in the past decade has been consistently as hot as telecommunications.

The industry has evolved at light speed, and the recent and complete deregulation of the market has opened up business and investment opportunities in all fields, from fixed-line to cellular telephony, and a broad range of new wireless services.

Mobile Telephone Subscriptions 1996-2001

Courtesy CONATEL

Overall growth in Venezuela’s telecom sector continues to exceed 11 percent year after year, despite a volatile economy and the constitutional crisis that has affected Venezuelan politics of late. The country was one of only two in Latin America to see their telecommunications industry expand last year. Even during Venezuela’s 1999 economic retraction, when the economy slumped 7.2 percent, telecom activity reportedly grew by nearly 20 percent.

This upward trend has been catapulted by an influx of investment. The sector has attracted over one billion dollars each year since 1999, and approximately six billion over the past five years, experiencing a growth of 500 percent, according to the National Council for Investment Promotion (CONAPRI).

In recent years Venezuela has ranked at the top globally in investment in telecommunications as a percentage of GDP, above countries such as Japan and the United States. Venezuela ranks third in Latin America, behind Chile and Brazil. Industry analysts predict investments in the range of $10 billion and sales of up to $30 billion over the next five years.

The major areas of new investment will include: fixed-line (basic) telephony; mobile telephony; third generation wireless services; value-added services (Internet); and satellite
services.

What is the reason behind the explosive growth of the sector? Demand for services is insatiable, market growth potential appears limitless, and Venezuela’s leading companies have just been given the legal go-ahead to exploit these circumstances in a fair and competitive way.

The appetite of the consumer is driving growth in the industry. "There is a great eagerness among Venezuelans to utilize communications," said William Nazaret, CEO of Digitel, one of Venezuela’s fastest growing wireless services providers.

The fact that the vast majority of Venezuelans are young and fascinated with the latest worldwide technological innovations only adds to the nation-wide hunger for cell phones and hand-held wireless devices.

Venezuela was the first country in Latin America to surpass one million cell phone users, and the public is well aware of the advantages of obtaining the latest technology available. The strong cultural identity Venezuela shares with the United States, as well as the drive of the Venezuelan consumer to get their hands on anything American, also reassures industry leaders that the strong consumer demand is no passing fancy.

This is great news for U.S. investors, whose imprint on the industry is unmistakable. The vast majority of the telecommunications services companies operating in Venezuela are related to a U.S. or foreign company, either through ownership or carrier and satellite contracts. Venezuela’s ‘Big Three’ largest providers, Bellsouth Telcel, CANTV and Movilnet (CANTV’s sister company), are all U.S.-owned companies.

Cellular penetration highest in Latin America
Techno-savvy Venezuelans had been starved of cutting-edge communications for years. Even though the government decided in 1991 to transfer the state-owned basic telephone monopoly Compania Anonima Nacional Telefonos de Venezuela (CANTV) into private hands, penetration of land-line customers languished between 9-10 percent for the decade, and this figure is still low today.

"Basic telephony in the country is only at 11 percent capacity, but we’re looking to change that," mused Haydee Cisneros de Salas, Vice President at Bellsouth Telcel, Venezuela’s largest cellular provider and a new entrant into the fixed-line telephony race.

Gilbert Minionis, CEO of NetUno, the only other company besides Telcel with a license to compete in the fixed-wire industry against CANTV, also envisions his company will revive fixed-wire telephony in Venezuela. "Our plan calls for 15 percent penetration over fixed-wire lines in seven years," said Minionis.

NetUno is well positioned to make good on this plan, since it is the only company in Venezuela that has built a synchronous digital hierarchy (SDA) fiber ring network, capable of delivering land-line connections at speeds faster than its competitors.

The dramatic growth of the cellular market has shown that Venezuelans are no longer grieving over their country’s primitive land-line infrastructure or the stagnation that took place in developing basic telephony in the past. In 1994, there were 300,000 cellular customers in Venezuela, representing roughly 1.4 percent of the population. Today, cellular phone penetration in Venezuelan is higher than in any Latin American country and has reached 26.2 percent, or some 6.4 million subscribers. The figure has doubled in less than two years.

The astounding success of cellular penetration can be attributed in large part to the introduction of pre-paid calling cards, which enables users to manage their cellular phone costs. The majority of cell phone users in 1996 were credit card holders, but now people with very limited financial means have the opportunity to participate using the pre-paid alternative.

"Ninety percent of new subscribers, many of whom cannot budget from month to month, now choose the pre-paid calling card method," noted Hannu Hiertavirtu, general manager of Nokia’s operations in Venezuela. In a country with rising poverty, and in which 50 percent of the employed belong to the ‘informal’ economy, this idea began to make sense not only for providers of voice services, but for providers of data and internet services as well.

Telcel, CANTV and Movilnet have begun to sell pre-paid calling cards that work for multiple services, ranging from public telephone, basic telephony, cellular service and Internet access. "This demonstrates how the telecommunications industry is also revolutionizing the broader communications services market," commented Cisneros de Salas.

Pre-paid cards have undoubtedly helped spur the country-wide growth of telecommunication centers, infocenters and cybercafes, which offer internet access at affordable prices to the public. The number of centers has skyrocketed recently, from 112 in 2000 to 775 in 2001, a growth of 592 percent in just one year. And it is estimated that the number of internet subscribers will triple over the next five years.

Nonetheless, in Venezuela there are more cellular phones than computers. This has spurred many companies to serve demand for internet access through new wireless applications that combine cellular service with other unique, non-voice services, such as e-mail and text messaging.

Regulatory framework in place
The expansion of services has not been the only factor explaining the growth of Venezuela’s telecom sector. The establishment of a regulatory framework to clearly define the rules of the game has been equally important. Since the beginning of the Chavez administration, the government has thrown its support behind development of the sector by encouraging cooperative public and private-sector efforts.

The process by which new telecommunications legislation was adopted led directly to the successful regulatory framework now in place. Signed into law by President Chavez on June 12, 2000, the new telecommunications law replaced an antiquated 1940 version. Debate over the legislation was comprehensive and inclusive, and the bill was drafted with the assistance of a committee consisting of public and private-sector representatives.

"We are very fortunate to have a telecom law as modern, thorough and well-written as anywhere. This has really allowed for the process to open up," said Minionis. Many domestic and international observers have heralded the process as a model that other countries of the world should follow to bring their industries up to speed.

The work and enforcement capability of the National Telecommunications Commission (CONATEL) has also been instrumental in regulating the apertura, or opening, of Venezuela’s telecommunications industry. In November 2000, the agency successfully oversaw the ending of the monopoly run by CANTV, Venezuela’s basic telephony provider.

To spur competition, CONATEL has struck a good balance between enforcing heavier burdens and stricter regulations on the large incumbent, CANTV, while promoting less stringent but across-the-board standards to new entries in the field.

CONATEL’s visionary, well-defined and respectable telecommunications plans have also positioned Venezuela favorably for investors interested in capitalizing on upcoming investment and supplier opportunities, including auctions for Local Multipoint Distribution System (LMDS), Wireless Local Loop (WLL), and Third Generation (3G) licenses.

As competition grows and Venezuela’s robust telecommunications market continues to mature, greater benefits, better prices, and universal access are hoped to be had by all.