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The Argentine telephone privatization
The Argentine telephone privatization
Luis M. Gonz~lez Lanuza
This article describes the stages adopted by the Argentine government to achieve the highly successful privatization of its telecommunication sector. A major task that remains is the establishment of an effective regulatory body, especially in view of the eventual complete deregulation of the industry.
The privatization process of the Argentine telecommunication sector can be divided into several stages. Stage I took place with the conversion of Empresa Nacional de Telecomunicaciones (Entel) into two operating companies (Telco North and Telco South) and the sale of 60% of the shares of both in November 1990. Stage II took place during December 1991 and March 1992 with the placement of a further 30% of outstanding shares of the two Telcos in the Argentine and international capital markets. Stage III will comprise the organization of the regulatory body, the Comisi6n Nacional de Telecomunicaciones (CNT). In this paper I will briefly comment on each of these stages. STAGE
I
Entel was one of many state-owned companies that were or are about to be privatized under a global The author may be contacted at Marval, O'Farrell & Mairal, Carlos Pellegrini 885, 1338 Buenos Aires, Argentina (Tel: +54 1 322 8336; Fax: +54 1 11 1631). A version of this paper was presented at the Fourth International Conference on TelecommunicationsPolicyand Regulations, Amsterdam, 23-24 June 1992, and is published with the permission of PA Consulting Group and IBC Technical Services Ltd. 0308-5961/92/090759-05© 1992 Butterworth-HeinemannLtd
plan aimed at restructuring the public sector of the Argentine economy. Since the 1940s telecommunications and other public services have been considered as a sovereignty issue. The Peronist party, today in office, was responsible for the nationalization of a large part of the Argentine public utilities during the late 1940s and early 1950s. Entel passed over to state control between the years 1946 and 1948. Until then the main operator had been a subsidiary of IT['. Additionally in six of the 22 Argentine provinces the service was owned and operated by a subsidiary of Ericsson, which continued in operation until recently. Furthermore some cooperatives still provide telephone services to small communities. In 1990 Entel operated approximately 3 300 000 lines, which constituted almost 90% of the public network. This meant a poor access line penetration of less than 10 telephones per 100 inhabitants, taking into account that other licensees also had some stake in the market. This was low even in comparison with neighbouring countries - one-quarter of the Chilean and one-third of the Uruguayan penetration rates. Entel had 47 000 employees in 1989, most of them unionized. Standards of quality were low: efficiency of calls was estimated at 49% for urban and 29% for interurban calls; delays in installing new telephones averaged longer than 4 years (in certain places more than 10 years); and the average delay for repairs was 14 days. In September 1989 Congress enacted State Reform Law 23.696, and in October 1989 the Executive Branch issued the regulation implementing this law, Decree 1105. Almost immediately the Executive Branch, by virtue of the powers granted by the law, issued several decrees to implement the privatization of Entel. In January 1990 it issued Decree 62, by which the 759
The Argentine telephone privatization
terms and conditions of the competitive bidding process were established. The bidding was organized in a way that prevented, in principle, direct negotiations with possible interested parties, thus imposing great limitations on the discretion of the officers in charge of the process. Accordingly the bidding conditions included all points which the bidders would need to know in order to m a k e a firm offer. This did not prevent some interaction between bidders and officers during which a m e n d m e n t s or clarifications of the bidding conditions were requested and made in order to enhance and assure the presentation of m a n y participants. In drafting the bidding conditions several issues were particularly taken into account in order to assure the participation of as m a n y bidders as possible. It soon became evident that the interest of bidders and the price to be obtained were in direct p r o p o r t i o n to the extent and d u r a t i o n of the m o n o p o l y or exclusivity to be granted. A high sale price and high investment requirements would have meant high rates for users. The higher the protection enjoyed by local suppliers, the lesser the chances of attracting efficient international operators or ensuring low rates. All these aspects were eventually solved in such a way that m a j o r participants were attracted. W h a t also attracted m a n y participants was that the privatization was to be final, and that there would be no reversion of the telephone operation to the state. The 'concession' alternative was discarded in favour of a sale, and a p e r m a n e n t licence was granted to the Telcos. The following figures show the environment in which the privatization was made and the problems that the interested parties faced at that time: When the privatization took place, Argentina was considered a high-risk country. The internal rate of return on External Bonds, Series 1989, was approximately 24% per a n n u m (today it is about 10%). Hyperinflation was still present. In June 1989 the monthly retail price index rose by 114%; 197% in July; 28% in August. (The inflation rate in May 1992 was a mere 0.7%.) Argentina was in arrears with its interest payments on foreign debt, including that of Entel. This debt had been renegotiated in 1985 and 1987, leading to the execution of a General Refinancing A g r e e m e n t , the terms of which required the consent of a certain proportion of the creditor banks to dispose of assets. Entel lacked reliable accounting information (its last financial statement dated back to 1987, and this was qualified). Poor maintenance and lack of invest-
760
ment had produced a low standard of service and a large backlog of unfulfilled installation services. H e a v y investments would be required from the new licensees to achieve adequate service standards. Even though there was public awareness of the need for deep changes in the Argentine economy, the privatization of Entel was not, politically speaking, an easy task to carry out. Entel was not in good shape and the socioeconomic environment was not particularly promising. Prudent and realistic sale conditions were the only alternative to attract serious operators. The main features of the privatization structure were the following: •
•
•
•
•
•
•
The country was divided into two regions of almost equal importance (North, 46.7%, and South, 53.3%) with the vitally important Greater Buenos Aires split between them. Two new corporations were created (Telco North and Telco South) which were to become the licensees for each region to provide basic telephone services. Another two corporations were created, to be owned jointly by the Telcos. These corporations were to provide (i) international telecommunication services and (ii) value-added services, which were not granted with exclusive status. The Telcos were to enjoy exclusivity or monopolistic rights during an initial seven-year period, the first two years of which were a transition period which will expire in November 1992. Provided certain goals are met, after the s e v e n - y e a r period the Telcos will be granted a subsequent three-year exclusivity period. The main object of the privatization was to sell 60% of the shares of each Telco to a different investor group. The remaining 40% was to be sold at a later stage - 10% to Entel's personnel and the remaining 30% to the public. A two-step system was adopted: the selection of qualifying bidders was step one, and the comparison of bids step two. In the second step only the proposed purchase prices were compared. The price consisted of a cash portion, which had to be met by all bidders (US$214 million for both Telcos), and an Argentine Foreign D e b t Instrument portion, which had only a minimum level; it was with respect to the latter figure that comparison of bids would take place. For this purpose all foreign debt was to
T E L E C O M M U N I C A T I O N S POLICY December 1992
The Argentine telephone privatization
•
•
•
be computed at face value regardless of the then highly discounted value at which the various government foreign debt instruments could be obtained on the markets. In order to provide some leverage the Telcos recognized a debt to Entel of US$380 million in aggregate, this amount to be provided in the form of promissory notes and paid over six years, with a three-year grace period, with interest at L I B O R plus 0.8124% annually. Both Entel's personnel and its assets (but only a few of its liabilities) were transferred to the new corproations. Each successful bidder was required to set up an investment arm, a local corporation, to act as buyer and holder of the shares in the relevant Telco. Thirty per cent of the shares in the investment company had to belong to a core group of up to three shareholders including one or two operators whose participation had to be of at least 4.9% each. Any sale of more than 49% of the shares of the investment company would require the approval of the regulatory agency. The members of the core group cannot reduce their holdings without the regulatory agency's approval.
Several interested parties applied for the List of Conditions, and of these seven were pre-qualified. Only three consortia submitted bids. Today the services are provided by Telef6nica de Argentina SA in the South and Telecom Stet-France T616com SA in the North. These companies jointly own Startel SA for the value-added competitive sector and Telintar SA for international services. The privatization of Entel was in fact a very ambitious plan. In certain ways it was tied to the success or failure of the policies of the new administration. Today it can be said that, despite errors and mistakes, the process has proved to be successful and that it was merely the beginning of a new era, not only in the telecommunication sector but in the Argentine economy as a whole.
STAGE
II
Stage II consisted of the public and private placement of Telco shares owned by the state, in consideration for which the Argentine government raised almost US$2 billion in cash, having received offers worth almost US$8 billion. This process was initially planned as a public placement within Argentina, but
TELECOMMUNICATIONS POLICY December 1992
then underwent several changes and was finally structured in a manner that was expected to obtain the highest proceeds (maximizing value and market penetration). At the beginning of the process estimates were that the government would receive US$400 million for the placement of both stocks. Based on this estimate the government requested selected Argentine banks to carry out the placement and to m a k e an underwriting c o m m i t m e n t of US$300 million for 75% of the stock. The placement was governed by two agreements. First there was an agreement between the Argentine government and the banks concerned. This agreement governed the public offering in Argentina. The second agreement was a placement agreement entered into by the government, the Argentine banks and international institutions appointed by the Argentine banks as international placement agents, to govern the international placement. The offer was made worldwide and included a retail offering to individuals domiciled in Argentina and a wholesale offering of shares in Argentina, American Depositary Receipts in the USA, and Global Depositary Receipts in other parts of the world. The international placement was made under Rule 144A and Regulation S. The retail offering comprised 25% of the offer and the wholesale offering the balance. The wholesale offering was divided into a competitive offering (two-thirds) and a non-competitive offering (one-third). All bids made in the retail offering and the non-competitive offering were to be accepted by the seller; excess bids were received and awarded, whenever possible, on a pro-rata basis. In the competitive offer the government was to accept all offers made at or above a pre-established reference price. Shares were to be awarded at a clearing price which was equal to the lowest price per share at which offers were accepted by the seller a method known as the Dutch auction system. Bids in excess of the clearing price were to be awarded in full at the clearing price accepted. Shares were to be awarded in descending order of the amount bid per share. If the number of bids made at a price equal to the clearing price exceeded the shares offered, the remaining shares were to be awarded on a pro-rata basis according to the number of shares for which bids were made at the clearing price. The price to be paid by the non-competitive offerors was the clearing price. The price to be paid by offerors in the retail offering was to be the clearing price with a 5% discount. The proceedings were extremely complex. In -
761
The Argentine telephone privatization Table 1. Statisties of the sale of Argentine government stock in the two Telcos, 1991-92.
Reference price per share (cents) Clearing price per share (cents) Total bids received (million US$) Bids awarded (million US$) Number of investors
Telef6nica
Telecom
16.5 23.7 2 142 838 104 261
21.67 41.5 5 663 1 266 337 359
addition it was the first time that a transaction of this nature and magnitude had taken place in Argentina. It was decided to split the placement date of the stock of the two companies, basically for timing and not strategic reasons. First Telef6nica's shares were sold in December 1991 and then Telecom's in March 1992. Both placements were a complete success. The final figures are shown in Table 1. The result of these placements proved to be extremely important in many ways. It consolidated the credibility of the government, not only enabling it to contribute towards the balancing of its fiscal accounts but also giving a good basis for the negotiations which finally enabled Argentina to join the Brady plan. It has had a substantial importance in the development of the capital market and the local Stock Exchange. It also strengthened the privatization (against reversion) due to the spreading of the ownership in the stock. Once again the privatization of Entel proved to be a leader, this time in relation to the placement of the government shares. Behind the dazzle it is possible to find a very finely tuned job of work done by the placement agents and a sound decision on the government's part in accepting an innovative proceeding that may become a precedent for future international placements. The total amounts received by the government for all stages of the privatization of Entel are shown in Table 2.
STAGE BODY
III: THE REGULATORY
An extremely important part of this process will be the organization of the regulatory body. Marval, O'Farrell & Mairal jointly with Coopers & Lybrand as principal contractor and Latham & Watkins from Washington, DC, were engaged to advise the Argentine government on the organization of the CNT. Although the CNT was created during the selling process by virtue of Executive Decree 1185/ 90, it did not fulfil its functions efficiently. In late 762
1991 the CNT's board was removed and a trustee was appointed to organize it. No privatization process will succeed without its counterpart, a regulatory body duly empowered, and a clear and simple set of rules under which licensees can offer their services and on which customers can rely. The administrative organization has to be non-bureaucratic, with a reasonable number of officers who should have high technical standards for the agency to be efficient. The set of rules must clearly determine: (i) the rules by which the licensees of the different services are bound; (ii) the method of access to licences for particular services; (iii) the method of setting rates; (iv) the means of creating new rules or modifying the existing ones; and (v) control regulations, etc. The government is seeking advice, principally, in five areas: •
•
•
•
regulatory policies which will allow the freest possible access to the provision of competitive services; the licensing of new suppliers; interconnection policies; prevention and remedy of anti-competitive behaviour; pricing, costing and financial analysis, an area that covers the monitoring, analysing and approval of tariffs; models that permit the CNT to forecast rates of return and other financial indicators; a review of methodologies for determining the costs of providing different telecommunication services; investment programme, quality of service, technical standards and terminal equipment. This area includes the establishment of performance indicators and systems to monitor regional operators; the assessment of operators' investment programmes and depreciation allowances; the establishment of technical standards for networks and for customer premises equipment; technical standards to assure the compatibility of customer premises equipment; administrative, legal and information systems. This area includes the operation of modern administrative systems for processing licence applications, attending to and resolving complaints and disputes; general advice; establishment and maintenance of information systems to support CNT operations;
Table 2. Total receipts from the privatization of Entel (US$).
Cash Argentine debt Notes issued by both licensees
2 278 900 604 5 028 000 000 380 000 000
TELECOMMUNICATIONS POLICY December 1992
The Argentine telephone privatization
radio spectrum management - the review and redrafting of radio spectrum regulations to harmonize with the new competitive telecommunications environment; the granting of licences, monitoring compliance and enforcing control over the radio spectrum.
These are the objectives, and we foresee that some time will elapse before they are achieved. As mentioned before, it is essential for the system to have a well-structured regulatory body in order to enable a s o u n d d e v e l o p m e n t of t e l e c o m m u n i c a t i o n s in Argentina. Finally, when drafting the rules we will have to be
TELECOMMUNICATIONS POLICY December 1992
well aware that the Argentine process of transformation of the telecommunication sector implies that after a maximum 10-year exclusivity term in the provision of the basic telephone service and international services, the market will be open to competition in all sectors. How to pass from one system to the other has to be carefully studied and defined. The CNT must have enough flexibility and technical back-up to be able to handle the new technical advances that this revolutionary industry is creating every day. The final act of this process will be the expiration of the monopoly and the beginning of a totally deregulated sector open to free competition - a system unthinkable only a couple of years ago.
763
Luis M. Gonz~lez Lanuza
This article describes the stages adopted by the Argentine government to achieve the highly successful privatization of its telecommunication sector. A major task that remains is the establishment of an effective regulatory body, especially in view of the eventual complete deregulation of the industry.
The privatization process of the Argentine telecommunication sector can be divided into several stages. Stage I took place with the conversion of Empresa Nacional de Telecomunicaciones (Entel) into two operating companies (Telco North and Telco South) and the sale of 60% of the shares of both in November 1990. Stage II took place during December 1991 and March 1992 with the placement of a further 30% of outstanding shares of the two Telcos in the Argentine and international capital markets. Stage III will comprise the organization of the regulatory body, the Comisi6n Nacional de Telecomunicaciones (CNT). In this paper I will briefly comment on each of these stages. STAGE
I
Entel was one of many state-owned companies that were or are about to be privatized under a global The author may be contacted at Marval, O'Farrell & Mairal, Carlos Pellegrini 885, 1338 Buenos Aires, Argentina (Tel: +54 1 322 8336; Fax: +54 1 11 1631). A version of this paper was presented at the Fourth International Conference on TelecommunicationsPolicyand Regulations, Amsterdam, 23-24 June 1992, and is published with the permission of PA Consulting Group and IBC Technical Services Ltd. 0308-5961/92/090759-05© 1992 Butterworth-HeinemannLtd
plan aimed at restructuring the public sector of the Argentine economy. Since the 1940s telecommunications and other public services have been considered as a sovereignty issue. The Peronist party, today in office, was responsible for the nationalization of a large part of the Argentine public utilities during the late 1940s and early 1950s. Entel passed over to state control between the years 1946 and 1948. Until then the main operator had been a subsidiary of IT['. Additionally in six of the 22 Argentine provinces the service was owned and operated by a subsidiary of Ericsson, which continued in operation until recently. Furthermore some cooperatives still provide telephone services to small communities. In 1990 Entel operated approximately 3 300 000 lines, which constituted almost 90% of the public network. This meant a poor access line penetration of less than 10 telephones per 100 inhabitants, taking into account that other licensees also had some stake in the market. This was low even in comparison with neighbouring countries - one-quarter of the Chilean and one-third of the Uruguayan penetration rates. Entel had 47 000 employees in 1989, most of them unionized. Standards of quality were low: efficiency of calls was estimated at 49% for urban and 29% for interurban calls; delays in installing new telephones averaged longer than 4 years (in certain places more than 10 years); and the average delay for repairs was 14 days. In September 1989 Congress enacted State Reform Law 23.696, and in October 1989 the Executive Branch issued the regulation implementing this law, Decree 1105. Almost immediately the Executive Branch, by virtue of the powers granted by the law, issued several decrees to implement the privatization of Entel. In January 1990 it issued Decree 62, by which the 759
The Argentine telephone privatization
terms and conditions of the competitive bidding process were established. The bidding was organized in a way that prevented, in principle, direct negotiations with possible interested parties, thus imposing great limitations on the discretion of the officers in charge of the process. Accordingly the bidding conditions included all points which the bidders would need to know in order to m a k e a firm offer. This did not prevent some interaction between bidders and officers during which a m e n d m e n t s or clarifications of the bidding conditions were requested and made in order to enhance and assure the presentation of m a n y participants. In drafting the bidding conditions several issues were particularly taken into account in order to assure the participation of as m a n y bidders as possible. It soon became evident that the interest of bidders and the price to be obtained were in direct p r o p o r t i o n to the extent and d u r a t i o n of the m o n o p o l y or exclusivity to be granted. A high sale price and high investment requirements would have meant high rates for users. The higher the protection enjoyed by local suppliers, the lesser the chances of attracting efficient international operators or ensuring low rates. All these aspects were eventually solved in such a way that m a j o r participants were attracted. W h a t also attracted m a n y participants was that the privatization was to be final, and that there would be no reversion of the telephone operation to the state. The 'concession' alternative was discarded in favour of a sale, and a p e r m a n e n t licence was granted to the Telcos. The following figures show the environment in which the privatization was made and the problems that the interested parties faced at that time: When the privatization took place, Argentina was considered a high-risk country. The internal rate of return on External Bonds, Series 1989, was approximately 24% per a n n u m (today it is about 10%). Hyperinflation was still present. In June 1989 the monthly retail price index rose by 114%; 197% in July; 28% in August. (The inflation rate in May 1992 was a mere 0.7%.) Argentina was in arrears with its interest payments on foreign debt, including that of Entel. This debt had been renegotiated in 1985 and 1987, leading to the execution of a General Refinancing A g r e e m e n t , the terms of which required the consent of a certain proportion of the creditor banks to dispose of assets. Entel lacked reliable accounting information (its last financial statement dated back to 1987, and this was qualified). Poor maintenance and lack of invest-
760
ment had produced a low standard of service and a large backlog of unfulfilled installation services. H e a v y investments would be required from the new licensees to achieve adequate service standards. Even though there was public awareness of the need for deep changes in the Argentine economy, the privatization of Entel was not, politically speaking, an easy task to carry out. Entel was not in good shape and the socioeconomic environment was not particularly promising. Prudent and realistic sale conditions were the only alternative to attract serious operators. The main features of the privatization structure were the following: •
•
•
•
•
•
•
The country was divided into two regions of almost equal importance (North, 46.7%, and South, 53.3%) with the vitally important Greater Buenos Aires split between them. Two new corporations were created (Telco North and Telco South) which were to become the licensees for each region to provide basic telephone services. Another two corporations were created, to be owned jointly by the Telcos. These corporations were to provide (i) international telecommunication services and (ii) value-added services, which were not granted with exclusive status. The Telcos were to enjoy exclusivity or monopolistic rights during an initial seven-year period, the first two years of which were a transition period which will expire in November 1992. Provided certain goals are met, after the s e v e n - y e a r period the Telcos will be granted a subsequent three-year exclusivity period. The main object of the privatization was to sell 60% of the shares of each Telco to a different investor group. The remaining 40% was to be sold at a later stage - 10% to Entel's personnel and the remaining 30% to the public. A two-step system was adopted: the selection of qualifying bidders was step one, and the comparison of bids step two. In the second step only the proposed purchase prices were compared. The price consisted of a cash portion, which had to be met by all bidders (US$214 million for both Telcos), and an Argentine Foreign D e b t Instrument portion, which had only a minimum level; it was with respect to the latter figure that comparison of bids would take place. For this purpose all foreign debt was to
T E L E C O M M U N I C A T I O N S POLICY December 1992
The Argentine telephone privatization
•
•
•
be computed at face value regardless of the then highly discounted value at which the various government foreign debt instruments could be obtained on the markets. In order to provide some leverage the Telcos recognized a debt to Entel of US$380 million in aggregate, this amount to be provided in the form of promissory notes and paid over six years, with a three-year grace period, with interest at L I B O R plus 0.8124% annually. Both Entel's personnel and its assets (but only a few of its liabilities) were transferred to the new corproations. Each successful bidder was required to set up an investment arm, a local corporation, to act as buyer and holder of the shares in the relevant Telco. Thirty per cent of the shares in the investment company had to belong to a core group of up to three shareholders including one or two operators whose participation had to be of at least 4.9% each. Any sale of more than 49% of the shares of the investment company would require the approval of the regulatory agency. The members of the core group cannot reduce their holdings without the regulatory agency's approval.
Several interested parties applied for the List of Conditions, and of these seven were pre-qualified. Only three consortia submitted bids. Today the services are provided by Telef6nica de Argentina SA in the South and Telecom Stet-France T616com SA in the North. These companies jointly own Startel SA for the value-added competitive sector and Telintar SA for international services. The privatization of Entel was in fact a very ambitious plan. In certain ways it was tied to the success or failure of the policies of the new administration. Today it can be said that, despite errors and mistakes, the process has proved to be successful and that it was merely the beginning of a new era, not only in the telecommunication sector but in the Argentine economy as a whole.
STAGE
II
Stage II consisted of the public and private placement of Telco shares owned by the state, in consideration for which the Argentine government raised almost US$2 billion in cash, having received offers worth almost US$8 billion. This process was initially planned as a public placement within Argentina, but
TELECOMMUNICATIONS POLICY December 1992
then underwent several changes and was finally structured in a manner that was expected to obtain the highest proceeds (maximizing value and market penetration). At the beginning of the process estimates were that the government would receive US$400 million for the placement of both stocks. Based on this estimate the government requested selected Argentine banks to carry out the placement and to m a k e an underwriting c o m m i t m e n t of US$300 million for 75% of the stock. The placement was governed by two agreements. First there was an agreement between the Argentine government and the banks concerned. This agreement governed the public offering in Argentina. The second agreement was a placement agreement entered into by the government, the Argentine banks and international institutions appointed by the Argentine banks as international placement agents, to govern the international placement. The offer was made worldwide and included a retail offering to individuals domiciled in Argentina and a wholesale offering of shares in Argentina, American Depositary Receipts in the USA, and Global Depositary Receipts in other parts of the world. The international placement was made under Rule 144A and Regulation S. The retail offering comprised 25% of the offer and the wholesale offering the balance. The wholesale offering was divided into a competitive offering (two-thirds) and a non-competitive offering (one-third). All bids made in the retail offering and the non-competitive offering were to be accepted by the seller; excess bids were received and awarded, whenever possible, on a pro-rata basis. In the competitive offer the government was to accept all offers made at or above a pre-established reference price. Shares were to be awarded at a clearing price which was equal to the lowest price per share at which offers were accepted by the seller a method known as the Dutch auction system. Bids in excess of the clearing price were to be awarded in full at the clearing price accepted. Shares were to be awarded in descending order of the amount bid per share. If the number of bids made at a price equal to the clearing price exceeded the shares offered, the remaining shares were to be awarded on a pro-rata basis according to the number of shares for which bids were made at the clearing price. The price to be paid by the non-competitive offerors was the clearing price. The price to be paid by offerors in the retail offering was to be the clearing price with a 5% discount. The proceedings were extremely complex. In -
761
The Argentine telephone privatization Table 1. Statisties of the sale of Argentine government stock in the two Telcos, 1991-92.
Reference price per share (cents) Clearing price per share (cents) Total bids received (million US$) Bids awarded (million US$) Number of investors
Telef6nica
Telecom
16.5 23.7 2 142 838 104 261
21.67 41.5 5 663 1 266 337 359
addition it was the first time that a transaction of this nature and magnitude had taken place in Argentina. It was decided to split the placement date of the stock of the two companies, basically for timing and not strategic reasons. First Telef6nica's shares were sold in December 1991 and then Telecom's in March 1992. Both placements were a complete success. The final figures are shown in Table 1. The result of these placements proved to be extremely important in many ways. It consolidated the credibility of the government, not only enabling it to contribute towards the balancing of its fiscal accounts but also giving a good basis for the negotiations which finally enabled Argentina to join the Brady plan. It has had a substantial importance in the development of the capital market and the local Stock Exchange. It also strengthened the privatization (against reversion) due to the spreading of the ownership in the stock. Once again the privatization of Entel proved to be a leader, this time in relation to the placement of the government shares. Behind the dazzle it is possible to find a very finely tuned job of work done by the placement agents and a sound decision on the government's part in accepting an innovative proceeding that may become a precedent for future international placements. The total amounts received by the government for all stages of the privatization of Entel are shown in Table 2.
STAGE BODY
III: THE REGULATORY
An extremely important part of this process will be the organization of the regulatory body. Marval, O'Farrell & Mairal jointly with Coopers & Lybrand as principal contractor and Latham & Watkins from Washington, DC, were engaged to advise the Argentine government on the organization of the CNT. Although the CNT was created during the selling process by virtue of Executive Decree 1185/ 90, it did not fulfil its functions efficiently. In late 762
1991 the CNT's board was removed and a trustee was appointed to organize it. No privatization process will succeed without its counterpart, a regulatory body duly empowered, and a clear and simple set of rules under which licensees can offer their services and on which customers can rely. The administrative organization has to be non-bureaucratic, with a reasonable number of officers who should have high technical standards for the agency to be efficient. The set of rules must clearly determine: (i) the rules by which the licensees of the different services are bound; (ii) the method of access to licences for particular services; (iii) the method of setting rates; (iv) the means of creating new rules or modifying the existing ones; and (v) control regulations, etc. The government is seeking advice, principally, in five areas: •
•
•
•
regulatory policies which will allow the freest possible access to the provision of competitive services; the licensing of new suppliers; interconnection policies; prevention and remedy of anti-competitive behaviour; pricing, costing and financial analysis, an area that covers the monitoring, analysing and approval of tariffs; models that permit the CNT to forecast rates of return and other financial indicators; a review of methodologies for determining the costs of providing different telecommunication services; investment programme, quality of service, technical standards and terminal equipment. This area includes the establishment of performance indicators and systems to monitor regional operators; the assessment of operators' investment programmes and depreciation allowances; the establishment of technical standards for networks and for customer premises equipment; technical standards to assure the compatibility of customer premises equipment; administrative, legal and information systems. This area includes the operation of modern administrative systems for processing licence applications, attending to and resolving complaints and disputes; general advice; establishment and maintenance of information systems to support CNT operations;
Table 2. Total receipts from the privatization of Entel (US$).
Cash Argentine debt Notes issued by both licensees
2 278 900 604 5 028 000 000 380 000 000
TELECOMMUNICATIONS POLICY December 1992
The Argentine telephone privatization
radio spectrum management - the review and redrafting of radio spectrum regulations to harmonize with the new competitive telecommunications environment; the granting of licences, monitoring compliance and enforcing control over the radio spectrum.
These are the objectives, and we foresee that some time will elapse before they are achieved. As mentioned before, it is essential for the system to have a well-structured regulatory body in order to enable a s o u n d d e v e l o p m e n t of t e l e c o m m u n i c a t i o n s in Argentina. Finally, when drafting the rules we will have to be
TELECOMMUNICATIONS POLICY December 1992
well aware that the Argentine process of transformation of the telecommunication sector implies that after a maximum 10-year exclusivity term in the provision of the basic telephone service and international services, the market will be open to competition in all sectors. How to pass from one system to the other has to be carefully studied and defined. The CNT must have enough flexibility and technical back-up to be able to handle the new technical advances that this revolutionary industry is creating every day. The final act of this process will be the expiration of the monopoly and the beginning of a totally deregulated sector open to free competition - a system unthinkable only a couple of years ago.
763