A Wired Panama
There is no doubt the telecommunications industry in Latin America is on the verge of taking off, in fact, it already has. When I speak about telecommunications it is important to point out that we are not just referring to the traditional wireline phone service that you currently enjoy at home. No indeed, the industry has progressed leaps and bounds over the past few years with the emergence of cell phone and internet technology.
The old definition of a phone company has changed dramatically in a relatively brief period of time. In order to compete in a world market, companies like Cable & Wireless, Bellsouth, and Worldcom have been pressured to furnish clients with much more than just wireline phone service. These companies are quickly becoming telco conglomerates, offering fixed line, wireless, cable, and in some cases satellite services for voice, and more importantly, data transmission. As the cost of a voice call decreases over the next few years, these telco companies will become increasing involved and focused in finding ways to supply you with data, whether you are at home, in the office, or out of the country. Its all about connectivity, and at the moment these telco firms are investing feverishly, fully committed to luring clients with lower prices, and newer, more improved services (this is precisely why they give you the free cell phone when contracting for their services).
So, what has transpired in Panama and where is the country headed?
In 1997, British based Cable & Wireless, one of the world's largest telecommunications companies, purchased the previously state owned telecommunications giant Intel (not the semiconductor maker). Their purchase was agreed to on the condition that Cable & Wireless would operate another wireline monopoly until the year 2002, at which time it will be forced to compete in an open market. This five year grace period will enable Cable & Wireless to recover their initial investment, as well as secure themselves good positioning for the future. Bellsouth, on the other hand, entered the wireless market in 1997, and has focused exclusively on the wireless or cell phone market. Why? Until 2002 Cable & Wireless has the exclusive right to all local and international wireline telephone service.
Cable & Wireless has been very successful in offering both wireline and wireless connectivity throughout Panama. Their cell phone service coverage throughout the country has been very efficient, and they they must be given credit for turning Panama into a "wired" society. The installation of countless cell phone towers throughout Panama helps to explain the popularity of cell phone use, which has experienced exponential growth. On the internet front they have been very impressive as well, offering a wide range of services and packages to consumers and businesses alike. As with all Latin America countries, internet service in Panama is more expensive relative to our American cousins. Moreover, connectivity speeds are still pretty slow and could benefit from some improvement, but that should be expected when you consider that the bulk of the signals are still being transferred along old copper wires. Cable & Wireless has also made an attempt at an internet portal site, www.canal1.net, which currently lags behind Panama´s premiere internet portal site LatinOL.com.
Cable & Wireless' largest and most formidable competitor, Bellsouth, has of late been undergoing a huge expansion south of the US border. While the lucrative US market continues to expand, Latin America is ripe with opportunity and free of telephonic restrictions. Untapped markets, and the public's insatiable appetite for cell phones, has helped spur their growth. Bellsouth's' main area of expertise is offering wireless cell phone service, and they have done a admirable job at marketing themselves as just that.
In my opinion they are on the right path, not just for the obvious reasons. The future of communications in Latin America is, I believe, a wireless one. Why? Because the region simply doesn't have the communication infrastructure of other, more developed countries. What we are going to see is a proliferation of wireless devices from cell phone , PDA(Personal Digital Assistants i.e Palm Pilot & Handspring), to pagers that both receive and transmit voice and data. Just imagine surfing the web on your cell phone while on a beach in Bocas del Toro! Granted, this is all a year our so off in Panama, but it is in the works. Remember, if the phone companies can convince you to receive and transmit data from your cell phone, they can charge you handsomely for that service, or at least more than that associated with a normal voice call.
Recently, Bellsouth has launched an aggressive internet strategy. This makes for an interesting combination, particularly when you consider their proficiency in the cell phone market. I would also expect to see some kind of partnership with local cable TV cable provider Cable Onda, offering both high speed net and phone access across their TV cable lines. (Cable Onda, founded in 1981 and currently Panama's largest cable provider, initiated internet service utilizing cable modems in December, 1999, under the name NetRunner.) Recent merges and acquisitions in the United States are characteristic of what could transpire in Panama. These consolidations will permit companies to quickly expand their range of services, and more importantly improve service; AT&T purchased several cable TV companies in an effort to expand its reach.
There is, however, formidable competition among the Internet Service Providers (ISP´s) in Panama, particularly from PSInet, America's internet giant, and one of the worlds largest internet providers. Most recently, Uunete has entered the Panama market. Offering a variety of services to meet both business and personal demands, their international clout and capital will most certainly put pressure on those already in the game. These are the masters of the game, as they don't need to bother with offering low profit margin products like phone services. Their speciality is data, and in the future data will be king.
While the parameters of the telecommunications sector are constantly being redefined, evidence suggests that Panama's aggressive stance on privatization has secured Panama's' position as Latin America's pioneer. The advent of increased competition, from both locally and internationally based companies, will likely translate into a much improved telecommunications infrastructure, as well as more modern services and competitive pricing. In addition, Panama enjoys a higher standard of living when compared to its Central American brethren, and while the rest of Latin America emerges from one currency crisis after another Panama's dollarized economy has proved to be the regions most stable economic platform for international investors. This combination will likely attract other predators into Panama's communications market including the Spanish telecommunications giant Telefonica España. Spain's telecommunications giant may be interested in adding Panama to it's trophy shelf of Latin America prizes, as they have been on a buying orgy in Latin America over the past few years, purchasing phone and internet companies alike. They have also been very successful with their internet endeavour, Terra Networks. Similarly, on can't ignore the presence of the new wireless behemoth, Vodafone Mannesman, currently the worlds largest wireless company. It may only be a question of time before it stretches it tentacles into the warm south American waters.
Stephen Egan is a trader, part time journalist and is the co-founder of Latin Americas only financial internet portal site www.InviertaYa.com, where you can read his articles on financial matters. At the time of writing he had no position in Cable & Wireless, Bellsouth, Telefonica España, Vodafone or PSInet.
Written by Stephen Egan
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