By IPS Correspondents
BUENOS AIRES, Aug 11 2003 (IPS)

The privatisation of Argentina’s state-run telephone enterprise in 1990 – now under review by the Néstor Kirchner administration – has meant more and better services, but also a sharp increase in rates. And the phone companies are pushing for yet another hike.

The price for telephone services rose before, during and after privatisation, which took place between November 1990 and December 1991.

Since early 2002 the providers have been demanding new increases in order to make up for the losses they suffered as a result of the dramatic depreciation of the Argentine peso at the time, brought on by the end of a decade of state-imposed one-to-one parity of the peso with the dollar.

In many cases, these companies – which are affiliates of telecommunications transnationals – have turned to international arbitration and to pressure from the governments where their home offices are based in order to achieve their demands in Argentina.

The French minister of finance, Francis Mer, on a recent visit to Buenos Aires, called for the restructuring of rates for various services provided by France-based companies, including Electricité de France, Lyonnais Des Eaux and France Telecom.

Meanwhile, organisations of Argentine consumers – whose incomes have suffered the same currency devaluation – are loud in their objections to any price hike.

President Kirchner, after taking office in late May, ordered a review of the privatisations that were carried out under the government of Carlos Menem (1989-1999). For this endeavour he requested assessment from the Latin American Faculty of Social Sciences (FLACSO), an autonomous international research and educational institution.

Kirchner also created a commission headed by the economy and planning ministers and including members of FLACSO and of the research institute of the Argentine Workers’ Union, to study the renegotiation of privatisation contracts.

These experts are to analyse on a case-by-case basis whether rate increases are warranted.

>From March 1991 to June 2001, the costs to consumers for most privatised services increased much more than did local inflation, according to a report by the Ombudsman’s Office of the City of Buenos Aires.

Basic phone rates, for example, rose 24.4 percent in that period, while wholesale rates increased 15.8 percent in that period, says the Ombudsman’s Institute for Research and Investigation.

That produced an imbalance that turned some phone services into ”the most expensive in the world, measured in dollars,” states the report.

The basic monthly telephone package (covering connection, monthly quota and 20 one-hour local calls) represents 0.6 percent of the average industrial worker’s salary in the United States, two percent in Spain, 2.5 percent in France, but a whopping 6.9 percent in Argentina, according to FLACSO.

In 1990, the state-run National Telecommunications Enterprise (Entel) was acquired by Telefónica of Argentina and Telecom Argentina, consortiums led by Telefónica of Spain and STET-France Telecom, respectively.

The World Bank provided technical and financial assistance for that privatisation, which it had required Argentina to carry out before granting it the so-called ”public enterprise reform loan”.

In the preparatory phase of the privatisation process, entrusted to a team designated by Menem, ”Entel’s debt increased 122 percent, reaching more than 2.0 billion dollars,” economist Martín Schorr, a FLACSO expert in economy and technology and co-author of studies critical of privatisations, told IPS.

”And because the auction rules established that the enterprise would be transferred without liabilities, the state had to assume the debt,” Schorr pointed out.

Also before privatising Entel, the government increased its rates, ”while the intervention (during the privatisation process) allowed service quality to deteriorate and there were massive layoffs.”

”In the 10 months prior to privatisation, the value in dollars of telephone use per minute increased more than seven-foldà which ensured the top bidders great benefit from the get go,” says Schorr.

”In 1990, 40,000 telephone connections were installed, 70 percent fewer than in 1989, and infrastructure and maintenance work also dropped offà this helped consolidate the argument for transferring the state-run company to the private sector” in order to improve services, he said.

Entel was then divided into basic, international and mobile phone services. The basic service, in turn, was divided into two regions, northern and southern Argentina, and sold to different companies, with exclusive rights for seven years and the option to extend them another three.

In total, the privatisation took place in two stages, covering the sale of 90 percent of the shares corresponding to the basic service in the north and south regions. The remaining 10 percent remained in the hands of the former Entel employees.

The sale of the telephone enterprise permitted capitalisation of 5.15 billion dollars of Argentine debt, or a third of the total debt exchanged in this manner during the 1990-1999 privatisation process.

The debt titles were purchased ”at face value, when at that time their prices on the market did not reach 15 percent of that,” explained Schorr.

All in all, following the transfer to private hands, there was a dramatic expansion in phone services, facilitated by advances in communications technology.

According to Argentina’s National Institute of Statistics and Census (INDEC), in 1990 there were just over three million telephone lines in this country of 37 million people, but in 2001 there were 8.6 million lines. In that period the number of public telephones increased from 22,549 to 159.066.

Even more dramatic is the extent to which cellular phones took off: numbering just 15,200 in 1990, by 2001 there were 6.9 million.

INDEC also points out that in 1990 only 11 percent of the country’s telephone network was digitised, but that technology reached 100 percent of the network in 2001.

Rates for the service increased, a trade-off, perhaps, for initial access becoming much cheaper and faster. The consumer’s costs for having a phone and line installed in the home plummeted from 1,500 dollars in 1990 to 150 dollars in 2001, while the average wait for connection was reduced from two years to 15 days.

In 1996, the government and the companies negotiated a rate adjustment, which meant increases of up to 57 percent in the price for urban phone calls, but reductions of 83 percent for domestic long-distance and international calls.

Consumer groups, lawmakers and judges (who ruled against the implementation of the ”adjustment”) criticised the move, but Menem issued a decree on Jan. 31, 1997, giving it the green light.

In November 2000 the exclusive regional contracts for basic phone services came to an end, but Telefónica and Telecom maintained their dominant position, and the only competing firm went bankrupt last year.

Liberalisation was more effective for international services, with several parties expressing interest in 2000.

Despite the improvements in telephone services, according to a report by the Buenos Aires Ombudsman’s Office, public services were the second leading complaint of city’s residents in 2002, and 62.55 percent of those involved telephones.

The Ombudsman received 376 phone-related complaints in the first quarter of 2002. The leading cause was over-billing, followed by slow response for phone repairs.

When IPS consulted Telecom sources on the matter, they said that fewer than 80 of those reports involved their firm, which operates some five million telephone lines in Argentina.

In practice, according to the terms of the privatisation contract, the telephone companies had to modify their rates in function of U.S. inflation.

Telecom maintains that this hurt the company even before the state-imposed currency parity of one peso to one dollar (in force from November 1990 to March 1991), and even more since the currency regimen was lifted in early 2002, allowing the devaluation of the Argentine peso, which today stands at 2.8 pesos to the dollar.

The Kirchner administration admits that in reviewing the privatisation contracts there is space for ”partial modification” as far as prices, investments and service quality. This is seen as a favourable signal to the companies.

But Kirchner told business executives in Spain and the United States that the firms which pocketed huge profits in the 1990s would now have to wait.

According to the Ombudsman, the phone companies have the highest profits at the local and international levels.

But Telecom says that its profit margin is, in relation to shares, 2.3 percent, while Mexico’s Telemex is 16.9 percent, British Telecom 5.5 percent, Brazil’s Embratel 4.9 percent, and Telefónica of Argentina 4.3 percent.

Telecom also said its profits constitute 6.5 percent of its net worth (different between assets and liabilities), while Telemex’s is 53.5 percent, British Telecom’s is 12.9 percent, Embratel 9.5 percent and Telefónica of Argentina 7.8 percent.

>From 1990 to 2001, Telecom says its dividends in this country reached 1.98 billion dollars, with 500 million belonging to Argentine shareholders.

Also in that period, the company says it purchased two-thirds of its inputs in Argentina, for more than 27 billion dollars, and invested 9.35 billion dollars, providing the state 11 billion dollars in tax revenues.

In Argentina, 40 percent of the telephone bill goes towards taxes.

Telecom also stressed that, according to INDEC, after Entel’s privatisation, telephone services for the portions of society with least purchasing power increased 185 percent.

Telefónica of Argentina did not respond to IPS efforts to obtain comments and relevant data from that company.

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