Remarks of Assistant Secretary Irving at the Personal Communications Showcase Latin America '98
Good morning. I am delighted to be here at PCIA's first PCS Latin American Conference. It's appropriate that we are here today in Orlando. This is a city that celebrates not only Mickey Mouse and Donald Duck, but also celebrates the impossible and new visions for the future. And all of you here today are defining those visions for the future by connecting the world through wireless.
We at the Department of Commerce share PCIA's excitement about the recent, overwhelming growth in the telecommunications sector in Latin America. The creation of this conference by PCIA is a tribute to the growing importance that wireless services now play in Latin America. The fact that there are so many of you here is even greater testament to its importance.
Latin America's important role in telecommunications has been reflected in numerous ways. In July, Business Week issued a list of the top 100 emerging market companies around the world. It may not surprise any of you that three of the top five companies were in the telecommunications sector. What impressed me was that two of the top five companies were Latin American telecommunications companies. Brazil's Telebras ranked second (and that was before its privatization) and Telefonos de Mexico ("Telmex") ranked fourth among the world's top 100 high-growth companies.
The U.S. has also witnessed a surge in telecom exports to Latin America in the last few years. Latin American countries now account for 26% of U.S. telecom exports to the world. Looking at the total dollar amount, the U.S. exported almost $5 billion in 1997 - that's 60% higher than the amount exported in 1996.
And, of course, the most significant growth in Latin America's telecommunications market is in the wireless sector. By most accounts, Latin America is considered to be one of the world's fastest growing markets for wireless services. Frost and Sullivan predict that the current $7.1 billion wireless market will triple by 2004. This will open up tremendous opportunities for many of you here, who are already serving or hope to serve Latin American markets.
Liberalization of Markets
We can attribute much of this recent growth to the liberalization and privatization of many of Latin America's telecommunications markets. In recent years, nations throughout the hemisphere and, indeed the world, have made it an economic priority to promote telecommunications infrastructure development. There is a hemispheric and global acknowledgment that the best and most efficient way to encourage investment is through competition, liberalization, and, in many cases, privatization of telecommunications markets.
This astounding growth that we are witnessing was not achieved without a lot of hard work, and I congratulate my Latin American colleagues on their efforts. Moving to a competitive marketplace is no easy task. In the United States, it has taken many years to attain a competitive long-distance market and we still are struggling to increase the level of competition in our local markets. Along the way, we've had to redefine what it means to compete, how to keep the playing field level for all competitors, and how to assure that, in the end, it is the consumers who benefit from the newly competitive market.
I know that Latin American countries seeking to bring competition to their markets are faced with similar concerns and questions. My colleagues in the Clinton Administration and I have been working closely, in bilateral and multilateral fora, with many of you here in the audience. We've discussed these issues at length and learned from each other the best ways to bring basic and advanced telecommunications capabilities to all the peoples of the Americas. One of the best opportunities to discuss these issues has been at the four Latin American Telecommunications Summits (or "LATS"), co-sponsored by the Department of Commerce over the last five years. We have seen great successes result from LATS - most importantly with regard to the relationships that have been built and also with regard to the issues that have been discussed.
Latin America is not alone in its quest to find the best way to promote telecommunications infrastructure development. Around the world, all nations are asking the same questions. In February 1997, with the signing of the World Trade Organization (WTO) Agreement and its accompanying Reference Paper, a global consensus was reached the common regulatory principles necessary for a competitive telecommunications marketplace. Adoption of these principles commits countries to establish independent regulatory bodies, guarantees that companies are able to interconnect with networks in foreign countries at fair prices, forbids anti-competitive practices, and mandates transparency of government regulations and licensing.
Adherence to the principles embodied in the WTO Reference Paper will help ensure that nations realize rapid gains in network investment and development. Recognizing the political and regulatory difficulties of moving to a competitive marketplace, it is especially promising that 13 Latin American countries have adopted the full set of regulatory principles, while others partially adopted the principles. We sincerely hope that the number committing to the WTO principles will grow.
We have already seen that the competitive approach adopted by many Latin American nations has paid off. For one thing, competition has spurred the growth of telecommunications services. The number of cellular phones per resident, for example, is almost four times greater in competitive than monopoly markets in Latin America, according to a World Bank Report.
We have also seen competition and privatization bring tremendous profits to Latin American nations and foreign investors alike. Look, for example, at the recent privatization of Telebras in Brazil. In one of the largest privatizations ever, the Brazilian government broke up its telephone monopoly and sold the individual pieces for a grand total of nearly $19 billion -- 64% more than the minimum bids advertised. And, need I remind you, this occurred at the peak of the Asian financial crisis.
U.S. companies were involved in the bidding. MCI was among the major foreign investors, paying $2.3 billion for control of the long-distance carrier Embratel. That amount was nearly 50% more than the minimum price tag assigned by the Brazilian government. But the Brazilian tender was of global interest and attracted industries across the planet.
This privatization will be followed by Brazil's auction in December of so-called "mirror companies" to create competition among industries. Over 30 U.S. companies have apparently expressed an interest in these licenses. We are encouraged that this auction, and others in Latin America, are continuing despite recent fluctuations in the world markets. Now, more than ever, it is important that we push forward in our efforts to create new business opportunities, further develop the telecommunications infrastructure, and provide services at a lower cost. It is a simple fact that no country, no government has all the resources necessary to create a world class telecommunications structure. Private investment and initiatives will be necessary for any country that seeks to be successful building its wireless infrastructure.
The U.S. Department of Commerce is taking numerous steps to promote development and investment in Latin American markets. Experts estimate that, in its basic telecommunications infrastructure alone, Latin America will need a minimum of $70 billion of direct investment over the next five years. Many of you here this morning will build those infrastructures. We hope to work with you and our Latin American counterparts in government to find creative and affordable ways to expand access to these infrastructures.
We are also encouraging the adoption of Mutual Recognition Agreements (or MRAs). Ordinarily, an exporter of telecommunications equipment is required by each importing nation to test and certify the product according to that nation's codes. This process can result in endless duplicative tests and delays if the exporter is selling to numerous countries. The MRA, on the other hand, would allow testing and certification to take place within the exporting nation. An exporter would need to test and certify only once if it were trading with MRA signatories. We think MRAs will greatly enhance the ease of marketing telecommunications products abroad, and will contribute to the development of infrastructures in other nations. The Department of Commerce looks forward to working with Latin American countries in developing such agreements.
Opportunities in Wireless
I'd like to focus now on wireless services in Latin America, the area of most exciting growth and change. The opportunities for wireless services are, and will, be enormous. At this point, most countries have opened their mobile markets to some level of competition. Cellular has become a major growth industry in Latin America: one expert [Pyramid] projects that the cellular phone market will grow from 12 million subscribers in 1997 to more than 40 million in 2002.
To illustrate the demand for such services, look at what happened in Sao Paolo. When BCP, a newly licensed cellular operator in that city, advertised for potential customers this past April, it received a response of 1.5 million potential subscribers! Many of the city's residents had been waiting up to three years for cellular phone service. As a result, BCP is now adding a record number of 30,000 new customers a day! It is expected to become the world's largest digital metropolitan cellular system by the end of this year.
The growth of the wireless industry is providing significant opportunities both for telecommunications providers and equipment manufacturers. And the opportunities are not always in the areas you might first expect. For example, one U.S. computer chip maker explained that, because wireless networks require computer chips, his company was traveling throughout the Latin American region seeding wireless communications systems.
And the growth of mobile phone services will also be spurred by the introduction of PCS, advanced paging services, and other new technologies over the next few years. We predict that, as in the United States, the introduction of these new services will promote access, improve quality, and bring down prices for consumers.
These new technologies will also help connect Latin American communities that have never before had telephone service. Many areas still are not wired for phone service, either because of geography, low population density, or financial infeasibility. For example, only 17% of households have phones in Argentina; 8.5% of all households have phones in Brazil; and 10% in Mexico. By comparison, nearly 95% of American households have phones.
The low teledensity rates in Latin America are creating booming markets for new wireless services. Already, we are finding that some countries, such as Mexico, are at the forefront in using the "wireless local loop." This technology connects a subscriber's home to the public switched network, usually using fixed broadband wireless such as MMDS or LMDS. In some cases, the "wireless local loop" may provide the only connection, particularly in remote and rural areas that are too costly to wire.
Satellite phones are also connecting many remote or rural communities. Take, for example, the town of Tochimilco near the Popocateptl volcano in Mexico. This village has only a few paved roads, but it already has 18 cellular phones and two satellite phones. In this case, wireless makes far more sense than wirelined service. If the volcano erupts, the few telephone poles and wires would probably be shaken to their foundation or destroyed. With mobile phones, however, the town would still be able to call for emergency service.
Advanced satellite technologies will certainly benefit areas such as these. Several systems providing Global Mobile Personal Communications by Satellite (GMPCS) will soon be operational. These systems will allow users to make and receive calls from mobile handsets virtually anywhere around the world.
At NTIA, we are observing these developments closely. There is a lot we can learn from Latin America's successes in reaching underserved and rural areas. The "wireless local loop," for example, could provide the solution we need to reach communities, such as the Oglala Sioux Tribe in South Dakota which has phone service in only half its households. The United States therefore needs to be as creative as Latin American nations in using wireless loop technologies to connect underserved households to our nation's telecommunications infrastructure.
The Clinton Administration and the Department of Commerce also hope to coordinate with Latin American countries to create broad roaming flexibilities for new PCS, cellular and satellite technologies. It makes no sense that a business man from Quito or San Jose loses wireless service as soon as he arrives in Miami or New York. We should be working towards a spectrum plan common to the Americas that would permit broad roaming flexibilities, no matter where we are in the hemisphere. Such a plan has unlimited potential to improve communications and promote trade between North, South, and Central America.
Finally, another area that holds great potential, both at home and abroad, are wireless data services. In the next few years, we are going to see an ever-rising demand for new ways to transmit data as our data needs grow. In the U.S., our volume of data traffic now exceeds the volume of voice traffic on our backbone networks. This is due largely to the explosive growth of the Internet. Five years ago, the Internet communications vehicle for academics and government agencies. Today, it is vast network of communications and trade used by over 120 million people worldwide.
In Latin America, the need for data transmission has also grown. There are now over 10 million connected to Internet, primarily in Brazil, Mexico, and Chile. Electronic commerce in Latin America is expected to reach $10 billion by the year 2000.
Mobile wireless devices are an obvious medium to provide access to Internet in the future. They represent the convergence of two of the fastest growing markets and developing technologies in the telecommunications field. And there is a built-in demand for mobile data services. If we have seen anything, it is that the only thing consumers value as much as their laptop computers are their mobile phones. Think what would happen if the functions of the two devices were successfully combined. Although this next generation of services (called the "third generation") is still being developed, it won't be long before Internet, e-mail, and video are all available over a mobile phone. Again, I hope to work with Latin American nations to ensure that these "third-generation" services can reach all points within this hemisphere through the mutual recognition of equipment and standards.
Author William Gibson has been quoted as saying that "the future has arrived; it's just not evenly distributed." Over the next several days you will witness the future. Over the next several years, we are certain to see a more equitable distribution of technology as governments and industry work together to create that future. Remember, the telephone was invented over 120 years ago. And yet, today fewer than half of the people on this planet have ever used a telephone and 80% of the world's households do not have a telephone. The Wireless Revolution we are witnessing will change these numbers quickly and dramatically. That is what this revolution must be about: bringing the benefits of this revolution to all of the Americas and to all Americans.