Utilities pursue Latin America's emerging telecom market

Feb. 1, 2002


Despite the slowdown of the world's economy, a growing number of energy and gas companies in Latin America are trying to use their existing infrastructures and rights-of-way to develop fiber-optic networks for telecommunications services, particularly in Brazil, the region's largest country.

"After the United States, Latin America is the number one market for the 'marriage' of utilities and the telecommunications market," says Dymitr Wajsman, chairman of the United Telecom Council (UTC) in Washington, DC, and director of its sister organization, Aptel, in Brazil. Founded in 1948, the UTC is a nonprofit association that represents the telecom and IT interests of utilities and their business partners.

More companies want to operate in Brazil's telecom sector because of its recent liberalization and the potential synergy with its rapidly growing energy industry. In Brazil, electric power reaches 95% of the country's households. Due to electric power rationing decreed by the government last June, massive investments by both the government and private sector are underway in gas-fired electric power plants. "There is a lot of pent-up demand for electricity and telecommunications," says Wajsman.

AES Corp., one of the first large utilities to pursue telecom opportunities in Latin America, is investing roughly $12 billion in the region. Through investments in Brazilian energy distribution companies like Light (Rio de Janeiro), Cemig (Minas Gerais state), and Eletro paulo Metropolitana (Sao Paulo) from 1996 through 1998, AES created telecom companies Light Telecom, Infovias, and Eletropaulo Telecom. In 1999, AES bought a 51% stake in Eletronet, a telecom network providing long-distance and local service to customers in 121 Brazilian cities. Ele tronet's 22,000-km fiber-optic network, eNET, interconnects AES's three regional companies. About 80% of eNET is built. The optical-cable groundwire (OPGW) network is equipped with DWDM and SDH 10-Gbit/sec technology supplied by Lucent Technologies. The total projected fiber network, including the access networks from the other AES companies, reaches 30,000 km and is on schedule for completion early this year.

"We will become the second-largest fiber-optic network after Embratel," says Elson Lopes, Eletronet's president. Until it was privatized in 1997, Em bratel, which is now controlled by MCI WorldCom, was Brazil's only long-distance and international carrier and is the main provider of telecom services in Brazil. Its proprietary fiber-optic broadband network covers over 982,000 km. Eletronet's strategy is to become a carriers' carrier. In November, Elet ronet announced agreements with two carriers: Brasil Telecom and Primesys, a data service provider.

These contracts followed Eletronet's accord with Intelig, a long-distance and international carrier. Intelig is the largest customer of the fiber-optic network, which uses the energy transmission infrastructure of power companies controlled by Eletrobras: Chesf, Furnas, Eletrosul, and Eletronorte.

The first energy company to receive permission from Brazil's national telecom agency, Anatel, to pursue the telecom market was Copel. Its subsidiary, Copel Telecom, operates a 2,600-km OPGW network with 36 fibers in the state of Parana. Brazil's national oil company, Petro bras, also wants to pursue telecom opportunities. The company presented a proposal to its board of directors for creating a telecom company called Dataflux. The plan is to install a fiber-optic network over Petrobras's 13,000-km pipe lines spread throughout the country.

After beginning its operations in Brazil, AES is spreading its activities throughout Latin America. AES purchased Redibol, a data transmission company in La Paz, Bolivia. AES is installing a 1,600-km fiber-optic network from Brazil's border across

Bolivia to Chile. The network inter connects metro rings within the Bolivian cities of Santa Cruz, Cocha bamba, and La Paz. The resulting company, AES Com munications Bolivia, signed a strategic alliance agreement with Cotel, the largest local telephone carrier, which operates in the greater metro area of La Paz, the nation's capital and largest city. AES is also negotiating with utilities and telecom companies in Peru and Chile as part of a plan to reach the landing points of submarine cables on the Pacific coast.

The deregulation of Argentina in November encouraged a joint venture between companies National Grid (U.K.), Williams Communications (U.S.), and Chile's Manquehue Net, called Silica Networks. Previously known as South ern Cone, the 4,120-km project developed by Silica Networks connects Buenos Aires to Santiago as well as other Argentine cities. In Argentina, Silica will use fiber-optic cable already installed on Transener's Fourth Line using the high-voltage overhead line that links Buenos Aires to Bahia Blanca and Neuquen.

Columbian power company Interconexion Elec trica SA (ISA) installed its own telecom network-one of the first national OPGW networks in South Amer ica-to connect with the Arcos submarine cable. The company has a connection accord with Arcos, an 8,600-km ring that links North, Central, and South America and some Caribbean islands with 24 landing points. ISA's 2,600-km fiber network already connects the most important cities in Colombia. The network is projected to expand to 4,000 km sometime this year.

"Latin America has predicated much of its communications infrastructure development on foreign investment," says Forrest Wilhoit, re search analyst with the UTC. "And the extent to which multinationals are willing to invest will be determined by the ability of countries in the region to successfully open up markets and to coordinate sensible regulatory regimes."

Peter Howard Wertheim and Dayse Abrantes write on telecommunications issues from Brazil.

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