Government reshapes telco market with end-of-year decree
For The Herald
Through executive action bookmarking both ends of 2016, the Let’s Change government has reformed the regulatory framework for the broadcast media and telecommunications sectors. With dominant players and severe deficiencies in the quality of services, the president has reshaped the playing field. Will new investment and technology now arrive? And what happens now to pluralism? Santiago Marino, a specialist from the universities of Quilmes and Buenos Aires, analyses the problems and opportunities of a new reality.
Argentina’s media system has a series of features which describe its complexity. It presents high levels of concentration of ownership and a heavy centralisation of the production of content in the metropolis of Buenos Aires.
Within this framework, the presence of foreign capital is very significant, to the extent that one of the two most important groups represents overseas interests. This explains why competition is conspicuous by its absence and the quality of services is highly diverse between the major cities and provincial localities. These features apply not only to the traditional broadcasting media (free-to-air, pay, cable and satellite television) but also in terms of telecommunications (mobile telephones and landlines alike) and the Internet, some of which sectors are among the most lucrative in the world.
Given this dynamic reality, nation-states face a challenge when drafting norms to cover what is known as “triple” or “quadruple play” (simultaneously offering broadcast media, mobile telephone, landline and Internet) through one operator within a single network, charging for the service as a package.
For several years a debate has raged as to the need to regulate convergently systems which are historically divergent and with different statutory traditions. While the law centres on licences and contents in the case of broadcast media, telecommunications are defined by their infrastructure and economic factors. The current stage seems to demand a converging framework.
The difficulties are enormous, as we shall see.
Dismantling the heritage
The Let’s Change government inherited a framework of norms and legislation for the communications system stemming in large measure from the debate that began in 2008, following the conflict between the Cristina Fernández de Kirchner government and farming sectors over Resolution 125 defining soy export duties. The framework bequeathed by the former president consisted of the Broadcasting Law (Ley Servicios de Comunicación Audiovisual or LSCA) and a digital television decree (both approved in 2009) plus the “Argentina Digital” telecommunications law of 2014.
That was how Kirchnerism saw convergence. And over and above the form in which the 2014 law introduced the question, the application fell short of the objectives. Nevertheless, it could have constituted a point of departure for a state policy across party lines, at least as regards the organisms of application and control.
Since its inauguration, the Mauricio Macri government has pushed ahead with a cluster of decisions whose main aim lies in dismantling the inherited structure. A series of decrees and resolutions were issued — in general without much debate or with dialogue limited to business sectors — to take apart the LSCA, implemented in very small doses by the previous government.
The decision to amend the norms is accompanied by a rhetoric which expresses at least three central ideas of the Macri government.
Firstly — in its words — “ending confrontation and the persecution of the media on the part of the state.” Secondly, a commercial outlook on communications giving market interests pride of place. And lastly, the thesis which understands that generating competitive convergence between the major businesses will improve the services and the quality of the system, attracting investment.
That rhetoric can be read into the claims of Cabinet Chief Marcos Peña, who upon presenting the newly created Communications Ministry said: “Thus ends the war against journalism and begins a 21st century public communications policy.” And also into the statements of Miguel de Godoy (the director of Macri’s new ENACOM media watchdog), for whom the idea was “to turn a page on a very complicated stage of coercing press companies” by announcing the end of the plans to bring property limits into line with the broadcasting law of 2009. But this encounters certain limits in the statements and manifest ignorance of Communications Minister Oscar Aguad (heading the ministry created by Macri), who expressed surprise at the possibility of Internet sending information files via email.
The contradiction thus exposed permits the conclusion that the communications policy applied by the Let’s Change government is the result of the combination of a series of factors —the pro-market vision, the affinity with the dominant companies within the system and a certain ignorance of the logic and problems of the rest of the communications field. This stems from a combination of measures which fulfil the objective of dismantling the existing regulations but which fails to consolidate a context which really attracts investment.
The administration seems to be pushing ahead without an integral diagnosis and thus stumbles over the perceived difficulties — the market does not take off; the companies press for friendly regulations and threaten to withdraw or litigate abroad; the citizenry (with no stake in the process) fails to see any improvement in a system which it uses everyday.
Within this scenario awaiting regulation, the contenders are very powerful, representing both domestic and foreign capital. Each dominates its sector (or various) and seeks to compete in its rival’s without yielding any ground of its own. Technologically permissible, the dilemma lies in its regulation. The government seeks to guarantee competition within the market while ignoring its central characteristic — concentration.
Within pay TV (a very strong sector in this country) Cablevisión (Clarín Group) has around 40 percent and DirecTV (AT&T) 30 percent, followed by Supercanal (Vila & Manzano) and Telecentro (Pierri) with barely seven percent of the total. Landlines (relevant because of their networks and extension) are a striking oligopoly — Telefónica (Spain) dominates 45 percent and Telecom (now in the hands of Fondo Fintech, the Clarín Group’s partners in Cablevisión, and with an uncertain future) reaches 30 percent.
As for mobile telephones (where competition is scheduled as from 2018), there is a three-way split — Claro (Carlos Slim) 34 percent, Telefónica 32 percent and Telecom (Fintech y others) 31 percent. There the Clarín Group chips in with Nextel, barely two percent but aspiring to compete with 3G and 4G services.
There is a similar three-way split in the broad band market — Cablevisión (Clarín) has 28 percent, Telefónica 27 percent and Telecom (Fintech and others) 26 percent.
All figures from early 2016, setting the stage for next year’s competition.
Starting immediately in December, 2015, the Macri government changed regulations significantly with a maximum of speed and a minimum of participation — via emergency decrees and resolutions. Parliamentary approval was subsequently obtained for the majority of decisions but the government was taken before the Inter-American Human Rights Committee last May and had to respond. At that instance they were obliged to respect that the rights under Kirchnerite legislation could not be changed retroactively.
In a further contradiction of a policy which takes supposedly “provisional” decisions which then turn out to be decisive, the government created a commission to work throughout 2016 on a convergent communications law to be presented by this coming May. In an electoral year and with Let’s Change a minority in both Houses, its approval does not seem possible. In any case the regulatory scene is transformed in line with the demands of its main players so that the central aim lies elsewhere.
At the end of 2016, the government decreed a system which aimed to be competitive but which ignored the extreme concentration. Meanwhile, its saga of changes has been caught in the middle of a dispute between conflicting and irreconcilable interests. The Clarín Group and Telefónica have been locked in low-intensity warfare for over 25 years. Their co-existence does not seem to cover competition because each needs to take a slice off the other in order to grow. To that should be added some heavyweight foreign players like AT&T (DirecTV, in the process of buying up Time-Warner) and Telecom (the Mexican David Martínez, who could become an explosive factor in due course if his deal with the Clarín Group prospers). On a convergent track but outside the regulations for now appear other giants like Google and Facebook. As well as others difficult to fit into the picture such as Netflix (growing significantly in this country) and Amazon.
As for the administration, while promising a new law, the government has dissolved the AFSCA and AFTIC (telecommunications) watchdogs, replacing them with a specific ministry and ENACOM. The latter is composed of seven directors (four named by the government and three by Congress, one from the ruling party) but all can be removed by the president without any justification. For the Macri presidency, not even five out of seven is enough.
Apart from the changes already mentioned, the results of two decrees have been significant. Decree 267/16 at the start of last year completed the liquidation of LSCA by making the concentration limits affecting the Clarín Group above all more flexible. It broadened the maximum number of licences (now transferable as with any property) and defined cable TV as “telecommunications” — i.e. as beyond the orbit of communication media. It also anticipated that telecommunications companies could start offering pay TV in two or three years, according to an ENACOM resolution. Some of those changes were completed this week with the publication of the new decree. But others have been submitted to review.
Decree 1340/16 (published in the Official Gazette last Monday) mapped a road towards convergence which did not resolve the clash of interests despite the attempts to keep everybody happy. Its 13-article text sets the framework for the dispute to come. It stipulates that telecommunications companies will be able to offer pay TV (by cable, not satellite) as from January, 2018 in cities with over 80,000 inhabitants. Meanwhile, the Clarín Group will be able to offer mobile telephone services with 3G and 4G under the licence of Nextel and other firms with recently acquired spectra. Although it will first have to resolve two difficulties — on one hand, it will need ENACOM’s authorisation and on the other, it will have to adapt its technology. Company sources estimate that this could take up until mid-2018, leading to demands that there not be an asymmetrical convergence in favour of the new player on the telephone market, Clarín. For its part DirecTV will be able to provide Internet via satellite, something it has been doing for months but in precarious legal conditions.
It is thus possible to identify three winners (the Clarín Group-Telefónica-DirecTV), although all would like something more. And those who do not go to court will keep up the pressure via lobbying. Or both.
Clarín can enter the mobile telephone market (3G and 4G) but with technical limitations which will delay it and it will face new competition in cable TV.
Telefónica is threatening litigation at the International Centre for Settlement of Investment Disputes because is says the government should have submitted 3G and 4G frequencies to tender instead of extending the permit to Clarín by decree.
Telecom, Claro and Telefónica paid US$602 million, US$590 million and US$427 million respectively to acquire the 4G spectrum in a tender organised by the previous government in 2014. Clarín now obtains that benefit via administrative ordinance, entering courtesy of a private purchase agreement.
However, Telefónica has made considerable gains — an unusually long period of 15 years reserving exclusive rights to the last stage of the network, the bridge to convergence. It can also enter the pay TV market in Córdoba, Rosario and Mendoza as from 2018. That deadline was not extended but the territory was reduced so the Spanish company is also suing. Meanwhile, DirecTV will be able to provide Internet.
One very significant element is that the regulations do not set any specific limits on concentration, not even according to market share.
The ground rules have been changed as the result of a centralised decision by the Executive Branch, consulting only the major players on the market, both domestic and foreign capital. The decree has barely three signatures — Cabinet Chief Peña, President Macri and minister Aguad. According to the creed of Let’s Change, competition between giants improves the quality of services. The evidence for that hunch remains to be seen, as does the arrival of investments in a market whose players feel so dominant.
Santiago Marino has a PhD in Social Science and heads the Masters programme in Culture Industries at the University of Quilmes.