Telecommunications in Chile: Success and Post-Deregulatory Challenges in a Rapidly Emerging Economy

CHILE'S DEVELOPMENT STRATEGY The challenge of the Chilean post-deregulation period in telecommunications is to provide a framework that will allow the market to generate improvements that will be measured not only in number of lines per inhabitant, but also by the successful creation of a ubiquitous broadband network, a user-transparent platform that will assist our global community in facing the challenges of the Information Age. Globally, the communications industry has emerged from a simple measure of progress to an essential backbone of development. The prevailing belief is that by joining the developed nations in making this an area of priority and growth, countries like Chile will become full participants in the global economy Communications will also provide the vehicle for leapfrogging towards accelerated change in education, access to information and training for the next decade. This article examines some of the lessons learned from the Chilean experience thus far and takes a stab at the regulatory challenges needed to meet the new goal. More than by strategy, Chile's development is marked by various timely influences that set the stage for success. Deregulation began to gain the support of policymakers worldwide while the military government was still in power. The concept of deregulation originated in the United States under the Reagan administration and gained favor in Chile when a new generation of economists returned from studying in the United States with the conviction and skills to implement economic deregulation theories associated with the Chicago School of Economics. Under pressure from the international community and because of the need to attract foreign investment, the military government began to phase in democracy in the early 1980s, thus setting the stage for deregulation. Political and theoretical philosophies coincided, allowing the ruling authority to implement the changes with little or no resistance from civil society. As a result of this political change, Chile took a shortcut to deregulation. This shortcut has, however, proven to be a double-edged sword, as Chile comes to grips with the reality that unfettered deregulation has a price. During this period, government spending on education, health and welfare was cut to the bare bones. In addition, while the rest of the world was increasing their national debts, Chile was paying hers. A healthy economic atmosphere combined with a return to democracy made Chile a logical place for foreign investment. The theories of a deregulated system were very attractive to the military government. Not only did they merge well with the government's spending habits, but they would also prove an attraction for investors. The resulting economic boom in Chile over the past decade has proven this to be the case. Strong economic growth, combined with democratization of the political process, has allowed the democratically elected administrations of former President Patricio Aylwin and current President Eduardo Frei the freedom and necessary resources to tackle problems in education, health and the national infrastructure. One key to continuing this success, and the focus of this article, is the need to come to terms with the barriers to competition that are paradoxically imbedded in too much deregulation and to introduce necessary adjustment within the new political reality THE TELECOMMUNICATIONS Focus Chile's newly trained economic experts recognized the importance of access to the worldwide flow of information as a stepping stone to diminishing the gap between the developing and the developed nations. The military government, with the aim of creating an atmosphere favorable for foreign investment, was thus able to push forward the new economic theories with ease. The combination of these forces created the conditions for Chile to become a global pioneer in the deregulation of telecommunications and to introduce a new framework based on the principles of market competition. …