Forecasting and Evolution of Technology

1. FIXED VERSUS MOBILE:
THE TELEPHONE MARKET IN ECUADOR
by
Victor Molina
A paper presented in partial fulfillment
of the requirements for the course
Forecasting and the Evolution of Technology
ARIZONA STATE UNIVERSITY EAST
February 2003

2. INTRODUCTION
The present paper on ‘Fixed versus Mobile: the telephone market in Ecuador’ is a
partial fulfillment of the requirements for the course Forecasting and the Evolution of
Technology.
It is the objectives of this paper are:
• Research a technology-based company or industry that was threatened as a result of
the emergence of a new technology or technologies that became disruptive.
• Research events and issues that led to the difficulties or successful defense of the
firm (or industry).
• Identify who was affected by the facts.
• Describe how those affected responded (strategies employed) to the threat.
• Discuss the ultimate result.
• Discuss the relevance of Christensen’s principles in the case and extend those
principles where possible.
The case study for the present research is the Ecuadorian public
telecommunications company (EMETEL), which was threatened as a result of the
emergence of new telecommunication technologies, such as mobile telephone, in the local
market.
The relevance of this paper lies in the fact that studying EMETEL’s case will be
possible to test if Christiansen’s principles can be extended into the developing world.
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3. FIXED VERSUS MOBILE:
THE TELEPHONE MARKET IN ECUADOR
In February 1996, President Clinton signed into law the new U.S.
Telecommunication Act, which was an updated version of the U. S. Communication Act
of 1934. According to Wheeler (2000, pp.113), “the stated goals of this legislation were to
introduce competition in all parts of the communication industry, to allow for the more
rapid introduction of new technologies and services, while at the same time preserving and
enhancing the ability of all U.S. citizens to gain access to existing and new technologies.”
President Clinton not only wanted to transform the telecommunications environment in
the U.S. but also extend the effects of the 1996 Telecommunications Act all over the
world. According to Castells (2000, pp. 140), President Clinton‘s strategy in developing
countries was simple: “political pressure either through direct government action or
through imposition by the IMF/World Bank/World Trade Organization.”
The Impact of the 1996 U.S. Telecommunication Act
in the Ecuadorian Telephone Market
In 1996, the International Finance Corporation (IFC), a World Bank Group
member that promotes sustainable private sector investment in developing countries as a
way to reduce poverty and improve people's lives, advised the government of Ecuador on
the privatization of EMETEL, the national telecommunications company. In fact,
EMETEL was transformed into EMETEL S.A., a status that legally allows the company to
sell part of its share to private investors (IFC, 2003).
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4. In 1997, in a fist attempt to sell 35% of EMETEL’s share, the Ecuadorian
government called international investors to a public auction. However, a week before the
closing three out of four foreign investors announced last minute no participation in the
auction adducing that the base of the bid, approximately 600 million dollar for one third of
the total share was too high. The Ecuadorian government was forced to cancel the auction.
As a strategy to make the public company more attractive to private investors,
EMETEL S.A. was split into two regional operating companies ANDINATEL (Andean
region) and PACIFICTEL (Coastal region).
In 1998, a new auction was called. The companies that initially demonstrated
interest in the bid were GTE (USA), Telefonica (Spain), STET (Italy), British Telecom
(UK), and Bezeq (Israel). However, once again those companies desisted last minute from
the auction for second time in less than one year (El Comercio, 2003).
Reports in Ecuadorian press reveled that the major issues found by foreign
investors behind ANDINATEL and PACIFICTEL were the obsolete telecommunication
infrastructure, a large and inefficient bureaucracy protected under union rights, and
extremely high country risk.
The most affected from the process where local customers because despite the fact
that public’s telephone service was deeply inefficient, customers had no choice but
ANDINATEL in the Andean region and PACIFICTEL in the Coastal region. Both
ANDINATEL and PACIFICTEL remained, under Ecuadorian constitution, as public
utility companies holding exclusive rights to profit from all kinds of telecommunication
services such as voice, images, video, data and other services of aggregated value including
multimedia. Also ANDINATEL and PACIFICTEL had right to profit from wired and
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5. wireless services such as local telephone calls, long distance, fax, radio, mobile, and radio
and TV transmission and any other emergent telecommunication services “that could be
invented in the coming years” (SUPERTEL, 2003).
Liberalization of the Ecuadorian telecommunication market
and the introduction of emergent technologies
After the failure of the privatization process of the Ecuadorian public telephone
companies ANDINATEL and PACIFICTEL, the only way private capital could
participate from the Ecuadorian telecommunication market during the 1990s was through
concessions on the wireless telecommunication systems, specially mobile telephony
services because in those that segment of the market neither ANDINATEL nor
PACIFICTEL had any interest.
The first two companies under concession of mobile telephony’s rights were
CONECEL S.A. (Porta Celular) and OTECEL S.A. (Celular Power). In 1994, the mobile
telephony service started in Ecuador with 18,920 users (Porta Celular with 13,260 users
and Celular Power with 5,300 users) while the public telephone companies had more than
half million fixed telephone lines already in place. At this point in time there was no threat
to the public monopoly coming from the small mobile telephone companies (SUPERTEL,
2003).
By 1997, Celular Power is acquired by BELLSOUTH and a new era in the
Ecuadorian telecommunication sector began. BELLSOUTH looked at the potential of the
mobile telephone sector all over Latin America and the Caribbean. Particularly in
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6. Ecuador, BELLSOUTH began, for the benefit of the public, a lower cost/best service war
against Porta Celular, and the local market responded with an explosive increase in the
number of users.
Statistical data from the Ecuadorian Telecommunication Secretary (SUPERTEL,
2003) show that the most affected from the concession of mobile telephone rights were the
concessioners: ANDINATEL and PACIFICTEL. A highly significant difference between
the increase in the mobile telephone sector and the increase in the fixed telephone lines
sector is reveled by the following facts: while fixed telephone lines sector in Ecuador
increase from 900,384 fixed lines in 1997 to 1,426,188 fixed lines in 2002, the mobile
telephones increase from 126,505 mobile phones in 1997 to 1,560,861 mobile phones in
2002. In consequence, by the year 2002 there was in Ecuador more mobile phone than
fixed ones.
ANDINATEL and PACIFICTEL strategy
to regain position in the disruptive technology market
The management strategy designed by the Ecuadorian telecommunication
companies ANDINATEL and PACIFICTEL to regain position in the disruptive mobile
telephone market is the creation of a joint venture among both ANDINATEL and
PACIFICTEL plus a third strategic partner - selected internationally - in order to enter to
the Ecuadorian mobile telephone market. In effect, on March 13th, 2003, representatives
of ANDINATEL and PACIFICTEL received proposals of mobile telecommunication
systems from Alcatel, Huawei Technologies, Ericsson, Telefónica Móvil (Spain), Siemens,
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7. Foam One and Zte Corporation. One of the international companies will be the third
partner in this public/private venture (El Comercio, 2003).
The ultimate result of this case is still in the days to come. However, it is interesting
to note that ANDINATEL and PACIFICTEL are not only not abandoning the threatened
technology (fixed telephone lines), but also they are regaining position in the disruptive
technology market (mobile telephones).
Extension of Christiansen’s principles
into the ANDINATEL and PACIFICTEL case study
Regarding Christensen’s principles, they could be extended in four particularities from the
case:
Small market do not solve the near-term growth of large companies:
In 1994 the size of the mobile market in Ecuador was too small (18,920 mobile
telephones) to be interesting to a large public utility company, which already had half
million customers.
Giving small opportunities to small organizations: In order to test the
mobile telephone market concessions on telecommunications rights were given to two
small private companies CONECEL S.A. and OTECEL S.A., which developed the
mobile telephone market significantly.
Waiting until the market is large enough to be interesting: by 1997 it
was already know that the mobile telephone market had a high potential not only in
Ecuador but also in most of the developing world. BELLSOUTH decided to enter the
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8. market while both ANDINATEL and PACIFICTEL unaware of the market potential did
nothing to enter the mobile telephone market in their own country.
Don’t wait too much! In 1997, BELLSOUTH entered the Ecuadorian mobile
telephone market and now, five years later, ANDINATEL and PACIFICTEL want to join
the game. The mobile telephone market might be still growing in the coming years;
however, the initial stage of rapid growth could be experiencing a slow down.
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9. CONCLUSIONS
• The EMETEL case had offered to the reader interesting facts to understand how a
technology-based company or industry can be threatened as a result of the
emergence of a new technology or technologies that became disruptive.
• Additionally EMETEL’s case had permitted to extend Christensen’s principles,
where possible, into the Ecuadorian context.
• Finally, as it was stated in the introduction, understanding the recent evolution of
emergent and disruptive technologies in Latin America is essential for further
understanding and forecasting of information technologies in the region.
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10. REFERENCES
Castells, M. (2000). The Rise of the Network Society. (2nd ed.) Oxford: Blackwell
Publishers Ltd.
Christensen, C. (1997). The Innovator’s Dilemma. Boston, Harvard Business Scholl Press
El Comercio. (2003). Andinatel y Pacifictel, los dueños de la tercera
celular. El Comercio [Online]. Available:
http://www.elcomercio.com.ec/noticias.asp?noid=54650&hl=true
International Finance Corporation. (2003). Privatization of the Telecommunication
Company in Ecuador. International Finance Corporation
[Online]. Available: http://www.ifc.org/about/basicfacts/basicfacts.html
Superintendencia Ecuatoriana de Telecomunicaciones. (2003). Estadisticas de
Telecomunicaciones. Superintendencia de Telecomunicaciones [Online].
Available:
United Nations-Economic Commission for Latin America and the Caribbean/UN-
ECLAC. (2001). Latin America on its path into the digital age: where are
we? Santiago, Chile: Hilbert, M.
Wheeler, J., Aoyama, Y., & Warf, B., Ed. (2000). Cities in the Telecommunications Age:
The Fracturing of Geographies. New York: Routledge.
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