Argentine telecom industry rattled by price-freezing decree

The Argentine telecom industry is studying how to react to the decision of President Alberto Fernández, who last Friday declared via decree telephone, internet and pay TV to be essential public services and froze price increases until the end of the year.

For operators and entities in the sector, the measure was a surprise, causing legal uncertainty at a challenging time and affecting investment plans.

“A decision of this type, of this magnitude and scope, and in an abrupt and somewhat unexpected way, because talks between operators and the regulator were unfolding, concerns us very much in relation to current and future investments,” Maryleana Mendez, general secretary of the Inter-American Association of Telecommunications Companies (ASIET), told BNamericas.

“We are working with local telcos and they are waiting to see if the measure will be ratified by congress," Mendez said. She added that if the decree goes through, it will be up to the political and technical authorities to define the best possible implementation of the policy.

Telecom regulator Enacom and local operators had agreed to suspend price increases for telecom services until the end of August due to the COVID-19 crisis. With the imminent expiry of that agreement, many operators intended to increase their prices in September.

One example is Telecom Argentina, which last week said in a results conference call that it planned to hike prices by some 10.5% on September 1. 

According to Mendez, fixing prices in a market "as developed as Argentina" goes against the regulatory flexibility necessary for the sector to continue implementing critical infrastructure.

“This is a sensitive issue because in Latin America companies often have to resort to external financing for the development of such robust platforms and when the risk rises, the cost of financing also rises and companies will therefore reassess whether it’s worth investing or not,” she said.

Mendez also said Argentina’s macroeconomic conditions and the depreciation of the peso are elements that must be taken into account.

GSMA

In the same line, the GSMA Association (GSMA) said in a statement that measures that modify price structures in competing markets with a significant proportion of dollarized inputs are regressive in terms of investment in digital infrastructure and new technologies. 

“Far from guaranteeing access to all citizens, the measures put the quality of consumer services and the expansion of connectivity at risk, which could lead to an increase in the digital divide,” said GSMA, which asked the government to reconsider the measures together with all sectors players. “This scenario is amplified given the centrality of connectivity and the fundamental role that telecommunications will play in the process of economic and productive recovery in Argentina.”

GSMA said operators have been committed since the beginning of the pandemic to support connectivity for the most vulnerable, offering in addition to affordable plans, flexible payment options, the lifting of limits on data consumption and free access to services and specific websites.

The agreement between telcos and Enacom included offering, at least until September 30, “inclusive plans” with special prices, and not cutting off services to clients not paying bills on time until the end of October.

ASIET's Mendez said ensuring telecom access for the most vulnerable should come through specific public policies, such as the inclusive packages, or through subsidies via the universal telecom fund, citing Colombia and Costa Rica as examples of countries that implemented telecom fund-backed subsidies.

Mendez does not believe other countries would follow Argentina's path, although many regulators across the region have banned the cancellation of services of indebted consumers of telecom, water and electricity services during the pandemic – and some have extended the ban to the end of the year.

TELCOS

In an internal communication sent to employees, and obtained by local papers, Telecom Argentina, which is controlled by the Clarín media group, called the decree an “arbitrary” measure that will generate “a strong impact for the company and for the industry as a whole.”

The operator claimed to be “greatly concerned” as the decree hampers legal certainty and strips companies of control of an essential business variable, namely pricing of products and services. 

Telecom Argentina was considering reinstating a US$100mn increase in its 2020 capex that had been suspended due to the pandemic.

“Now that the deal is closed and we have a clearer picture on the evolution of the company throughout the quarantine process, we decided to go back to the original amount of capex while we are also considering additional amounts,” CFO Gabriel Blasi said in a reply to BNamericas in the company’s Q2 earnings call last week.

GOVERNMENT

Talking about Friday’s decree, President Fernández said on Sunday the measure was reasonable and necessary. 

Fernández retweeted remarks from the general government secretary of Buenos Aires province, Federico Thea, in which the latter says a 2015 decree of former president Mauricio Macri stripped the State of powers to regulate ICT services.

“We need to understand that the State must regulate public services such as ICT and cell phones to preserve the rights of citizens who need to access them, to protect the user. That's what it's all about,” said Fernández.

“There are 60mn mobile lines in Argentina, which means that cell phones have become the means of communication par excellence for the 44mn Argentines. That worked without State regulation and in my opinion it was a problem,” he said.

Likewise, “80% of households receive TV through cable and there is no regulation either. There are companies that have a dominant position in the market and need some type of regulation.” 

According to Fernández, a new pricing policy will be defined by Enacom.

In interviews with local media, the president also justified the measure by saying that "there were 6,000 kids" from low-income Buenos Aries districts who would be exposed to catching coronavirus because the city government resolved that students who do not have internet connectivity must return to school.

“If the president wants to ensure internet access, this is done through the universal service fund, as is already occurring in certain vulnerable neighborhoods in the suburbs. The program could have been extended to students without internet connectivity," Silvana Giudici, head of Enacom during Macri’s administration, was quoted by Clarín as saying.