Telecom and BOT Business Opportunities in Chile
Eliel Hasson
www.prieto.cl / www.tlconsulting.cl
China-Latinamerica Summit27, November 2007
Population 16 MM Labor Force 7 millions
GDP 2006 USD$ 141.800 billions Growth Rate 4,2%
GDP per capita 2006 US$ 8,570 PPP US$ 12,737
Country Risk Standard & Poors “A” Fitch “A-”
Corporate Tax 17% V.A.T. 19%
Custom Duty: 6% (Non trade agreement)
FTA’s (95% items with 0%)
External Debt 46.5% GDP (mostly private debt)
Foreign Direct Investment 2006 USD$ 9,300 billions
Chilean Investments Abroad 2005 USD$ 2,400 billions
Chile in FiguresChile in Figures
Economic Overview
• Steady growth since 1987
• Only interrupted during 98-99 Crisis
• Current “subprime crisis” impact, controlled: Chilean economy in excellent shape, (strong reserves given high copper prices – good macroeconomic management)
Annual GDP Growth Rate( 1986-2006)
International Monetary Fund
(www.imf.org), 2006
One of the highest growth rate in the last 20 years…
1.2
1.6
2.1
2.3
2.8
2.9
3.1
3.3
4.5
5.6
5.8
5.9
6.5
9.7
0 2 4 6 8 10 12
Czech Republic
Hungary
Brazil
United Kingdom
Poland
United states
Mexico
Argentina
Indonesia
Chile
South Korea
India
Singapore
China
Chile has a highly competitive economy
Economic Freedom Index
(out of 157 countries)
Brasil70
Costa Rica51
Hong Kong1
Argentina95
México49
Panamá47
Portugal43
Uruguay33
Republica Checa31
El Salvador29
España27
Chile11
Canadá10
Reino Unido6
Estados Unidos4
PaísRanking
Heritage Foundation/Wall Street
Journal (www.heritage.org), 2007
Fuente: Fitch Ratings, Standard & Poor´s, Moody´s, 2006
B-
BB-
BBB
A-
A
AAA
AAA
AAA
Standard & Poor’s
B3
Ba3
Baa1
A2
Baa1
Aaa
Aaa
Aaa
Moody’s
DDDArgentina
BB-Brasil
BBB-México
AChina
AChile
AAASingapore
AAAReino Unido
AAAEstados Unidos
Fitch Ratings
Country
Chile has the lowest country risk in LAC
Chapter XIV D.L. 600Any operation above US$ 10.000 It is voluntary for operations above USD$ 5 millions
No contract Contract with the Chilean State
No obligation to sell the foreign exchange into Chilean pesos
The foreign exchange must be sold into Chilean pesos
Normal access to money market Normal access to the formal exchange market
No minimum time to do the operation Capital remittance may be affected only 1 year after the brought in. No time limit for profit remittance
No restriction 3/8 years (8/12 mining) to bring in the capital
Common Tax Regime Special Tax Regime
Foreign Investment Environment
EUACanadá
México
UE
Corea del Sur
Centroamérica(El Salvador-Costa Rica-Panamá)
EFTA (European Free Trade Association)(Islandia-Noruega-Suiza-Liechtenstein)
Singapur
Malasia
India
China
JapónNew Zealand
Vietnam
Brunei
Turquía
Chilean FTA´s get free access to 90% of World GDP (18 FTAs with 54 countries)
In ForcedBeing Negotiated
BOLIVIA 93
VENEZUELA 93COLOMBIA 94ECUADOR 95
MERCOSUR 96 BRASILPARAGUAYURUGUAYARGENTINA
CANADA 97
PERU 98
MEXICO 99
COSTA RICA 02EL SALVADOR 02
UNIONEUROPEA 03
ALEMANIAAUSTRIABELGICADINAMARCAESPAÑAFINLANDIAFRANCIAGRECIAIRLANDAITALIALUXENBURGOPAISES BAJOSPORTUGALREINO UNIDOSUECIAUNION
EUROPEA 04 BULGARIACHIPREHUNGRIAESLOVAQUIAESLOVENIAESTONIALETONIALITUANIAPOLONIAREP. CHECARUMANIAMALTA
ESTADOS UNIDOS 04COREA 04
EFTA 04ISLANDIALIECHTENSTEINNORUEGASUIZA
CHINA 06
BRUNEI 06
NUEVA ZELANDIA 06
SINGAPUR 06
GUATEMALAHONDURASNICARAGUA
JAPON
PANAMACUBA
INDIA
CHILE: Growth of trade in countries with trade agreements vis á vis third countries
30,8%
12,1%14,7%
8,4%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
35,0%
Trade Agreements No Trade Agreements
Export Import
Worlwide Chilean BITs (43): (1974 - 2004: FDI US$ 74,600 millions (88.5% post 1990).
CanadáEUA
ArgentinaBrasilEcuadorUruguay
México
CentroAmericaCuba
PoloniaCroaciaSuiza
Noruega DinamarcaSueciaFinlandiaIslandia
PerúVenezuela Paraguay
Malasia ChinaFilipinasJapan
European Union
Corea del Sur
AustraliaNueva Zelanda
Fuente: General Directorate for International Economic Affairs (www.direcon.cl) 2006
Double Taxation Treaties with 16 Countries
CanadáEUA
ArgentinaBrasilEcuador
México
Cuba
PoloniaCroaciaFranciaHungríaItaliaRepublica ChecaSuiza
Noruega DinamarcaSueciaHolandaFinlandia
PerúVenezuela Paraguay
Malasia China
Sudáfrica
EspañaReino UnidoIrlanda
Corea del Sur
Rusia
Nueva Zelanda
In ForcedSignedBeing Negotiated
Fuente: General Directorate for International Economic Affairs (www.direcon.cl) 2006
TelecomMarket
Telecommunications Market• Total Sales (net income): US$ 4.300.000.000 (dec. 2006)
• Major Competitors:– Mobile: Entel PCS - local investors / Movistar: Telefonica de España / Claro: Telmex
(Slim Group)
– Local / Cable: Telefonica de España / VTR: Liberty Media / Entel: local investors / Telmex (Slim Group) / GTD Manquehue : Local Investors
Telecommunications Market• General Market Data
– Sucribers per service
– Average ARPU
– Total Income
Subscribers ARPU Total Income
Sector (Dec 2006) (US$) (US$ millions)
Mobile Telephony 12.450.801 17,74 2.461 57%
Local Telephony 3.383.809 22,63 919 21%
Broadband 1.034.000 39,00 408 9%
CATV 1.026.667 28,20 306 7%
Long Distance 7,54 204 5%
TOTAL 4.298 100%
Where Most Profits Are
Most growth opportunity
Telecommunications Market• Market Shares in each sector
Market Share - Mobile Market
Movistar45%
Entel PCS35%
Claro20%
Pay TV Market Share
VTR (CATV)79%
Telefónica (Sat)13%
Direct TV (Sat)8%
Braodband - Market Share
VTR (HFC); 40,0%
Telefonica (ADSL); 54,1%
Manquehue (ADSL); 3,5%
Others (Wireless &
ADSL); 2,4%
Broadband Market Chile: The Opportunity
• 1,200,000 broadband connections at June 2007
• 33% growth since dec 2006
• 7.9% penetration (each 100 pop)
• 23% houses connected
• 36.2% 512 kbps or more
• 7.3% 1 Mbps or more
• National target for the Bicentennial (2010): 2,000,000 connections (40% of the houses connected – 13% total penetration)
Broadband Market ForecastBrodband Connections in Chile - Forecast
711
9001034
11221217
13211434
15561688
18321988
585 657740 810 850 922
10011086
11791279
13881506
1635
0,0
250,0
500,0
750,0
1000,0
1250,0
1500,0
1750,0
2000,0
2250,0
Dic-05
Mar-0
6
Jun-0
6
Sep-0
6
Dic-06
Mar-0
7
Jun-0
7
Sep-0
7
Dic-07
Mar-0
8
Jun-0
8
Sep-0
8
Dic-08
Mar-0
9
Jun-0
9
Sep-0
9
Dic-09
Mar-1
0
Jun-1
0
Sep-1
0
Dic-10
Total Connections Houses Connected
Broadband Penetration: by Regions of Chile
• Highest penetration observed in Metropolitan Region (Santiago), and regions I and II• Interesting opportunities in other regions, with very low penetration
Broadband Price ComparisonChile – Argentina – Colombia - Peru
• Broadband prices are relatively high, in comparison with Argentina and Colombia• Also Chilean prices are relatively high, in comparison with European and other OECD countries• There is an interesting opportunity for high velocity / low prices services (if possible)
Comparison with OECD CountriesOECD Key ICT indicators4a. Broadband subscribers per 100 inhabitants in OECD countries and ICCP Committee observers countries*, December 2006
* Israel and Singapore are observers on the OECD Committee for Information, Computer and Communications Policy (ICCP).
Source: OECD Broadband Statistics [www.oecd.org/sti/ict/broadband]
0
5
10
15
20
25
30
35
Denm
ark
Netherlands
Iceland
Korea
Sw
itzerland
Norw
ay
Finlan
d
Sw
eden
Canada
Belgium
United K
ingdom
Luxembourg
France
Japan
United S
tates
Australia
Austria
Ge
rmany
Spain
Italy
New
Ze
aland
Portugal
Ireland
Hungary
Czech R
epublic
Poland
Slovak R
epublic
Greece
Turkey
Mexico
Israel*
Singapore*
Subscribers per 100 inhabitants
DSL Cable Fibre/LAN Other
Source: www.oecd.org
Chile June 2007
Compared with OECD countries, there is an interesting growth potential
Business Opportunities
• The most interesting business opportunity is in the Broadband market, although there is an attractive mobile market, specially with the 3G tender coming soon.
• Expected to grow strongly in the next 5 years– Broadband in Chile is still expensive (compared with many OECD countries)– Mass markets (mid – low income families) will enter the market– A combination of an efficient access technology plus a strong commercial
base is the key
• With a combination of attractive prices for higher speed plans, also there is an opportunity in the high income segments (actually served by ADSL / HFC-CATV operators)
• Chilean regulator will bid new 3G and WiMax bands during 2008
Technological & Regulatory Scenarios
• During 2008 Subtel will bid two WiMax bands and one mobile 3G band– 2.3 and 2.5 GHz for Wimax– 3 to 6 operators max each bid– 3 nation wide bands, 3 regional base bands– 1.7 Ghz for 3G mobile operators
• In Chile, spectrum bids follow the “beauty contest” model– Participants are scored according to the velocity which their project proposals cover
territory & population, (more territory & population covered in less time, means higher score)
• The process is strictly regulated
Possible Entry Strategies
• Buying existing companies
• Starting a new company – alone
• Starting a new company – with a strategic partner
PUBLIC WORKS MARKET
16 years of Experience and Trajectory.
A Consolidated Concessions Industry.
Business Designs Appropriate to Projects.
A Solid and Secure Financial System.
A Public-Private Partnership that has allowed the country to grow and experiences to be transferred:
Solid and flexible regulations.
Stable conditions for foreign investment.
Appropriate risk distribution.
Transparency of tender processes.
Technological quality and innovation.
PUBLIC WORKS CONCESSIONS PROGRAM
Impacts on Chilean Infrastructure
A total of 51 Projects Awarded
USD$ 8 Billions Invested
Main Elements for Defining Business Models
Legal Framework.
Public Works Ministry Charter Law.
Public Works Concessions Law and Regulations.
Tender Ground rules and Explanatory Fliers.
Technical and Economic Offer by the Concessionaire.
Supreme Decree Awarding Project.
Analysis of Risks Involved.
Financing Framework.
BOT Process: Main Legal Aspects
• The MOP is the Chilean governmental entity responsible for supervising, implementing and awarding the Concessions and executing the corresponding public works concessions agreements (the “Concession Agreements”).
• The project concerned may have been proposed by an interested party (the Concessions Act and the Concessions Regulation set forth the procedure for interested parties to propose a project) or prepared by the MOP. In both instances, the Concessions Act and the Concessions Regulation require that the award of the Concession be carried out through a transparent tender process.
• The Concession is awarded by means of a Supreme Decree. Once awarded, the successful bidder enters into the Concession Agreement with the State of Chile, represented by the MOP. The successful bidder is then required, within the term specified in the Bidding Terms, to execute copies of the Supreme Decree as acceptance of the award, and to incorporate a Chilean sociedad anónima, or register a foreign agency in Chile, as the Bidding Terms so require, with whom the Concession Agreement shall be deemed to be executed (the “Concessionaire”).
• Any controversies arising from the interpretation or performance of the Concession Agreement shall be known by a Conciliation Commission.
Project DiversificationTypology :
• Urban Highways (2.15 Billion US$)
North-South System• 61 Km. • 600 Million US$.• 1,4 Million inhabitants.
Vespucio North Express• 29 Km. • 450 Million US$.• 1,5 Million inhabitants.
Vespucio South Highway
• 25 Km. • 550 Million US$.• 1,8 Million inhabitants.
East-West System• 43 Km. • 550 Million US$.• 1,4 Million inhabitants.
Project DesignDrafting of
Concession Contract
Legal Aspects
Engineering Aspects
Demand AspectsTerritorial and Environmental Aspects
Expropriation Aspects
Business Model and Financial Issues
• Pre-Project Studies.
• Study of Demand.
• Expropriation Study.
• Environmental Impact Assessment.
• Technological Studies.
• Financial and Business Studies.
• Legal Studies.
Analysis of Risks Involved
Project Portfolio 2007 - 2009
Total Portfolio Amount 2007-2009Approximately US$ 5.0 billion
Global Government Procurement
Creation of a market niche for any government providers
Interested in internationalizing their operations by way of prerogatives and opportunities arising from chapters regarding government procurement in treaties with other countries such as the United States, Korea, México, Canada, Central America and the European UnionThe GP market, on a annual basis, demands upwards of 10% of the world’s GDP, or approximately the equivalent of 80% of global commerce
This market is expected to bring about important tax savings; create both greater competition as well as transparency, and increase the flow commerce for all players.
To Summarize…
From an investment point of view, from Asia to South America, Chile can give interesting business opportunities at very competitive prices in an stable and friendly investor environment.
... If everybody else is doing it, why not you?