Regions

Dollar-starved Venezuelan telecoms turn weaker

September 17
3:15 AM 2015

Venezuelan telecom sector is reeling under pressure as it lacks additional funds availability, the physical currency of dollars. The cash-strapped telecom companies are unable to strengthen their networks. The soaring inflation doesn't allow them to raise a tariff. 

Crisis-hit Venezuela's telecom sector is reeling under pressure as lack of dollar availability and funding dampening the competitiveness of the industry. The ailing Venezuela has put a cap on dollar spending thus handicapping the telecom industry in importing latest equipment and accessing fund-raising. This situation deteriorates the telecom industry's performance as roaming and mobile internet services turning weaker. The cell phone coverage area outside the capital city Caracas has already become patchy or near non-existent in most of the country.

The chaotic conditions in the socialist-run Venezuela are diluting the competitiveness of the telecom industry. The steep drop in oil price and financial crisis has been taking a toll on Venezuela's economy. The Venezuelan government has put limits on the availability of hard currency of US dollar. 

These adverse conditions have created the shortage of several products ranging from flour to iPhones. The investment flow into the Venezuelan economy is also hampered. As a result, private telecom companies' debt amounted to $700million, according to Venezuela Telecoms Chamber. 

The telecom companies' revenues are mostly from 3G, LTE services, satellite-based pay TV and nascent IPTV sector. The fixed lines segment growth is flat and revenues from this segment are shrinking by the day. 

Venezuelan government telecom operator CANTV has majority market share in fixed, mobile and broadband segments. The drop in GDP and oil prices is eroding the consumer spending capacity.

The cocktail of price controls has been squeezing telecom companies putting more pressure on the margins. Adding to this, the high rate of inflation and restricted access to dollars are slowing down the economy growth. International Monetary Fund (IMF) has predicted the economic contraction of seven percent for 2015 year.

The fixed price mechanism in Venezuelan telecom industry is further making telecom companies handicapped in raising tariffs. The inflation rate can't allow telecom companies to hike tariff rates. With estimated annual inflation hovering in triple digits, the cost of telecom services is going very high and this is squeezing the margins. 

The demand is very high in Venezuelan telecom industry. More particularly data consumption is growing at a very high rate, but telecom companies not in a position to meet the demand.  The high data consumption is pushing telecom networks towards saturation as telecom companies unable to strengthen their networks.

The allocation of US dollar to the telecom industry is dwindling down by the day. The allocation by the Venezuelan government in 2015 was less than the average of previous years. 

The telecom chamber has 35 members including Venezuelan state phone company CanTV and satellite TV provider DirecTV. The telecom industry expresses its concern over  the non-coverage area in the country. Cell phone coverage is already patchy or non-existent in most of the country barring the Caracas. 

The internet services provider Movistar has already limited international call to 10 countries only owing to slower internet speed. Roaming services and long distance calls are poised to become much lower as telecom companies avoid spending hard currency.

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