Fighting weight: Venezuela's Cantv slims down as competitors come from all sides. (Connection).

Maria Elena Carrero had been out of work for a year when she found a job in Venezuela's fastest-growing underground industry--telecommunications. A friend hired the former secretary to sit at a table on a busy pedestrian boulevard and charge passers-by for the use of a pair of cellular telephones.

Pay phones a few feet away are several times cheaper than what Carrero charges, but she says many Venezuelans don't carry prepaid pay phone cards--sold by dominant telecom Compania Anonima Nacional Telefonos de Venezuela (Cantv)--nor can they afford their own cellular phones. Venezuelan pay phones do not take coins.

"What can one do?" Carrero says of her work, at which she clears US$30 a week. "I was in the house all day long."

A virtual army of the unemployed provide rent-a-phones on sidewalks across the country, cutting pay phone use in half in less than two years. Such is Venezuela's changing telecom business, where cable TV companies aspire to lop off the top residential consumers, wireless handsets hide inside home phone units and long distance is under attack from a dozen by-the-minute discounters. Through it all, ex-monopoly Cantv--now controlled by a consortium led by former U.S. baby bell Verizon--fights to stay on top.

Cantv competitor TelCel, owned by another U.S. baby bell, BellSouth, seized the lion's share of Venezuela's cellular market when it launched a decade ago. Today, TelCel controls 45% to Cantv unit Movilnet's 38%. (Telecom Italia-controlled Digitel has the rest of the market.) Meanwhile, BellSouth's "Telcel fijo' units, which use wireless technology in a standard desk-style phone, have taken a 15% bite out of the residential market in less than two years. Venezuela has 3.2 million fixed lines for a population of 24 million, plus 6 million wireless lines.

More threatening still are a dozen new companies determined to skim off the 10% of customers that provide more than half of revenues. One is NetUno, a cable-television provider that offers home-telephone service in the upscale Caracas neighborhoods where its cables already run. Chile's Entel, a subsidiary of Telecom Italia, also says it will invest $80 million in Venezuela by 2007 and expects to win 20% of the Internet and long-distance markets.

"In the areas where we are, we are taking many clients away from Cantv," says NetUno publicity manager Jorge Parra. "It's not much now, but there will come a time when it will be tremendous."

In response, Cantv has cut long-distance rates, though not enough to match the competition, and it is offering new services such as home surveillance and medical diagnosis via Internet, as well as spending US$190 million to upgrade its cellular system to permit wireless Internet service. And it has introduced a popular tarjeta unica, a single pre-paid card for home telephone, Internet and long-distance services.

A pack of start-ups, too, now offer monthly and call-by-call long-distance deals at substantially lower rates. The new long-distance carriers have stolen away between 5% and 7% of the market. "The competing companies are going to go after the large customers, so Cantv has to be prepared," says Gartner Dataquest analyst Marta Kindya.

Cantv is still in the driver's seat in most segments, including home telephony, long-distance, Internet and data transmission services. Through its Caveguias subsidiary, it also publishes Venezuela's telephone books, and it has nearly 400 'Communication Center' franchises, where the public can make calls, use the Internet and send and receive faxes. Calls from the centers have taken off even as the economy weakened.

Fighting back. Cantv reported net income down nearly 4% in the first nine months of 2002, even as it added income from services like broadband Internet and business data services. It blamed a weak economy but also pricing pressure in long-distance.

"We're worried, but we're not terrified," says Chief Operating Officer Vicente Llatas, who says the company is fighting back with discounted rates and its own version of TelCel,s fijo wireless home phone.

The winner in phone privatization has been ordinary Venezuelans. Cantv once obliged customers to wait 15 minutes for a dial tone and an average of eight years for installation. During the 1990s, the company reduced its workforce 30% and slashed its debt load, a move which helped it fend off a 2001 hostile takeover bid by AES Corp., a U.S. energy company. Today, dial tones come in seconds and new phones are installed in days.

Cantv may have another advantage. In the minds of many Venezuelans, the company is still synonymous with basic telephone service. Being big has proven best in many markets in Latin America, most clearly in countries like Mexico, where the former state monopoly continues to rule the roost. Converting itself into the next Telmex, however, will take some serious focus.

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