Line king: A U.S. cable giant sees a pan-Latin, multimedia empire ahead. Chile is the first step. (Connection).

San Miguel is a typical Latin American neighborhood rushing to catch up to the future. Horse-drawn vegetable carts compete for space with Korean mini-vans on its dusty south Santiago back streets. Tangled wires sprout in every direction from telephone poles.

Many of those wires are colgados--pirated cable TV connections. Despite continuous threats from police and cable companies, the illegal hookups are so prevalent that ratings firm Time Ibope includes estimated pirate viewership when measuring the chilean TV audience.

But San Miguel's demographics, piracy and all, closely mirror chile as a whole, so much so that Chilean cable company VTR chose it as ground zero for a half-billion-dollar broadband spree, to be built between 2000 and 2004. The company's plan is to bring telephone service, then broadband Internet, to its 440,000 cable subscribers across the country. Its upgraded 15,000-kilometer network will carry TV, voice and data signals.

Bundling those services will allow VTR's revenue to jump from US$20 to $70 per customer, the company claims. VTR's U.S. parent, broadband company UnitedGlobalCom, consolidates results so profit-and-loss figures for VTR are not reported, but the Chilean unit cited a 2001 revenue increase of 30%, to $160 million.

UnitedGlobalCom predicts success in Chile will be leveraged to create "a leading pan-regional provider of telephone and Internet access services." It's no idle boast: The company is controlled by U.S. cable baron and Liberty Media Corp. CEO John Malone, famous for his late '90s prediction of a "500-channel universe" of interactive TV, a notion that so far has stubbornly refused to become a reality anywhere much less in the developing world. Liberty, once part of AT&T, owns interests in media properties like AOL Time Warner, home shopping network QVC, USA Networks and The News Corporation--the content that will eventually pump through those fat, new pipes.

VTR's marketing campaign in Chile, as notorious as Malone's bombast, identifies the company's new technologies with freedom and privacy, relatively new concepts to staid, sheltered Chilean society. When cable TV competitor Metropolis-Intercom censored inbound cable TV movies it deemed anti-family, VTR heavily promoted Playboy TV and trotted busty models around the nation. Marketing residential phone service, VTR hawks its lines as "untappable" and void of the so-called phantom calls mysteriously added to telephone bills in Chile.

"I first changed to VTR for cable TV. I didn't want Metropolis censoring me; it was horrible," says Luis Cespedes, head of business development for Bloomberg Chile. "Now I have all three services and the discounts are great. I paid just 4,000 pesos ($6) for Internet last month. Also, their bills are clear. With CTC it was a mess. They charged for everything."

Red tape. VTR says it now owns a 60% share of Chile's cable TV market and 60% of the nascent broadband Internet market, some 28,000 subscribers so far. VTR has also made a dent in Chile's famously open local phone fray by moving into second place in residential service at 225,000 lines, although it distantly trails Telefonica of Spain. VTR says it adds 8,000 lines a month.

Analysts think VTR can add broadband customers in 2002, up to 45,000 by year-end. Driving growth will be 15- to 18-year-old fanatics downloading hit music and favorite episodes of import series like Friends.

Cable is a tough business to master. Brazilian cable giant Globo Cabo spent millions to build a cable empire covering Belo Horizonte, Sao Paulo and Rio de Janeiro, eventually hitting 1.5 million subscribers. But it soon faced a staggering $709 million in debt while its disconnect rate skyrocketed to 25% on an economic downturn. Major shareholders, plus Brazil's development bank Bndes, finally took action in March to reduce debt by more than half.

Regulatory frameworks across Latin America, too, make the VTR model difficult to replicate in key markets. In Mexico, financing problems hamper the efforts of pay TV companies to expand their offering of telephone services and Internet access. A recent 10% tax on subscribers is also expected to slow cable investments in Mexico. In Argentina, meanwhile, investment in Internet service via rapid telephone line technology known as ASDL has been suspended while importers try to decipher burdensome currency exchange rules for telecom equipment.

While cable firms worldwide describe a broadband future of video-on-demand and interactive TV shopping. "all that is almost science fiction as far as Latin America is concerned," says Salomon Smith Barney media analyst Pablo Burbridge. "Even in Europe, interactive TV is not working as expected, except for betting."

Will the future begin--and unceremoniously end--in San Miguel, a victim of the colgados and their stolen lines? Malone and VTR are betting not, to the tune of a half billion. "Nobody questions whether or not to pay the telephone bill," says Juan Antonio Etcheverry, VTR's vice-president for marketing. "But many customers certainly question whether or not to pay the cable TV bill." Getting it all together seems to be the solution--if VTR can do the job without going broke first.