Chile legalizes internet telephony in landmark decision

In a landmark ruling late last week, Chile’s Free Competition Defense Court (TDLC) fined the nation’s most important fixed line telephone company $581 million pesos (US$1 million) for blocking Internet telephony service providers.

The court ruled Telefónica policies hindered fair competition and the firm must eliminate contract clauses that ban VoIP (Voice over Internet Protocol) technology provided by other companies.

“(Telefónica) committed a restrictive practice against free competition, with the goal of limiting the entrance of Voissnet and other potential competitors to the telephony services market,” concluded the court.

Although Telefónica will most likely appeal the decision to the Supreme Court, the ruling clears the path for VoIP service providers and ensures that Chile won’t join the list of countries banning Skype and other internet telephony.

Voissnet, which uses VoIP technology similar to the international telephony provider Skype, will now be able to run on Telefónica Chile’s lines, offering its customers international calls for cheaper than current fixed line international service provided by Telefónica.

“The next step would be a lawsuit against Teleónica for damages. We are already looking into it,” said Voissnet’s lawyer José Miguel Gana. “(The ruling) recognizes the business of internet telephony, a service that Telefónica said was illegal.”

Voissnet first accused Telefónica of blocking access to voice portals two years ago.

Unlike Skype which offers free PC to PC calling and charges per minute for calls made from PC to phone Voissnet’s VoIP service charges by the amount of bandwidth used.

Telefónica CTC Chile boasts 80 percent of the fixed telephone market in Chile and was promoting a policy in Chile that is already banned in Spain, the telecommunications giant’s home base.

Chile’s decision to free up internet telephony comes at a time when dozens of developing countries are moving the opposite direction due to pressure from local telecommunications companies that are threatened by VoIP undercutting fixed-line profits.

Jordan is the latest to join the list of countries banning Skype. In October 2004, the Belarus KGB arrested U.S. entrepreneur Ilya Mafter for selling VoIP services. He was charged with causing US$100,000 in losses. Bangladesh’s restrictions on VoIP services have put a stranglehold on that country’s call center economy.

“Chile is still in diapers,” said Pablo Medina, marketing director for Santiago-based call center Todcenter, in reference to the small number of VoIP providers and the high prices currently charged.

Medina projects that in two months Todcenter, which has 10 employees, will be operating entirely over broadband telephony, and will thus be able to service international clients. The call center currently operates on a mixture of traditional telephone lines and VoIP.

Todcenter uses a proprietary VoIP application that connects to Telefónica’s broadband network through a LAN card. Telefónica charges Todcenter per minute for telephony. While Todcenter uses its own, customized VoIP application, Medina believes the TDLC judgment will increase competition and reduce the overall cost of telephony for call centers.
VoIP startups in Chile include companies like Netline, Chilenauta, IParea and Paralell. Medina speculates the Telefónica itself will begin offering VoIP in the near future.

Many call centers in Chile still use traditional phone lines and provide service only to domestic clients who don’t require expensive international calls.

When asked whether he would consider opening up a call center in Chile, a San Francisco based entrepreneur who currently operates two call centers in India said, “Sure, why not? Chile is just as good as anywhere.”

The entrepreneur uses the call centers to tout mortgage leads to potential customers in the United States. He said that even if the costs of operating a call center in Chile were higher, he would consider making the move if Chilean callers’ English language skills were better than those of Indians.

“People will kill you if you have too deep an accent,” the source said in reference to the responses by U.S. call recipients. “It’s the truth, they will talk really bad to you if your accent is too heavy.… It’s very stressful work and only young people can take it.”

The source estimates that the Indian call center workers earn between US$300 and $400 per month. The Chilean Todcenter pays a base salary of 130,000 pesos (approximately US$250) per month, with employees earning an average of 250,000 pesos (approximately US$475) monthly after performance commissions are factored in.

The TDLC ruling also spotlighted the high costs of Chile’s broadband access. A study solicited by Voissnet by the University of Chile’s Computer Sciences Department revealed that a TV-Phone-Internet package that costs US$50 in the United States and US$10 in France, costs US$200 in Chile. The current cost of very slow 512Kbps connection is an excessive $26,000 pesos (approximately US$50).

Telefónica and VTR, Chile’s only two broadband providers, claim that the costs of providing broadband access to Latin America are higher. “There are important geographical differences that make networking more expensive; different population densities, the nodes are in Europe and USA, and the cost of accessing those is higher,” said one executive from the sector.

This study comes at a time when Internet use among Chilean students is skyrocketing. A recent poll by Cisco and IDC shows that in December 2005, Chile had 710,960 broadband lines, marking a 42 percent jump from 2004.

The Digital Generation Index reports that 30.5 percent of homes with students have broadband, an 18.5 percent increase from 2005. In addition, 89.1 percent of the homes connected to the Internet have broadband connections, whereas only 61 percent had broadband connections in 2004. By Will Sherman The Santiago Times