Extending Telecommunications Service to Rural Areas--The Chilean Experience: Awarding Subsidies Through Competitive Bidding
Author: Bjorn Wellenius Date: 2/1/1997 (PDF, 200KB)
Chile has one of the most competitive telecommunications markets in the world. After it privatized the industry in the late 1980s, the number of telephone lines quadrupled to more than 2 million, the range of services grew, and prices fell to among the lowest in the world. Still, about 10 percent of Chileans live in localities without even a public telephone. To address this gap, the Chilean government began auctioning subsidies to private operators asking for the lowest subsidies to supply public telephone service to rural areas. Examining the lessons from the Chilean experience, Björn Wellenius concludes that competition can go a long way toward meeting basic telecommunications needs on commercial terms. And he finds that market forces can determine which projects need subsidies and how much. He proposes that the same techniques could be used to provide lifeline service and Internet connectivity to schools, libraries, and health centers.