Compania de Telefonos de Chile Harvard Case Solution & Analysis


Compania de Telefonos (CTC) is a telephone company founded in middle of the financial crises. Compania de Telefonos (CTC) is looking forward towards the expansion strategy of the company to remain stable in the challenging and competing industry but Chile’s economic condition is not feasible for expansion of the company. The company requires substantial capital resources for expansion and moving towards to launch the new high technology telecommunication services. It has option to raise capital from the local market, international expansion and other sources of financing. Company is located in the region of Chile, the Chilean economy is mostly based on the raw materials business that is copper, as Chile is the world largest exporter of the copper and the third largest producer of the copper throughout the world. The international debt financing position of the country is strong and that arrear debts of the country never reached above $18 million. The international expansion program of the CTC has been approved under the supervision of Australian entrepreneur.

Problem faced by CTC:

Telecommunication industry is booming in the modernized world, as the telecommunication is the fastest source for communication, but Chilean infrastructure of telecommunication industry is not good enough to support the capital expenditure required by the Compañia de Teléfonos (CTC) expansion. CTC requires heavy capital investment, as the government is unstable in the Chile. The investors in Chile and Compañia de Teléfonos (CTC) are uncertain about the company’s strategic strategies and other financial disabilities of the company and the economy of the Chile as a whole. The inventors are also uncertain about the competitors of the Compañia de Teléfonos (CTC) that what new technologies, the competitors of the company are planning to introduce in the industry. These are the key factors for the investors, while considering expansion strategy of the Compañia de Teléfonos.

Expansion Strategy:

The local market of the Chile is not supporting the expansion to raise the capital through local market as the market is very thinly capitalized. Therefore, Compañia de Teléfonos has a very attractive financing decision for foreign investors. The Chilean government is not supporting the expansion strategy of the company, but the company requires the expansion. The Chilean government has to support the Compañia de Teléfonos for its expansion process, because the infrastructure of the country in the telecommunication is far behind the other economies of the world. Compañia de Teléfonos is one of the leading telecommunication companies of the Chile, and its financing failure lead towards its renationalization, as previously the company is being privatized by the Chile government. Approximately 300,000 applications are pending in the company, which also indicates that the expansion is required for the company for advancement in technology and equipment. Chile’s population is growing rapidly and the telecommunication network used by the Chilean population has also increased in the recent years and Chile is ranked at 11th, shown in exhibit 2 and exhibit 3.

Privatization & Renationalization:

Chile government is looking forward towards free market economy with increase in both local and foreign investment, but still the market of the Chile is emerging towards the controversy of the new technologies in the industry. The government privatized the Compañia de Teléfonos de Chile in the late 1980’s due to the non-existent telecommunication industry in Chile. But the privatization did not seem effective for the company and hence Compañia de Teléfonos was renationalized by the Chile government to keep the company alive and to compete in the competitive market through their effective and efficient strategies, for which the company is looking forward to the international or local investment for expansion. The expansion is to improve the infrastructure and the modernization of the telecommunication industry in the Chile.

Local Market Expansion:

The domestic barriers of the Chilean market are difficult to overcome, as the local market of the Chile is very small and is not capable for the expansion plan of the company. Therefore, company is looking ahead towards the international investors for the expansion. Furthermore, the local market expansion investments that are available to the company are the investment from local banks, local pension plan, as the pension plans are rapidly growing in the Chile, because they are held privately and are running more effectively and more efficiently. The other option for local market expansion of the company is the investor of the local stock market, but the domestic stock exchange is not highly capitalized. The capitalization of the Chile stock market is very thin, therefore the local stock market of the company is also not capable to support the local financing......................

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Newly privatized Chilean telephone company, Compania de Telefonos-de Chile (CTC) to raise significant new funds externally to finance its expansion program. This task is complicated by the small, illiquid capital markets in Chile and skeptical view of Latin American borrowers belonging to investors from outside the region. Chief Financial Officer of CTC must determine if the listing of American Depositary Receipts (ADRs) on the New York Stock Exchange is a viable financing option for the company. "Hide
on W. Carl Kester, Enrique Ostale, Charles M. LaFollette Source: Harvard Business School 21 pages. Publication Date: August 13, 1992. Prod. #: 293015-PDF-ENG

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