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Chiles VTR Expects Packaging to Cut Churn

One of Chile's biggest telecommunications companies
expects to slash its churn rates by more than half following the introduction of a bundled
nationwide service for voice, data and video.

VTR S.A. recently announced that it will expand its
strategy of packaging voice, data and video services over one broadband network outside
the capital of Santiago and into the rest of the country. The bullish forecast was based
on the steep decline in VTR's churn rate when it introduced the all-in-one
telephony/cable package on its Santiago-based network in June.

In areas where VTR offered only cable, the churn rate
averaged 2.5 percent of subscribers per month. But when telephony was added to the mix,
the churn rate fell to a monthly average of 1 percent, said Enrique Peluffo, VTR's
vice president of strategic development.

Those monthly averages translate to yearly churn rates of
30 percent and 12 percent, respectively. In Chile, where churn has been a major obstacle
-- in recent years, it's topped 50 percent -- any decline is important.

"It means that people are happier with the service,
and that you don't have to put the same effort into selling" it to subscribers
just to maintain market share, said Patrick Grenham, a media and telecommunications
analyst with investment bank BBV LatInvest Securities.

To facilitate the rollout of the bundled services, VTR has
undergone a major corporate restructuring. Previously, VTR was the holding company for
various operating units, including cable arm VTR Cablexpress and telco Telefónica del
Sur. Today, they all come under one company and management team -- VTR -- although
legally, they remain independent companies.

Aside from cutting churn, a bundled approach also delivers
operating efficiencies, Peluffo said.

"Whether we're offering telephony or video
signals ... we're transmitting them over one network," he said.

And customers receive a price advantage: VTR's 360,000
cable-TV subscribers will automatically be offered a 40 percent discount on its local
telephony service.

VTR's main rival, telco Compañía de
Telecomunicaciones de Chile, offers cable TV through its operator, Metrópolis-Intercom.

Between them, CTC and VTR virtually split Chile's
cable market. In telephony, it's a different story, as CTC holds most of the local
market. VTR recently sold its cellular-telephony business to CTC, and it is hoping to do
the same with its long-distance business. At one time, CTC and VTR planned to merge
completely -- a prospect that industry players said has been buried.