CELLULAR PROVIDERS PRE-QUALIFIED

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 003151

SIPDIS

SENSITIVE

STATE FOR EB/CIP, EB/CBA
GUATEMALA FOR COMMATT:DTHOMPSON

E.O. 12958: N/A
TAGS: ECPS EINV KPRV HO
SUBJECT: CELLULAR PROVIDERS PRE-QUALIFIED

REF: a) TEGUCIGALPA 02043 b) TEGUCIGALPA 02563


1. (SBU) Summary. Bellsouth was one of three firms found to
prequalify to participate in the upcoming 25-year wireless
telephone service concession on November 7, along with the
Chilean company ENTEL and a Swiss-Honduran consortium.
Digicel Honduras, a company with partial U.S. ownership, was
disqualified on the basis that it did not adequately
demonstrate its ties to an operating telecom company
(Digitel of Venezuela). Digicel officials will soon present
clarifying documentation and ask Conatel to reverse the
disqualification. Econoffs have discussed the issue with
Conatel officials and worked with Digicel reps to understand
the key reasons for disqualification and possible routes for
remedy. At this point, the company has not asked for any
specific USG advocacy. End Summary.


2. (SBU) Of the six companies who submitted paperwork to pre-
qualify for the upcoming 25-year wireless telephone services
concession, three were found eligible by the Honduran
telecom regulator, CONATEL, on November 7. These three
firms were: the U.S.'s Bellsouth, Chilean company Empresa
Nacional de Telecomunicaciones (ENTEL),and a Swiss-Honduran
consortium Megatel-Emce. Among the three disqualified
bidders was the other company with U.S. participation -
Digicel Honduras - and two firms related to the Mexican
utility Telemex. Conatel is giving the disqualified
companies time to file a rebuttal to the disqualification.
The issuance of the tender package is now delayed until
approximately January of 2003 and the opening of the bids
estimated for sometime in March 2003. Digicel
representatives visited the Embassy on November 14 to
explain their concern about the company's disqualification.
Bellsouth has not been in contact with the Embassy to date.


3. (SBU) CONATEL provided a long list of legal, technical
and financial deficiencies in Digicel's prequalification
package. Some are spurious and easily clarified. However,
the key requirement for prequalification was a demonstration
that the bidder was a significant participant (20 percent or
more) in an operating wireless telecom company. Digicel
Honduras is claiming that its shareholders' participation in
the Venezuelan telephone company Digitel de Venezuela
satisfies this requirement. However, the complexity of the
consortium's financial structure apparently raised serious
questions in Conatel that the requirement was satisfactorily
met.


4. (SBU) Digicel Honduras consists of Digicel Holdings Ltd.
(61 percent),Venezuelan Ventures (35 percent) and other
unspecified shareholders (4 percent). Venezuelan Ventures
is itself a consortium of four firms that together represent
21 percent of the shares of Digitel de Venezuela (slightly
higher than the required 20 percent): GSM Venezuela (2.78
percent),Venconsul (16.04 percent),Norconsult Telematics
Americas (1.0 percent) and Citibank through its subsidiary
Latin Investment (1.88 percent). Conatel raised questions
about the following issues:

-- Conatel did not credit Latin Investment's 1.88 percent of
Digitel as counting in the calculation of the amount
controlled by Venezuelan Ventures because the bid documents
did not adequately identify the firm as a Citibank
subsidiary. This left Venezuelan Ventures slightly short of
the required 20 percent holdings in Digitel. Digicel plans
to provide further documentation showing the financial ties
between Latin Investment and Citibank, and hopes that will
resolve the problem.

-- Digicel Honduras provided financial statements for (the
non-qualifying) Venezuelan Ventures rather than for the
individual consortium members in Venezuelan Ventures. This
deficiency will also be eliminated as a problem, if Conatel
accepts Latin Investment's ownership by Citibank and thus
Venezuelan Venture's status as a significant participant in
Digitel de Venezuela.

-- Digicel's regional representative Marnie Martin signed
the bid documents as regional representative of Digicel
Holdings. The prequalification package, according to
Conatel, was missing a sworn declaration indicating that Ms.
Martin is the legal representative of Digitel de Venezuela.
The package also omitted the legal domicile and exact
address of the financial associate, technical associate and
the company through which the technical credentials were
presented. Conatel indicates that these legal requirements
are considered disqualifying; documents cannot be
substituted or added to clarify or qualify this missing
information.


5. (SBU) At this point, Digicel has not requested Embassy
assistance on their disqualification. An earlier advocacy
request by Digicel -- for assistance in convincing the GOH
to change the terms of the concession to allow for more than
one wireless contract - has been overtaken by their
disqualification for the moment.


6. (SBU) Comment. Requirement that the bidders in a
concession have a track record of operating a similar
company elsewhere is a common way of determining bona fides
of companies prior to the opening of the concession process
(a similar requirement was included in the concession of
Honduras' international airports in 2000). Digicel's
relatively complex financial structure appears to have made
this determination more difficult than is the case for other
companies. Conatel fanned the fires a bit by adding to its
legitimate concerns a series of spurious documentation
problems (like the alleged omission of a table of contents).
However, Embassy believes Digicel executives now understand
the key challenges ahead to getting the disqualification
dismissed. End Comment.


PALMER