PANAMA'S TELECOM/TECH SECTOR: AN OVERVIEW

UNCLAS SECTION 01 OF 03 PANAMA 000861

SIPDIS


USTR FOR JWOLFE
STATE FOR EB/CIP - J.COOPER
COMMERCE FOR USDOC4332/ITA/MAC/WH/OLAC/MGAISFORD


E.O. 12958: N/A
TAGS: ETRD ECPS PM ECONOMIC AFFAIRS
SUBJECT: PANAMA'S TELECOM/TECH SECTOR: AN OVERVIEW



1. Summary: Panama's telecommunications and technology
sector is growing, and now represents 6% of GDP. The
regulatory authority "Ente" has maintained a fairly good
record for enforcement over the sector, though the former
monopoly, Cable & Wireless Panama (CWP) has been slow in
negotiating interconnection agreements. Fixed-line services
are dominated by CWP, though new entrants, including those
offering internet phone calls, are beginning to compete in
the market since deregulation in 2003. Panama has no/no
universal access fund. Wireless telephony is a duopoly by
CWP and BellSouth since the exit of trunking operator TriCom
in March, but BellSouth may soon be sold to Telefonica.
Internet service is widely available; e-government and
e-commerce are still underused. In sum, the GoP has proved
to be forward thinking in telecom policy and had been
somewhat successful in regulatory enforcement. End Summary.


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Regulatory Overview
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2. Legislation passed in 1996 provided for the privatization
of telecommunications services and the creation of an
independent regulatory authority for public utility
companies-- the Regulating Entity for Public Services (ERSP
or "Ente"). Ente's role has increased in recent years, as
telecommunication services now represent approximately 6% of
Panama,s GDP and 80% of voice and internet traffic between
North and South America pass through Panama's fiber optic
hubs. It controls the frequency spectrum, grants wireless
concessions, and regulates tariffs under monopoly or
non-competitive situations (otherwise the market will
determine prices.) It also has an enforcement mechanism.
For example, Ente has fined former monopoly Cable & Wireless
Panama (CWP) over $1 million since 2001, mostly for delays in
implementing interconnection agreements with competitors. In
fact, Ente has had to intervene in over half of the
interconnection negotiations between CWP and its competitors.


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Fixed Line Services: Partially Deregulated
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3. In May 1997, the Government of Panama sold a 49% stake in
the national telephone company, INTEL, to Cable & Wireless of
the United Kingdom for $651 million. The government
maintained a 49% of the shares with INTEL workers controlling
the remaining 2%. Under this arrangement, C&W gained
operational control over the company and was granted an
exclusive concession to offer basic telecommunications
services until 2003. The company was re-named Cable &
Wireless Panama (CWP). The company currently has 300,000
subscribers; and claims to have invested $700 million in new
infrastructure in Panama in past six years.



4. On January 2, 2003, Panama liberalized local, long
distance, and international fixed-line telecommunications
services effectively ending C&W's monopoly. Consumers are
now allowed both contractual and immediate consumer options,
allowing a choice on a per-call basis. The contractual
carrier provides billing for all services. Metering is in
second increments, and numbers are portable. Nineteen local
and international companies immediately applied to Ente to
provide service; and by April of this year, more than 100
operators had applied for basic service concessions.
Although only five license holders have successfully
negotiated interconnection agreements with C&W and only two
are offering competitive service, the cost of an
international call has decreased between 200% and 400% since
the market opening in January 2003. In March 2004, the GoP
removed a $1 flat tax on all international phone calls and
replaced it with a 12% per-minute tax, further reducing the
cost of the call to the end consumer. In spite of this,
there were only 365,000 landline subscribers in Panama at the
end of 2003, a drop of 100,000 since 1999, due mostly to
increased mobile phone use.



5. Panama has no universal access fund, though the Ministry
of Economy and Finance and Ente have been drafting a law on
the issue since 2003. Under the terms of its concession, CWP
maintains 12,000 public phones throughout the country. The
company estimates that 9,000 of those are net money losers,
and calculates this "subsidy" to be over $40 million
annually. CWP expects to cease this subsidy when the terms
of universal access are negotiated, likely to happen by the
end of 2004.



6. Ente issued a resolution in October 2002 ordering
Internet service providers in Panama to stop offering Voice
over Internet Protocol (VoIP) phone calls, on the basis that
the companies were not paying the dollar tax on international
phone calls. In November 2002, Panama's Supreme Court
ordered an indefinite suspension of the resolution. As of
April, this suspension remained in effect, and will likely
never be lifted, as VoIP providers are now included in the
12% tax that replaced the dollar tax in March.


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Wireless: A Duopoly until 2007
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7. The mobile market in Panama is currently served by a
duopoly consisting of BellSouth and CWP. In 1997 the two
operators were granted concessions to provide mobile services
in the A and B Bands, respectively. The government will
begin further liberalization of this sector in 2007 when it
will auction nationwide PCS licenses. As in much of Latin
America, the wireless market has shown significant growth in
Panama. In 1999, there were 223,000 cellphone subscribers;
in 2003 there were 810,000. Mobile penetration exceeded 28%
at the end of 2003. Approximately 87% of the sector comes
from pre-paid services with post-paid representing 13%. At
the end of 2003, market share was split 51% BellSouth to 49%
CWP. Both operators have recently upgraded their
networks*BellSouth to CDMA and CWP to GSM/GPRS.



8. BellSouth Panama is 56% owned by the Panamanian
investment company Multiholdings Corporation (MHC) and 44% by
BellSouth. The joint venture paid $72 million for the
concession in 1997. BellSouth and MHC are currently in
negotiations to sell all of the company or BellSouth's
holdings to Telefonica of Spain for an undisclosed sum,
though industry sources indicate that the sale price may be
as high as $700 million.



9. In April 2001, Tricom, a Dominican Republic-based
company, but 18% owned by Motorola Corporation and with 38%
of its stock listed on the NYSE, entered the Panama market
with the intent to offer cellular-like products based on IDEN
digital trunking technology. TriCom invested a total of $52
million in infrastructure, employed 115 employees, and had
11,000 users until March. The company estimated its 2003
revenue at $14 million. BellSouth protested this service on
the grounds that Tricom did not possess a mobile license and
filed numerous legal suits against the company. In March,
TriCom closed its Panamanian operations due to the high legal
costs and liquidity problems related to currency devaluation
in the Dominican Republic, and sold its assets for $12.5
million to a local investor who plans to transfer the
equipment to Nicaragua. Ironically, BellSouth now provides
the same IDEN-based technology on its network.


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Internet/Broadband Wireless, E-commerce/E-government
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10. Internet service is fairly widespread in Panama. As of
mid-2003, there were more than 250 internet cafes in Panama,
charging rates as low as $1 per hour. The GoP National
Secretariat of Science, Innovation, and Technology (SENACYT)

SIPDIS
offers subsidized internet nodes throughout the country for
students and teachers, especially in underserved areas,
charging 25 cents per hour using VSAT satellite technology.
For-fee services for cable modem, DSL, A/DSL, and dialup are
also readily available. Since January, hotspotpanama.com has
offered seven broadband wireless (wi-fi) hot spots in Panama
City.



11. In spite of easy access, e-commerce and e-government are
still in their nascent stages. Business to Consumer (B2C)
e-commerce is almost nonexistent, with the exception of the
country's three major supermarkets (even in this case, the
market focuses more on expats who wish to send food instead
of remittances to family members in Panama). Almost all
government agencies have an online web presence (accessible
via www.pa),though the quality of content varies greatly.
The Panama Canal Authority is the only GoP body to offer
procurement opportunities completely online, however the GoP
now publishes most public tenders online
(www.e-compras.gob.pa) and is moving to make the process
entirely electronic.


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Comment: Moving forward slowly but surely
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12. Overall, Panama's telecom and technology sector is
experiencing positive and continued growth. The GoP has
shown initiative to develop internet access generally and
government information specifically. The Ente has had some
difficulty in reigning in the former monopoly CWP--especially
given the conflict of interest posed by the GoP's 49% stake
in the company, but also has proved that it has enforcement
capability by issuing high fines to CWP for noncompliance.
MCMULLEN