LICENSING CONDITIONS IN ECUADOR'S TELECOMS SECTOR

UNCLAS QUITO 001673

SIPDIS

DEPT FOR EB/CIP - TFINTON
USTR FOR JONATHAN MCHALE
USTR FOR PAUL NEUREITER

E.O. 12958: N/A
TAGS: ECPS ETRD EINV ECON EC XR
SUBJECT: LICENSING CONDITIONS IN ECUADOR'S TELECOMS SECTOR

REF: SECSTATE 114687


1. Per reftel, Commercial Specialist and Econ Officer met
with acting President of the National Telecommunications
Council Antonio Arroyo on July 11 to discuss licensing
conditions in the Ecuadorian telecommunications sector. The
following information also reflects discussions with other
telecommunications officials.


2. Arroyo explained that the GOE only imposes licensing
fees to local fixed telephony. Although no regulations
currently exist for national and international telephony,
Arroyo claims that such regulations will be issued later in
the year. Two levels of fees exist, both of which are
charged quarterly and only once the concessionaire starts
operations. The first - 0.5% of gross sales - is charged to
cover concession rights and administrative costs to include
concession contract administration, registry, and regulatory
activities. The second - 1% of gross sales - is used to
fund the development of rural telecommunications. Fees are
charged based on gross sales and do not reflect the
geographical scope of the license, the type of service, or
whether the licensee offers a facilities-based or non-
facilities-based service.


3. The GOE imposes a performance guarantee for each
contract concession, irrespective of geographical scope.
Each new contract, even for an existing licensee, requires a
new guarantee. The performance guarantee is in force during
the duration of the concession (15 years) and an additional
90 days thereafter. The present amount of the performance
guarantee is $100,000 for local facilities-based service
providers and $1,000,000 for non-facilities-based service
providers. Arroyo indicated that this admittedly arbitrary
figure might change, with proposed regulations stipulating
an amount equivalent to 100% of the proposed investment.
The guarantee issuer, depending on the type of guarantee,
charges the following costs: 2% annually for a stand-by
letter of credit, 4% annually for a bank guarantee, and 4%
annually for an insurance policy. Note that no
capitalization or bonding requirements currently exist for
national and international telephony.


4. According to Arroyo, specific build-out requirements do
not exist. However, as part of the licensing review
process, the investor is required to present a minimum five-
year investment plan.

HERBERT