ECUADOR - INTERNATIONAL CIRCUIT BLOCKAGE A DOMESTIC

UNCLAS SECTION 01 OF 02 QUITO 002737

SIPDIS

DEPT FOR EB/CIP/BA

E.O. 12958: N/A
TAGS: ECPS ECON ETRD EINV EC
SUBJECT: ECUADOR - INTERNATIONAL CIRCUIT BLOCKAGE A DOMESTIC
MATTER

REF: STATE 177365

SENSITIVE


1. Summary. The blocking of international telephone traffic
from the United States to Ecuador over the past 18 months
has less to do with the negotiating tactics referred to in
reftel than with local political and economic interests. In
Ecuador, the blocking of circuits to impede the termination
of international calls to cellular phones is driven by
domestic contractual disputes between domestic fixed-line
and mobile operators. Because of this dispute, Ecuadorian
mobile operators and US carriers have had to enter into
direct agreements that bypass Ecuadorian fixed-line
operators. Meanwhile, in their negotiations with Andinatel
and Pacifictel, US carriers note that they have not
experienced the type of tactics referred to in reftel. End
Summary.

ECUADORIAN CIRCUIT BLOCKAGE AND INTERCONNECTION RATES
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2. The blocking of circuits connecting US telecom traffic to
Ecuadorian cellular numbers is associated with
interconnection rate disputes between Ecuadorian mobile and
fixed-line operators. Interconnection rate agreements
between fixed-line and mobile operators ended in April 2004
when the parties could not agree on a new rate. With the
end of the prior interconnection agreement, fixed-line
operators ceased sharing interconnection revenue with the
mobiles. Complaints from the mobiles were ignored by the
fixed-line operators. In retaliation, mobile operators
began to disconnect circuits, blocking international phone
calls to Ecuadorian cellular phones.


3. (The main Ecuadorian fixed-line operators are Andinatel
and Pacifictel, which were created in 1997 when regulators
broke up state-owned telecom EMETEL. Although they
technically became private companies in 1997, the GOE,
through state holding company Fondo de Solidaridad (FS),
still owns 100% of Andinatel and Pacifictel. The main
mobile companies in Ecuador include Spanish-owned Movistar,
Mexican-owned Porta, and Allegra, which is a joint Andinatel-
Pacifictel venture. Growth among the mobiles has far
exceeded that of the fixed-line operators, and currently
there are more than three mobile phones for every fixed line
in service.)


4. In July 2005, after more than a year of unsuccessful
negotiations between operators, Ecuadorian telecoms sector
administrator Senatel announced new interconnection rates to
govern traffic between mobile and fixed-line operators in
Ecuador. The decision followed a 30-day warning from
Senatel to operators indicating that it would establish
rates if they were unable to do so. Under the Senatel
decision, interconnection rates for calls from fixed-line to
mobile operators are $0.1131 per minute, while those from
mobile to fixed are $0.02 per minute. The new rates reduced
fixed to mobile and mobile to fixed line interconnection
charges by 43% and 62% respectively.


5. Despite Senatel's action, international traffic from the
United States to cellular numbers in Ecuador remains blocked
because the dispute over unpaid charges continues.
Movistar, for example, claims that Andinatel and Pacifictel
still owe it $40 million in unpaid interconnection charges.
In total, mobile companies are owed a reported $100 million
from interconnection charges from fixed-line operators.

ESTABLISHING DIRECT LINES TO MOBILE OPERATORS
--------------


6. (SBU) (Information commercially sensitive - please
protect.) Faced with a domestic dispute that impedes their
ability to establish connections to cellular phones, US
carriers have re-routed such traffic, establishing their own
direct lines to Ecuadorian mobiles. Hernan Ordonez,
Movistar's Vice-President of Regulation, acknowledged to
Econoff that Movistar has established direct lines with the
main US carriers. For example, according to Ordonez,
arrangements with AT&T and Sprint began in April and May
2005, respectively, and those with Bell South Long Distance
go back to October 2004 when their operations were owned by
Bell South. In many cases, US carriers are routing traffic
through Telefonica, Movistar's parent company.
Representatives from some of the US carriers have confirmed
these arrangements.

US CARRIER RELATIONS WITH ANDINATEL AND PACIFICTEL
-------------- --------------


7. That US telecom traffic to cellular phones is disrupted
by domestic commercial disputes does not mean that US
telecoms are not having contractual problems with Ecuadorian
fixed-line operators. Both AT&T and MCI reported to Econoff
that 2005 contracts with Andinatel have yet to be signed.
According to Mary Hoberman, AT&T's Director of International
Public Policy, continuous changeover in executives at
Andinatel has directly affected AT&T's ability to obtain
closure on their 2005 agreement. Luis Montenegro, MCI's
International Carrier Services provider in Quito, tells a
similar tale. Meanwhile, both carriers report that 2005
agreements with Pacifictel are in place.

8. At Mary Hoberman's request, Econoff spoke to recently-
arrived Andinatel President Gales Chiriboga about the
outstanding contract. The Commercial Section also has
raised the issue in recent months with Chiriboga's
predecessor. Chiriboga expressed genuine concern that the
contract had not been concluded, and rightly so, as the lack
of a contract precludes payment by AT&T. Chiriboga said
that he would make sure that the issue is resolved soon.


9. It is important to note that contracting delays with
Andinatel are not associated with circuit blockage. Despite
the lack of contracts for 2005, phone calls from US carriers
to Andinatel are not blocked. International traffic
continues to reach fixed-line operators.

COMMENT
--------------


10. The US carriers with whom Econoff spoke note that the
difficulties they are experiencing in other Latin American
countries referred to in reftel are completely different
than what they are experiencing in Ecuador. That is, their
experience does not indicate that Andinatel and Pacifictel
are blocking circuits in order to obtain higher
interconnection rates from US carriers, nor does it suggest
pressure from the GOE to extract higher interconnection
rates from US carriers in order to increase tax revenues to
pay for other domestic programs.


11. However, while not a result of negotiating tactics,
circuit blockage to cellular phones in Ecuador has the same
effect on US carriers. Re-routing traffic through direct
lines to Ecuadorian mobiles has not come cheaply. US
carriers claim that the cost of re-routing traffic has had
the same net effect on them cost-wise as that which they
have been experiencing as a result of circuit-blocking
tactics elsewhere in Latin America.

BROWN