SALVADORANS TO BAN ADVERTISING ON CABLE TV

UNCLAS SAN SALVADOR 002364

SIPDIS

SENSITIVE

STATE PASS USTR
COMMERCE FOR 4332/ITA/MAC/MSIEGELMAN
COMMERCE ALSO FOR 3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

E.O. 12958: N/A
TAGS: EINV ECPS ECON ES
SUBJECT: SALVADORANS TO BAN ADVERTISING ON CABLE TV



1. (U) Summary: The Telecommunications and Electricity
Superintendency (SIGET) is preparing a draft regulation for
cable television that would ban advertising. Such a rule
change will have a negative impact on the profitability of
U.S.-owned AMNET, which dominates the sector. Post are
concerned that SIGET, at the behest of broadcast television
stations, is moving forward with the new regulation without
engaging in a formal consultative process with all
stakeholders. End summary.


2. (U) In late 2004, SIGET announced it would issue formal
regulations for cable television (previous regulation
existed as part of the broader telecommunications sector) to
reduce piracy and enhance competition in the sector. SIGET
shared its initial draft with stakeholders in December 2004.
AMNET, a U.S. company and the largest cable operator in the
local market, complained to SIGET that the first draft would
do little to combat piracy because it would allow operators
who were stealing programming transmitted by satellite to
register with SIGET under the new regulation, provided they
negotiated legitimate contracts for the programming within
100 days. Subsequently, SIGET said it would revise the
regulation to require that operators transmit legitimate
programming before registration.


3. (U) In early 2005, President Saca named a special
commission to support SIGET in further refining the cable
television regulation. Curiously, the commission included
representatives of broadcast television companies only--
leaving cable television companies with no representation.
Econoff met July 28 with SIGET Superintendent Jorge Nieto,
who said that the commission has recommended several changes
to SIGET's first draft, including a provision to ban
advertising on cable television. Nieto said local
advertising would be banned in particular, though banning
advertising included already in international programming
would also be considered. [Note: Current telecommunications
laws and regulations are silent on this issue. End note.]


4. (U) Nieto, in support of this provision to ban
advertising, said that broadcast television and cable
television are and should remain two distinct mediums,
because cable television receives its revenue from
subscribers and broadcast television from advertisers.
SIGET's position is that it is a form of unfair competition
that cable television collects revenues also from
advertising. In addition, he said consumers have complained
to SIGET that they shouldn't have to pay a monthly fee for
cable television and then suffer through commercials. He
said the issue was still under discussion at SIGET, and that
he welcomed input from AMNET. However, he was not able to
provide a draft of the revised regulation for review, nor
describe a process for further consultations with
stakeholders on the regulation.


5. (U) Econoff told Nieto that AMNET has made significant
investment in telecommunications infrastructure in El
Salvador based on a projection of revenue that included both
advertising and subscription--changing the rules midstream
would deal a blow to their plans for infrastructure
expansion. He also replied that regulatory uncertainty in
the sector could spill over to other sectors and have a
negative impact on the investment climate. Finally, Econoff
express expressed concern regarding the lack of formal
procedures for consultations on the new regulation.


6. (SBU) Comment: Nieto may be subject to influence on this
issue from the politically well-organized broadcast
television owners who have warm relations with President
Saca. Saca has extensive experience in the communications
sector, and mainstream press have traditionally supported
ARENA. Post will continue to press SIGET for regulatory
transparency and emphasize the impact this case will have on
the investment climate. However, SIGET will likely approve
the proposed regulation and ban on advertising--timeframe
uncertain. If so, AMNET would likely appeal to the Supreme
Court, claiming that the new regulation violated the freedom
of speech, which is guaranteed by the Salvadoran
Constitution. End comment.

Barclay