BUSINESS PERSPECTIVE ON TELECOMS CHANGES

UNCLAS LA PAZ 001661

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
STATE FOR EB/CIP/BA/WAYALA
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: N/A
TAGS: ECON ECPS EINV BL
SUBJECT: BUSINESS PERSPECTIVE ON TELECOMS CHANGES


1. (SBU) Summary: A U.S. investor in Bolivia's
telecommunications sector relayed to us his concerns about
the GOB's proposed changes to the sector -- a government
take-over of Entel and elimination of the independent
regulator -- outlined in its national development plan
released on June 16 (septel). The elimination of the
independent regulatory system might mean politicization of
sector decisions and a reversal of the progress made since

1995. End summary.

Entel Take-Over
--------------

2. (SBU) Entel was partially privatized in 1995 and currently
controls approximately 60 percent of Bolivia's fixed
telecommunications market and 48 percent of the mobile
market. The GOB plans to regain majority ownership (51
percent) and name four out of seven board members of Entel,
based on its national development plan released June 16. A
U.S. investor in Bolivia's telecoms sector told us that a GOB
take-over of Entel could have negative and positive
repercussions for his business. Negatively, an Entel
take-over could mean increased subsidies. It could also lead
to Entel offering services below cost, because the GOB
directors might be more concerned about political
implications than profit, creating an unlevel playing field.
Additionally, Entel might be "above the law" as the GOB might
be hesitant to apply fines to itself. Finally, because the
GOB would be both player and judge, the sector could become
less transparent and fair and corruption could increase. On
the bright side (for the U.S. competitor but not for the
sector as a whole),competing against an inefficient
state-owned company might be easier than against a private
company. For example, new state-appointed managers might
lack market knowledge and sector expertise, bureaucratic
decision-making could hinder competitiveness in the
fast-paced telecoms world, and customers might not trust a
state-owned company to respect the confidentiality of their
communications.

Elimination of Regulator
--------------

3. (SBU) The U.S. investor told us that the GOB's proposed
elimination of the independent telecommunications regulator
(superintendency) was worrisome. He explained that although
the regulator was at times corrupt, the telecommunications
sector had achieved significant advances under the current
independent regulatory system that tended to be more
transparent than the prior system of ministry oversight and
was based on free competition. He added that the elimination
of the regulator and transfer of oversight functions to the
ministry would mean that sector decisions would be based on
politics rather than economic or consumer concerns. He
feared that the government as both telecommunications company
and regulator might seek to destroy current norms which
fostered competition in the sector or stigmatize foreign
companies as abusive transnationals.
GREENLEE