TELECOMMUNICATIONS UPDATE

UNCLAS LA PAZ 002770

SIPDIS

SIPDIS

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

E.O. 12958: N/A
TAGS: ECON ECPS EINV BL
SUBJECT: TELECOMMUNICATIONS UPDATE

REF: A. LA PAZ 1660


B. LA PAZ 2196

C. LA PAZ 1661


1. (SBU) Summary: The Bolivian telecommunications sector has
grown and increased in competitiveness significantly since
privatization and market opening during the last decade. The
GOB announced in June that it would seek to regain majority
ownership of the former state-owned telecommunications
company, Entel (ref A). The Director General of
Telecommunications told Econoff on October 12 that the
government does not want to take over operating control of
Entel, but merely wants majority ownership to have access to
the company's profits to use for expanding rural telephone
services. The GOB's plan to eliminate the current regulatory
system and create new regulatory agencies under ministry
control (ref A) will not likely be implemented before
mid-2007. The government aims to expand rural telephone
services through the creation of community information
centers and placement of public phones. End summary.

Background: Sector Growth Since Capitalization
-------------- -

2. (SBU) The state-owned telecommunications company, Entel,
was partially privatized (capitalized) in 1995. Telecom
Italia purchased 50 percent of the company, 47.5 percent was
given to managers of Bolivian pension funds for benefit of
the Bolivian public, and 2.5 percent went to state workers.
Entel held a monopoly on long-distance services until 2001,
when the market was opened up for private investment. Today
there are 10 long distance operators, 17 local operators (16
cooperative plus Entel),and 4 mobile service providers,
including two U.S. investors. Although there has been little
growth in fixed line service since 1996 (installing a fixed
line costs approximately USD 1,200),mobile service market
penetration has gone from zero percent to 25 percent.
According to the President of Entel, Franco Bertoni, Entel
controls approximately 65 percent of the long distance
market, 65 percent of the mobile market, and 80 percent of
the data market. Bolivia has the lowest tariffs in Latin
America, Bertoni said.

GOB Wants to Leave Operations to Private Sector
-------------- --

3. (SBU) The GOB announced in its National Development Plan
in June that it intends to regain majority ownership of nine
of the companies that were capitalized in the 1990s (ref A),
including Entel. However, because of the significant
obstacles it has encountered in the hydrocarbons sector (ref
B),it is unlikely to attempt to implement this plan in the
foreseeable future. According to Bertoni, the GOB has not
yet discussed this plan with Entel. Both Telecommunications
Director General Pedro Solares and Telecommunication
Superintendent (regulator) Clifford Paravicini told Econoff
on October 12 that the government does not want to take over
Entel's operations and that government wants to take a more
careful approach in telecommunications than it did in
hydrocarbons. They agreed that the government wants majority
ownership of Entel to have access to Entel's profits in order
to implement social programs, like expanding rural telephone
networks, but does not want to operate the company.
According to Solares, the government realizes that private
operators are more efficient, less corrupt, and less
politicized than state-run businesses and does not want to
harm the sector. Meanwhile, Telecom Italia, as part of its
overall Latin America strategy, is seeking to sell its shares
in Entel. Bertoni denied rumors that the company has had
discussions with Venezuela's CANTV regarding the sale.

GOB's Plans to Reform Regulator Delayed
--------------

4. (SBU) The government announced in June that it plans to
eliminate the current independent regulatory system and
create new regulatory bodies within the ministries (ref A).
A U.S. telecoms investor told Econoff previously 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 (ref C). According to GOB representatives, the new
system would seek a better balance between industry and
consumers, because the current system, they argue, favors
industry at the expense of consumers and has failed to ensure
rural services access. Director General Solares said that
the plan was designed to strengthen the ministries, but that
the independence of the regulators would be maintained. The
ministries would set the norms, but would not interfere in
the daily functions of the regulators, he explained.
However, reforming the regulatory system would require
several legal changes, and thus the reforms would not likely
be implemented until mid-2007, Solares said.

GOB Seeks to Expand Rural Services
--------------

5. (SBU) Director General Solares explained that the
government aims to increase rural telephone coverage through
a USD 130 million investment over the next four years in
community information centers and public phones. He
explained that while 60 percent of urban dwellers have access
to personal telephones, only 0.6 percent of rural residents
do, and only 30 percent of rural dwellers have access to
public phones. The community telephones would be partially
financed through a telecommunications fund, which now
contains more than USD 3 million from company fines.
Superintendent Paravicini said that the superintendency plans
to work with small private companies to provide community
information centers, including telephones, Internet, and
television, to 240 towns by February 2007. The government
also plans to grant subsidies to companies to extend coverage
to rural areas.


6. (SBU) Comment: Director General Solares' comment that the
government wants to take a more careful approach with
telecommunications than it has with hydrocarbons suggests
that the government is not likely to rush into taking over
telecommunications businesses, but will focus on the high
profile sectors of hydrocarbons and mining for now. The
remarks of Solares and Superintendent Paravicini are
reassuring in that they indicate that the government
understands the benefits that private sector investment has
brought to the public and that it does not want to impede
private operations in the telecommunications sector. End
comment.
GOLDBERG