Honduras: Telecom Debates in Final Round

UNCLAS TEGUCIGALPA 000949

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, EB/IFD, INR/IAA
DOL FOR ILAB
STATE PASS USTR: ANDREA MALITO

E.O. 12958: N/A
TAGS: ECPS ELAB KPRV PGOV ECON HO
SUBJECT: Honduras: Telecom Debates in Final Round

REF: Tegucigalpa 00715


1. (U) This is an action request: Please see para. 11.


2. (U) SUMMARY: The CAFTA-compliant telecommunications
sector framework law (Ley Marco),recently revised and
shortened, is now set to be introduced to Congress. A
competing law by parastatal telecommunications company
Hondutel has so far gained little traction in the Congress,
but still counts the powerful telecom workers union as a
supporter. Meanwhile, Hondutel management has started to
cancel contracts with competing operators -- allegedly
because the permits are underutilized and to "reduce
speculation." Hondutel may also be looking to find a
partner to develop its own mobile service. Post requests
Washington-based agencies' views on whether the proposed
award of a new cell phone concession must be open and
competitive under CAFTA rules. END SUMMARY.

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TWO BILLS SET TO COLLIDE
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3. (U) As reported in reftel, a shortened Ley Marco
(telecommunications framework law) has been drafted and
submitted to the Honduran Congress for formal introduction.
The law was originally 120 articles long but was shortened
to 80 articles for quicker comprehension by the largely
freshman Congress. At the same time Hondutel, the state
telecommunications company, has submitted its own version of
the Ley Marco to the Congress, one that seeks to roll back
competitive initiatives and reestablish a more "ordered"
environment. The Hondutel law is strongly supported by the
anti-globalization Bloque Popular, a group that on this
issue is making common cause with the Hondutel workers union
among others.


4. (SBU) The shortened Ley Marco was submitted quietly to
Congress on May 17. On the same day, almost 700 union
workers marched from the Presidential house to the Congress
to present the Hondutel version. Despite the fanfare, Econ
sources confirm that National Party congressman and
telecommunications committee head Rodolpho Irias Navas made
it clear to union leaders that the shortened Ley Marco would
be the only law considered. Irias Navas encouraged the
union to present ideas and suggestions, but within the
"spirit" of the law that calls for more competition. The
Hondutel version, which requests a two-year non-competitive
period and would delay key CAFTA-inspired initiatives, would
not meet that requirement.


5. (SBU) Hector Nunez, the head of a private industry group
(ASETEL) in the sector, is confident that the bill will pass
"within the next two weeks." He stated that his strategy is
to have the bill backed in Congress by President Jose Manuel
"Mel" Zelaya, a move that he believes would help ensure its
passage. Nunez and several other private sector
representatives will meet with Presidential minister Yani
Rosenthal on May 23 to present this proposal, and request
that he seek Zelaya's backing. (Comment: On May 19, Zelaya
made a speech in which he criticized past privatizations as
a mistake -- a stance which may not bode well for courting
his support of a bill that opens telecommunications to
greater competition and could force Hondutel to privatize or
at least take on a strategic partner in order to survive.
Ambassador raised the importance of a good "Ley Marco" in a
May 22 meeting with President Zelaya, who tasked his Foreign
Minister with following up with Minister Rosenthal on the
issue. End Comment.)

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HONDUTEL'S MONOPOLY - NOT SO EASY TO BREAK
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6. (SBU) Meanwhile, Hondutel continues to try various
tactics to ward off competition as long as possible.
According to Irias, while the company's version of the Ley
Marco (a sector-wide framework) will probably not be
presented to Congress, the proposed Organic Law (which deals
specifically with Hondutel itself in its role as a
parastatal -- reftel) has gone nowhere. This law attempted
to restructure the former monopoly and allow the company
broader discretion in spending, in order, they claim, to
allow it to compete in the new environment. (The company
would not, for example, have to seek public, competitive
bids for its equipment procurements.) The proposed law was
termed a "poorly written disaster" by World Bank
representatives and former commissioners of CONATEL, the
telecommunications oversight agency.


7. (SBU) Meanwhile, Hondutel has also moved to cancel
licenses awarded to "sub-operators" that have not
sufficiently developed their business. These companies
invested in Honduras in 2004 and 2005, offering telephone
services under contract to Hondutel while awaiting the
December 26, 2005, end of Hondutel's monopoly. At that
time, they were to have become fully independent operators,
which could directly compete with Hondutel. The regulatory
changes that would have made this possible have not been
passed, and the sub-operators remain in limbo. Some suspect
therefore that Hondutel's moves to cancel current contracts
now are an attempt to reduce eventual competition once the
market is opened.


8. (SBU) In a meeting May 4 with EconChief and EconOff,
Hondutel second-in-command Marcelo Antonio Chimirri admitted
that his legal department had been sending out cancellation
letters to operators that "were not using their permits."
Chimirri claimed this was done to "avoid speculation" in
permits by companies seeking to "flip" the permit to another
firm for a profit. (Comment: This explanation rings false
to Post, since no limit was placed by the GOH on the number
of operating permits that could be approved. With an
unlimited supply, speculation is not possible, since prices
cannot be made to rise. Moreover, early reports suggest
that permits for companies that are operating are also being
canceled, calling into question Hondutel's alleged legal
basis for the cancellation, as well as its rationale that
the permits were being canceled because they were not being
used. End Comment.) Per Chimirri, explicit in the service
contract was a requirement to notify Hondutel, by payment or
other means, that a company was using (or intending to use)
its operating permit within 30 days of its approval.
Chimirri also stated that any company whose permit was being
canceled could appeal the cancellation. (EconChief and
EconOff will meet next week with one of the first companies
to receive this letter to better understand the alleged
legal basis behind the decision.)

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FUTURE PLANS INCLUDE PAY-PER-VIEW, DSL, MOBILE
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9. (SBU) Later in the meeting Chimirri, a cable industry
veteran, detailed some of Hondutel's business plans. While
Hondutel pushes for a two-year non-competitive period and an
"ordered" market opening, the parastatal company will embark
on a spending spree to take advantage of emerging
technologies. He echoed Hondutel President Jacobo
Regalado's call to offer pay-per-view services, and
confidently called for the roll-out of high speed DSL over
Hondutel's aging copper phone lines "within the next four
months." Per the World Bank, Hondutel has spent about USD
220 million over the past four years on new projects, many
of which remain uncompleted.


10. (SBU) When asked about the potential development of
Hondutel's mobile capability, Chimirri responded with a more
realistic timeframe of nine months before service could be
offered. He indicated that Hondutel has the license and
equipment available to offer the service but lacks the
necessary market acumen and funding to make the service a
success. To that end Hondutel has publicly stated that they
are seeking a potential partner to outsource or invest in
Hondutel to launch a mobile service. By their own
admission, the mobile market most probably has room for only
one more player, bringing the total to three cell-phone
companies serving a market that is currently only 1.3
million users. Post is concerned that the GOH could award
such a cell license to Hondutel in a non-competitive or non-
transparent manner. Post is also concerned about reports
that Hondutel head Regalado has suggested that the two
existing cell phone concessions be cancelled. Post
understands the Presidency quashed that idea, but such a
proposal speaks to Regalado's view of markets.


11. (SBU) ACTION REQUEST: FOR USTR: Post requests comment
on the Hondutel initiative to partner or attract an investor
to help develop its mobile service, specifically if this bid
falls under the CAFTA guidelines on government contract
bidding and transparency. Confirmation of this could allow
the bidding process to be extended to U.S. companies.
Options for a potential partner could range from a limited
investment or consulting role to a complete outsourcing.
END ACTION REQUEST.


12. (SBU) COMMENT: With the legislative slate relatively
clear and momentum apparently on the side of the "shortened"
Ley Marco, this could be an opportune moment to get the
advances under CAFTA codified into law. ASETEL's initiative
to have the GOH executive back the proposal may pave the way
for the bill to make the Congressional agenda, and begin
discussion before Congress breaks for recess in June. The
competing bill from Hondutel remains a threat, however, and
how the Bloque Popular and others react to the Congressional
debate may still affect the outcome of the new Ley Marco.
END SUMMARY.