GOB ISSUES DECREE TO EXPAND TELECOMS ACCESS

UNCLAS LA PAZ 000104

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
STATE FOR EB/CIP/BA/NFETCHKO
TREASURY FOR SGOOCH

E.O. 12958: N/A
TAGS: ECON ECPS EINV BL
SUBJECT: GOB ISSUES DECREE TO EXPAND TELECOMS ACCESS

REF: 06 LA PAZ 2770

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Summary
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1. (SBU) The GOB issued a decree aimed at increasing
telecommunications coverage on January 1. The decree seeks
to increase access to fixed line services, mandates that
fixed and mobile service providers must create a new category
of service for low-income users, orders cellular operators to
provide services nationwide at a unified rate (per company),
requires mobile operators to charge equal rates for on and
off-network calls, and mandates that all mobile companies
provide roaming services as requested. An executive from
partially U.S.-owned Nuevatel told Econoff on January 16 that
the government's increasing interference in and
politicization of the sector and undermining of the
independent regulator and free competition worried the
company. Nuevatel was also concerned about a second draft
decree that would require companies to expand rural services
without regard for profitability. However, various
provisions of the January 1 decree will benefit Nuevatel vis
a vis Entel, the largest player in the cellular market. End
summary.

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New Year's Decree
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2. (SBU) The GOB issued a decree aimed at increasing
telecommunications coverage on January 1. The decree seeks
to increase access to fixed line services -- currently only
used by seven percent of the public due to costs of up to USD
1,600 to install a land line -- by dictating that service
providers may not demand guarantees and may not require users
to purchase shares in telephone cooperatives, which control
almost all fixed line services in Bolivia, to access
services. The decree mandated that telecoms companies create
a new service category for low-income subscribers, allowing
them to only pay for actual calls made, billed to the second,
with no fixed monthly or line rental fees. Cellular service
providers must create a similar service for low-income
subscribers, only charging for actual usage time. Service
providers must publish their rates in a transparent fashion
outlined in the decree, which will enter into force in March.


3. (SBU) The decree also orders that cellular operators must
provide services nationwide, and that rates for calls between
cell phones must be the same nationwide, eliminating
differentiation between local and long-distance rates. Call
rates must not vary depending on which company is used by
call recipients, i.e., on-network and off-network calls must
cost the same. It further provides that mobile networks must
be compatible to ensure nationwide coverage and that all
mobile companies must provide roaming services if requested
by other companies.

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U.S. Investor Opinion -- The Bad News
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4. (SBU) Vice President Freddy Maldonado of the partially
U.S.-owned telecommunications firm Nuevatel (Trilogy
International Partners) told Econoff on January 16 that the
GOB's decree worried the company because it demonstrated the
government's intentions of regulating tariffs through
decrees, which would take power from the independent
regulatory body (which the GOB has threatened to eliminate -
reftel),and illustrated that the government intends to
increase interference in the sector at the expense of free
competition. Maldonado was also concerned that the
obligation to provide roaming services would decrease
investment incentives, because new market entrants could
invest little and, if roaming rates were set too low, utilize
other companies infrastructure to offer low rates and steal
market share. Maldonado was also worried about the GOB's
second telecommunications decree, currently in draft form,
which would force companies to increase rural services
whether or not it was profitable. At the same time,
Maldonado complained, the government is considering
increasing taxes on telecoms companies and is imposing high
fines. He said that the government does not understand
business or economics and is formulating sector policies
solely on the basis of politics.

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The Good News
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5. (SBU) Maldonado explained that fixed line cooperatives,
and Entel which offers fixed line services, would be harder
hit by the decree than Nuevatel, which focuses on mobile
services. Various provisions of the decree, including the
requirements that on-network and off-network calls have the
same rates and that calls nationwide have the same rates,
will benefit Nuevatel vis a vis Entel, the largest player in
the cellular market. Maldonado also added that the company
has no problem with creating a new category of service for
low-income users, offering pre-paid cards for fewer minutes
at lower prices, as long as the government does not impose a
tariff ceiling that would impede the company from structuring
the prices in a way that would allow it to profit.

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Comment
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6. (SBU) Although the decree contained some positive points
for Nuevatel, the trend of increasing politicization of the
sector and GOB plans to eliminate the independent regulator
and force companies to provide unprofitable rural services
without government subsidies do not bode well for the future.
End comment.
GOLDBERG