HONDURAS: TELECOM LAW PROGRESS STALLED WHILE

C O N F I D E N T I A L SECTION 01 OF 04 TEGUCIGALPA 001077

SIPDIS

SIPDIS

STATE FOR EB/IFD, WHA/EPSC, INR/IAA, DRL/IL, AND WHA/CEN
STATE FOR L/LEI, EB/OMA
STATE PASS USTR
JUSTICE FOR CRIMINAL DIVISION/FRAUD SECTION/MARK MENDELSOHN
AND WILLIAM JACOBSON

E.O. 12958: DECL: 06/15/2017
TAGS: ECON ECPS EINV ELAB HO KJUS KPRV PGOV PINR
SUBJECT: HONDURAS: TELECOM LAW PROGRESS STALLED WHILE
CORRUPTION CONTINUES

REF: A. TEGUCIGALPA 271 05

B. TEGUCIGALPA 838 07

C. TEGUCIGALPA 782 07

D. TEGUCIGALPA 925 07

E. TEGUCIGALPA 736 07

Classified By: CDA JAMES WILLIARD FOR REASONS 1.4 (B) AND (D).


1. (C) SUMMARY: Despite mounting pressure to agree upon a
draft law to liberalize the telecommunications sector, the
GOH and private industry representatives failed June 13 to
come to an agreement. The action now moves to Congress where
congressional leaders have promised passage of a previously
agreed version. Meanwhile, more revelations of corruption at
state telecom company Hondutel continues to demonstrate the
strong ties that the company has with President Jose Manuel
Zelaya's inner circle. Post is working with the Federal
Communications Commission and Department of Justice officials
to investigate the accusations of bribery and extortion by
Hondutel and GOH officials. END SUMMARY.

STALLED TALKS ON NEW DRAFT


2. (C) While a new, CAFTA compliant version of a
Telecommunications law was sent to the GOH in December 2005
(ref A),the lame duck Congress under former President
Ricardo Maduro never acted on it. Over the course of the
next year and a half, the office of the Presidency under
current President Jose Manual Zelaya submitted to Congress no
less then two alternate versions, both of which, per industry
sources, set back the telecommunications industry "several
years." Confusion continued to grow as the versions
submitted to Congress were withdrawn quietly, with
Congressional sources never quite sure which version was
current.


3. (C) To reinvigorate the process, Post hosted a roundtable
discussion with stakeholders on May 11 (ref B). Over the
course of this meeting and two others, the main blocking
point boiled down to the requirement that licenses in long
distance and international calling be approved by Congress.
The President's team, lead by advisor Hector Rodriguez and
CONATEL (the Honduran telecom regulator) president Rasel
Tome, continued to argue that international access codes were
a scarce national resource, and needed to be approved as a
concession by Congress. Private industry group ASETEL
counter argued that international access codes do not have a
realistic limit and to involve Congress would simply be a
delay tactic. The meetings appeared to be driving the two
sides further apart. (Comment: Post agrees with ASETEL;
recent legislation has clearly excluded some classic
concessions, such as mining, from Congressional approval.
End Comment).


4. (C) With the sides drifting apart, Post hosted an informal
meeting June 12 between Rodriguez and ASETEL representative
Jose Luis Rivera. Rodriguez had previously contacted
EconChief through a third party. (Comment: Rodriguez
apparently was uncomfortable with the direction being set by
the President and wanted to clear where he stood with Post.
End Comment). Over the course of two hours the two sides
made considerable progress, and ended with a commitment to
have Rivera present newly agreed upon remarks at a meeting
scheduled for June 13.


5. (C) On June 14, Rivera called EconChief and indicated that
talks fell down once again over the role of the Congress,
with Tome leading the charge about international access codes
as concessions that require Congressional approval. Rivera
agreed at the end to supply a legal opinion of why the access
codes did not qualify as concessions, and the sides agreed to
meet again on June 22. Rodriguez apparently watched the
proceedings quietly. (Comment: Calls to Rodriguez and the
third party interlocutor have gone unanswered. Rumors have
surfaced that Rodriguez has recently been diagnosed with a
severe medical condition, potentially a brain tumor. End
Comment).


6. (C) Rivera indicated to EconChief that he believes that

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once again this is a delay tactic, but will follow through so
that the President's team doesn,t accuse ASETEL of walking
away from the table. His contingency plan is to work with
President of Congress Roberto Micheletti, who has threatened
to present, in the first days of the new Congressional
session, the earlier version of the law that was agreed by
all parties if President Zelaya cannot gain agreement on a
new version. EconChief has consulted with Congressional Vice
President Lizzy Flores, Liberal party Congresswoman Marcia
Villeda, Micheletti's chief telecom advisor, and National
party secretary Juan Orlando Hernandez about presenting the
prior version in Congress, and all confirm it is a real
possibility. (Comment: Post is now convinced that a new
version cannot be approved without allowing the President's
team to incorporate a series of clauses that will restrict
free competition through bureaucratic bottlenecks. Success
through the contingency plan with Congress is by no means
assured, particularly since many Congressmen, potentially
Micheletti himself ) a former manager of Hondutel ) may be
benefiting from the on-going corruption. End Comment).

CORRUPTION CONTINUES AT HONDUTEL


7. (C) EconChief met June 13 with Henry Salgado, the Chief
Anti-Corruption prosecutor at the Public Ministry, on the
status of their on-going investigations of Hondutel. Salgado
has focused his efforts on Hondutel interim manager Marcelo
Chimirri (ref C),who has launched a high profile campaign
against illegally pirated international calls, or "grey
lines," yet is considered by many to be the main abuser of
the illegal scheme. Salgado confirmed that Chimirri is
operating a high powered network out of his house, which is
directly connected to another network in the nearby house of
President Zelaya (ref D). Chimirri also controls several
cable companies that are suspected of receiving illegal
international calls, which are distributed locally through
Liberal party godfather Jaime Rosenthal's company Cablecolor.
(Note: Rosenthal is also the father of Minister of the
Presidency Yani Rosenthal. End Note).


8. (C) Salgado indicated that he is proceeding with the
investigation along several lines: (1) How is the legitimate
international traffic being terminated in Honduras, through
what contracts and terms, and how public bids for services is
being conducted; (2) an internal audit of Hondutel, which he
is directing through a GOH government audit agency (TSE); (3)
a technical audit of Hondutel facilities to determine how
much traffic is reported versus actually terminated,
conducted by an independent team from the International
Telecommunication Union (ITU); and (4) an investigation of
flows of money to key Hondutel managers. The investigations
are now underway and he expects a team from the ITU to arrive
as early as June 20.


9. (C) In terms of money to corrupt officials, Salgado is
currently investigating rumors of a deposit of USD 10
thousand in late 2006 to Chimirri from Huntington Telecom, a
carrier that contracted with Hondutel, through an account he
controls called Inversiones Chicas. Salgado also informed
EconChief that key Presidential advisor Raul Valladares
declared to the Public Ministry before joining the
President's team that he was owed USD 120 thousand by yet
another carrier, Worldwide Telecom. Overall, Salgado is
sending a request to the GOH Financial Investigations Unit
(UIF) to identify and report on money flows out of more than
15 high ranking officials accounts. (Comment: The former
head of the UIF, a strong manager that worked closely with
Post, was recently dismissed in lieu of a more politically
based manager. Post questions whether these requests, which
strike at the heart of President Zelaya,s inner circle, will
be responded to in a timely and accurate manner. End
Comment.)

A HISTORY OF CORRUPTION


10. (C) Since even before the high profile activities of
Chimirri, corruption and Hondutel appear to have enjoyed a
long and fruitful relationship. It is common knowledge that
the state telecoms company has always been a source of

TEGUCIGALP 00001077 003 OF 004


campaign financing and employment for political supporters,
and for many years was tolerated at an acceptable level. The
former head of Hondutel under President Ricardo Maduro, Jesus
Castanos, explained to EconChief June 8 that grey lines have
always been a problem, but was manageable as long as certain
key "accounts" were not touched. Castanos reported a "rumor"
he had heard, that EconChief has heard through other sources,
that President Maduro himself operated a grey line operation
out of his house. (Comment: Not so far fetched when it's
clear current President Zelaya is operating a considerable
network in his own house. Operations within the President's
house apparently have always been historically untouchable.
Perhaps these spoils always went to the current election
cycle winner. End Comment).


11. (C) Castanos sized the amount of illegal grey line
traffic at about 10 percent. Working with the Federal
Communications Commission (FCC),Econchief has learned that
of the total of around 715 million minutes that the U.S. sent
to Honduras in 2005, only 656 million (about 92 percent) was
legitimate traffic. The other 8 to 9 percent of the traffic
was terminated by companies that did not have official
contracts with Hondutel, principally two named U.S.
companies. The level of grey line trafficking was almost
exactly the amount estimated by Castanos. (Comment: It is
unclear under what agreement these two companies terminated
traffic to Honduras. Would a carrier question a deal
negotiated directly with the President of a country? End
Comment).


12. (C) When the new administration of President Zelaya came
to power, the first manager of Hondutel, Jacobo Regalado,
consequently inherited an enterprise that held grey line
trafficking at an acceptable, albeit profitable, level.
Regalado explained to EconChief in a June 8 meeting that he
attempted to make grey line trafficking legitimate by
contracting directly with suspect carriers, reasoning that
bringing them into the open was worth negotiating a lower
formal rate. The number of international carriers
terminating traffic to Honduras then jumped from five to
nineteen under his watch. Interestingly, the two named U.S.
companies did not sign formal contracts. (Comment: This may
be because they already had strong, yet informal,
relationships. End Comment).


13. (C) EconChief obtained copies of the fifteen new
contracts signed under Regalado, and the level of
incompetence, or most likely outright corruption, is
astonishing. Each contract was negotiated with a standard
rate of around 17 U.S. cents per minute for termination, yet
each contain at least one, sometimes three, "confidential"
clauses that arbitrarily changes the rate to as low as 14
U.S. cents per minute. Interestingly, EconChief obtained an
internal Hondutel accounting sheet that demonstrates that
many times the actual rate charged to the carriers is even
lower, indicating that yet more confidentiality agreements
exist. Regalado agreed that he made "some mistakes" in
contract negotiations. (Comment: The manager tha replaced
Regalado, Jacobo Lagos, indicated thatanother scheme used by
the carriers is to identiy a portion of traffic "in dispute"
every month,then never resolve or pay the disputed amount.
Pe Post sources, every single active carrier owes moey to
Hondutel, with one owing more than USD 2 mllion. When Lagos
threatened to cut service to he carriers, he was summarily
fired by PresidentZelaya. End Comment).


14. (C) Post is working wth Department of Justice (DOJ)
officials regardig the fifteen carriers and potential
violations f the Foreign Corrupt Practices Act (ref E).
Intrestingly, one high profile Washington lobbyist tht has
been working with Post on the Hondutel issu over the last
year also seems to be involved wih one of the carriers, LD
telecom. In a converstion June 14, EconChief asked him
whether his copany was still sending traffic to Hondutel.
"We ave never have had an agreement with Hondutel," he
responded. When EconChief began to describe the raceful
arcs of his signature on the contract, te lobbyist responded
with "Oh that contract," an proceeded to detail how they had
signed a serie of confidentiality clauses to lower their

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rate. (Comment: LD Telecom is one of the companies with the
infamous missing confidentiality clauses. End Comment).
EconChief passed the lobbyist's name and number to DOJ
officials.


15. (C) COMMENT: While Post has gamely tried to bring the
telecom law negotiators closer to an agreement, President
Zelaya and Chimirri have always been in the background
holding the trump card. It is clear that several people in
the President's circle, including perhaps President Zelaya
himself, are benefiting from the grey line profits,
reportedly as high as USD 500 thousand per month. And, while
congressional leaders talk tough, ramming a bill through
Congress is at best a risky venture. Post will continue to
monitor events closely. END COMMENT.
WILLIARD