I AM THE STATE: HONDUTEL MANAGER REMAINS MAIN

C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000579

SIPDIS

SIPDIS

STATE FOR EB/IFD, WHA/EPSC, INR/IAA, DRL/IL, AND WHA/CEN
STATE PASS USTR

E.O. 12958: DECL: 04/13/2017
TAGS: ECON ECPS ELAB HO KJUS KPRV PGOV PINR
SUBJECT: I AM THE STATE: HONDUTEL MANAGER REMAINS MAIN
OBSTACLE TO REAL REFORM IN HONDURAN TELECOM


Classified By: Classified by Ambassador Charles Ford for reasons 1.4 (B
,D)


1. (C) SUMMARY: While a new telecommunications law to
liberalize the market remains stalled in the Honduran
Congress, the battle to control the lucrative margins in
international calling continues. Hondutel, the state
telecoms operator, has aggressively pursued companies charged
with pirating calls; others have accused Hondutel of being
the worst violator. At the center of the controversy lies
Hondutel operations director Marcelo Chimirri, the front man
in a high profile offensive against illegal international
calls. With family relationships and friends inside the
President's inner circle, he seemingly operates above the law
and freely declares "I am the State." Recently more
information has surfaced on his shady activities that may
help finally implicate him. END SUMMARY.

ROLLING UP COMPETITORS ONE BY ONE


2. (C) Marcelo Antonio Chimirri Castro, (DOB May 3, 1966;
POB: Argentina) a citizen of Honduras, Argentina and Italy,
first began his tenure as the second-in)command at Hondutel
by looking to cancel licenses that were not being actively
used by companies in Honduras. After complaints by several
U.S. companies, EconChief and EconOff visited Chimirri and
then Hondutel Chief Jacobo Regalado in July 2006 to
investigate claims that they were eliminating competition by
revoking licenses. Chimirri and Regalado responded that
these licenses were just being held for speculation and they
were keeping them out of the black market. (COMMENT: Their
logic never really rang true ) licenses were awarded to
companies based on technical and financial merits and
wouldn,t be bought or sold on the secondary market. END
COMMENT).


3. (C) While few companies were being allowed to begin
operations, even the existing companies in the market have
come under siege. In a stated effort to reduce Hondutel's
losses through grey line traffic (or fraudulent international
calls, mainly run through the internet),Chimirri mounted a
high-profile campaign to identify, invade and close down
companies suspected of participating in the fraud. Based on
a pattern of grey line calling, Chimirri would notify the
Public Ministry (Attorney General's office),literally pick
up a prosecutor and several police on the way to a company
site, then invade the business and confiscate the equipment
) many times armed himself with a semi-automatic weapon and
bullet proof jacket. Over a 12 month span Chimirri invaded
approximately 50 companies, confiscating and holding company
equipment at Hondutel facilities (COMMENT: While it is true
the signature of grey line traffic is relatively easy to
spot, and Hondutel would have the ability to spot it, it
remains a major conflict of interest to have one competitor
police another. END SUMMARY).

ONE COMPANY TOO MANY


4. (C) It was on the 51st company that Chimirri began to face
problems. As in the past, Chimirri "identified" the clear
signature of grey line traffic, then rounded up his
prosecutor and police to invade a company named Pronto in San
Pedro Sula. Pronto, however, was owned by a powerful
business family, the Kattans, whose members ranged from the
head of a manufacturing association to a leading opposition
party congressman. The Kattans went to court and won a
decision against Hondutel, which was ordered to return the
confiscated equipment. While Chimirri and Hondutel defied
the first attempt by the Public Ministry to retrieve the
equipment, it was eventually returned to Pronto. Experts are
now rechecking the equipment for signs of grey line traffic
and should have a report ready by mid-April.


5. (C) With the Public Ministry under fire for allowing
Chimirri to forcefully invade the companies (NOTE: and after
a call from Ambassador to Attorney General Leonidas Rosa
Bautista. END NOTE),the Ministry held a meeting among the
parties in an attempt to reconcile their differences.
Stating defiantly "Marcelo Chimirri, I am the State,"
Chimirri went on to describe how Hondutel has the right to
pursue and decommission companies that they believe are

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fraudulently using their network. When that effort failed to
bring a resolution, tensions later escalated until a series
of sharp exchanges between Chimirri and Rosa Bautista on TV
brought the matter directly to Congress. (COMMENT: Rosa
Bautista, not known for taking on organized crime or
political chieftains, appeared an unwillingly participant
throughout the unfolding drama. END COMMENT).


6. (C) In a circus-like setting in front of the national
Congress, Chimirri defended his actions while opposition
Congressman heaped accusations on Hondutel management. The
result was a surprising unanimous decision by a normally
heavily partisan Congress to investigate Chimirri's
activities. Chief among their demands was to investigate
over a dozen new contracts with international carriers that
contained low (and seemingly unsupportable) per minute rates
(NOTE: The implication was that the contracts were negotiated
with kick-backs. END NOTE). Congress also demanded to know
why Chimirri had installed, through Hondutel, fiber optic
capacity to his upscale home outside of Tegucigalpa
equivalent to a mid-sized bank. (COMMENT: The Public
Ministry has focused on abuse of power as the principal
charge in this case, given Chimirri's role in authorizing the
lines to his house. The enormous capacity could also
indicate that Chimirri is running his own grey line
operation, literally in-house. END COMMENT).

EXTORTION: A WINNING BUSINESS STRATEGY


7. (C) With the Kattan case in the headlines, more
information on Chimirri's role in grey line traffic has
emerged. Carlos David Flores, son of ex-President Carlos
Flores, described to EconOff how he and fellow investors were
personally extorted by Chimirri when his company approached
Hondutel about obtaining a license. In order to approve the
license, Chimirri asked directly "what is in it for me?" The
team left without an agreement. (COMMENT: When Carlos David
described his encounter with Chimirri to his father, the
ex-President immediately called President Zelaya to complain.
Interestingly, Flores comment to Zelaya was to "keep
Chimirri away from my family." Fear of Chimirri and what he
might do is a common refrain in the industry. END COMMENT).


8. (C) The ex-President of telecom regulator CONATEL was also
a victim of Chimirri's extortion. After having served at
CONATEL under ex-President Maduro, Jose Renan Caballero left
to join a U.S. company, and advocated on the company's behalf
at Post several times. In February 2007, Caballero suddenly
resigned. To EconOff, Caballero described how his company
had agreed to pay off Chimirri in order to obtain a lower per
call rate to terminate international calls. (COMMENT:
Caballero's former company is one of the dozen international
carriers under investigation for having low, seemingly
arbitrary per minute rates. END COMMENT).


9. (C) AMNET cable company, a subsidiary of U.S. company
Amzak International, was also threatened by Chimirri.
AMNET's country manager and top technical rep met with
EconOff April 3 and played a taped conversation in which
Chimirri said he would "make it difficult" for the company if
they didn,t vacate a certain market area that overlapped his
own business interest. Given that Chimirri could delay or
cancel AMNET's telecommunications capacity, or worse invade
the company, the company reps have basically decided that it
would be in their best interests to do so. (COMMENT: Several
sources have confirmed that Chimirri is clandestinely running
a small cable company in Tegucigalpa named TeleColor. Oddly,
the company has only a few thousand customers in a poor area
of Tegucigalpa, yet runs a state-of-the-art network. Some
have speculated that Chimirri makes the business profitable
by using confiscated equipment and channels sent illegally by
CableColor, an AMNET competitor owned by business magnate
Jaime Rosenthal. Others believe the cable operation is just
a front for a massive grey line operation that terminates
calls over CableColor. The Public Ministry has been alerted
to TeleColor, and has told EconOff that they anticipate
raiding the company within the next two weeks. END COMMENT).


10. (C) Even Attorney General Bautista was not untouched by
the controversy. In the days following his sharp exchange
with Chimirri, Bautista received a call at his residence by a

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person that specifically threatened his family. The caller
did not state a motive, but in an April 2 meeting with
Ambassador and EconOff, Bautista said that he believed the
call came from a Hondutel insider based on caller ID
information (NOTE: After two years in office this is the
first direct threat made against Bautista. He stated clearly
to Ambassador and EconOff that the timing of the threat and
his actions against Hondutel was not coincidental. END NOTE).


11. (C) SUMMARY: Given the artificially high international
rates supported by Hondutel, and the near zero cost for
terminating calls illegally over the internet, grey line
trafficking is a huge and profitable business. As the
operations chief at Hondutel, Chimirri sits at the controls
of a lucrative empire that specializes in kick-backs and
extortion while stalling any real reform in the sector. END
SUMMARY.
FORD