BROADBAND DEPLOYMENT INITIATIVES IN THE DOMINICAN

UNCLAS SANTO DOMINGO 000483 SIPDIS EEB/CIP/BA FOR TIMOTHY C. FINTON FCC FOR ROBERT TANNER DOC/ITA/OTEC FOR ANDREW BENNETT STATE FOR WHA/CAR LA PAZ FOR A/DCM C LAMBERT E.O. 12958: N/A TAGS: ECPS ECON DR SUBJECT: BROADBAND DEPLOYMENT INITIATIVES IN THE DOMINICAN REPUBLIC REF: STATE 27310 -------------- Summary -------------- ¶1. This cable presents initial reporting on broadband deployment initiatives in the Dominican Republic (reftel). There is one ongoing government initiative to provide broadband access to 508 rural communities that is scheduled to finish by September. While future incentives are being considered by the regulatory agency, no others currently exist and broadband expansion is further hampered by 28 percent in taxes levied on all telecommunications sales. A Senate committee announced March 30 it would review and update the 1998 telecommunications law. End Summary. -------------- "Indotel te conecta" -------------- ¶2. The Dominican Telecommunications Institute (Indotel),the GoDR regulatory agency, launched a tender in 2007 for a Rural Broadband Connectivity Program. At that time, only 30 percent of the country's 383 municipalities had broadband capacity. The tender offered a subsidy of up to USD 5 million. The winning bidder was Codetel (Mexican-owned),the largest company in the market, which offered to connect the 508 communities with no cash subsidy but rather in exchange for the rights to a WiMax frequency in the country. Indotel Executive Director Joelle Exarhakos told EconOff that the program has proceeded successfully and more than 100 rural communities have already been connected. She said Codetel would complete the broadband deployment plan by September ¶2009. By that time, every municipality in the country will have broadband access. Under the program, Codetel provides 256 kB/second or faster service to rural communities at prices that match the prices charged in urban centers where Codetel competes with other providers. ¶3. Exarhakos told EconOff that Indotel does not have current plans for a second stage for the rural connectivity program, noting that with the completion of this plan, every municipality in the country will have broadband access. She said that in many of these communities, local entrepreneurs have built connections to the networks servicing even smaller communities nearby. Nonetheless, Indotel does not foresee a second stage of the rural program to venture into even smaller villages. But Exarhakos told EconOff that she believes such incentives might not be necessary; part of the goal of the Rural Connectivity Program was to demonstrate rural residents' capacity to pay and it has. In Monte Plata, a national provider, Dijitec, is developing infrastructure without any government incentive to compete with Codetel. ¶4. In many of these communities, Indotel has set up Informatics Training Centers (CCI),where schoolchildren and residents can access the Internet and learn to use computers. These centers are among the 846 centers around the country that Indotel has established as part of an information technology promotion program. Indotel provides the hardware and software for the centers and community groups, schools, churches or town governments maintain and operate the facilities. EconOff visited one such site in October 2008 at a church in Samana which was inoperable because there were no funds to pay the electricity bill. Asked about these issues, Exarhakos candidly acknowledged that some of the committees have not succeeded in maintaining the facilities. (Note: Following the meeting with Indotel, EconOff learned from the Samana church pastor that the facility remains closed six months later. Although the electricity bill is paid, they have been waiting for two weeks for Indotel to provide a needed battery. He said he does not know how to fund the CCI in the future. End note.) ¶5. Sur Futuro is one of the non-governmental organizations that has taken on the operations of CCIs, and runs three centers in communities where the organization is also otherwise involved. The group's education director told EconOff that while Indotel's CCI program provides an excellent service to communities, the lack of long-term funding limits its impact. She said it costs between USD 500 and 850 monthly to operate a CCI, funds that are difficult to come across in poor communities. Sur Futuro's president noted that she is aware that the Catholic Church struggles to maintain the CCIs it runs. -------------- - Codetel: Social Investment, Commercial Success -------------- - ¶6. Codetel's participation in the rural broadband program has been directed by Ahmed Awad, who said the company's total cost of the program is about USD 50 million. He said that while Codetel views it as a social investment, it has also proven relatively commercially successful. ¶7. In addition to installing and maintaining the infrastructure for broadband connectivity in the 508 communities, Codetel is responsible for setting up an entrepreneur program, establishing an Internet portal for the program and providing training in each community participating in the program. In the entrepreneur program, Codetel has helped small businesspeople in many of the communities invest an average of USD 1000 to start up internet cafes or international call centers. The Internet portal, which Codetel hired an NGO to construct, features geographic, demographic and interesting facts about each of the 508 communities. Awad told EconOff he believes it is the only database of information about these forgotten locales. The training provided by Codetel is limited to a one-hour workshop provided to the highest level of school taught in each municipality. Awad said that while the schools have received the trainers positively, he noted that one hour was insufficient to provide much training to the students. ¶8. Awad told EconOff that the installed connections are 80 percent wireless, but that despite the fact that this provides the opportunity for cellular-only service in these areas, many customers want wired hardware in their homes despite the higher costs. Because the service is wireless, many locales contiguous to the participating communities have gained broadband access, Awad said. "In addition to the 508 municipalities, another 150 or so villages will receive service because of the wireless reach," he told EconOff. ¶9. Awad said he hoped that Indotel would launch a sequel to this program, noting that there are another 1500 communities that lack broadband access. However, he lamented the fact that the sector does not have an ongoing focalized subsidy that would reduce costs to rural users, which would make these consumers a more attractive target for private investment. He also commented that the country needs more investment in information technology (IT) education in order to take advantage of the growing broadband penetration and stimulate demand for these services. Perhaps most importantly, though, he cited the lack of reliable electricity as one of the highest hurdles impeding broadband growth both in rural communities and nationwide. ¶10. Instead of providing incentives for growth, the GoDR has a policy of discouraging it with high taxes. In an April 2 interview with the newspaper Hoy, Codetel President Oscar Pena complained that the Dominican Republic has the fourth highest taxes on telecommunications of any country in the world, at 28 percent, and a 3 percent municipal tax appears likely to increase this burden even further. Pena said that the implementation of the 3 percent tax would send a strong negative signal to investors. -------------- Congress to Review Telecom Law -------------- ¶11. In a March 31 meeting with EconOff, Senator Euclides Sanchez, president of the Senate Public Works Committee, said that there were no plans to legislate any incentive programs to promote broadband deployment. He said that this type of development promotion should occur through the regulatory agency, Indotel. Nonetheless, he said he was concerned about the high taxes levied on the sector and said that this disincentive to investment merited legislative review. Later the same day, a legislative assistant present in the meeting contacted EconOff with the information that Senator Sanchez had presented a motion in the committee to form a special commission to review and potentially modify Law 153-98, the telecommunications law. In addition to the tax issues, the legislative assistant said the commission sought to modernize the nine-year-old law to better cover today's technologies and to close loopholes. ¶12. In press reports since that announcement, both Indotel and the Dominican Telecommunications Company Association (Adomtel) have criticized Sanchez' intent. The executive director of Adomtel said that the law was designed to self-modify as appropriate to address changing technologies. She worried that changes could be detrimental to a law under which the sector has thrived. Indotel's president said that the review "does not make sense and is poorly timed." -------------- Perspective From a New Player -------------- ¶13. One of the criticisms of the law disputed by Adomtel is that it creates entry barriers for new companies. Manuel Bonilla, the manager of Wind Telecom, which entered the market last year providing WiMax Internet, MMDS subscription television and VoIP telephone service, told EconOff that the entry barriers that exist are the result of Codetel's decades of monopoly and are not written into the law. Bonilla said he knew exactly how to challenge these barriers because he had helped to fortify them during his previous tenure as a vice president at Codetel. Wind filed an injunction against Codetel for independent access to public portals in the Dominican Republic; Codetel initially disputed the claim but then settled out of court. According to Bonilla, Codetel sought to settle with Wind in order to avoid granting similar access to all other companies. While Wind settled because it was advantageous for it to do so, Bonilla noted that any other company could pursue similar claims to completion to open the market. He said that Indotel could also take a more proactive stance to break down these barriers, but that its administration has preferred to only address these disputes when they are challenged by an industry player. ¶14. Bonilla said that unserved and underserved communities in the Dominican Republic represent a key market for Wind. So far, the company's only commercial launch has been MMDS television in Santo Domingo and Santiago. Because it is not a hard-wired service, it reaches poor urban neighborhoods that have been historically overlooked by cable companies. He said that more than half of Wind's clients live in areas without cable television service. While the company does not have a specific business plan to reach rural communities, he said that as they expand their wireless reach, they will cover many towns without cable access )- especially in the Cibao Valley region -- and he expects to see similar high results from these areas. ¶15. Bonilla echoed Codetel's complaint about the high taxes on telecommunications in the Dominican Republic. He said that these taxes have a direct impact on the accessibility of the products because they inflate the prices dramatically. He complained particularly about the 10-percent excise tax, saying it was ludicrous to levy such a tax on a sector that promotes development. ¶16. Another challenge he noted is the high presence of small cable companies providing pirated programming at a low cost in poor areas. He said that over 100 subscription television companies exist in the country and most of these do not pay for their programming. Bonilla plans to file complaints with Indotel against these companies, but only once his company has launched a service that directly competes with them. While he would like to see Indotel independently crack down on this illegal activity, he says it is not Wind's place to challenge the pirate companies until it provides a legal alternative for the users. -------------- COMMENT -------------- ¶17. Indotel's rural broadband deployment program is an important first step toward expanding access to broadband Internet in underserved areas of the country. Yet these communities and other similarly disconnected zones will benefit more from a comprehensive reevaluation of telecommunications priorities offering standing incentives to companies that invest in underserved areas. BULLEN