Home Latin America III 1998 Telecommunications Privatisations in Central America

Telecommunications Privatisations in Central America

by david.nunes
Janet HernandezIssue:Latin America III 1998
Article no.:4
Topic:Telecommunications Privatisations in Central America
Author:Janet Hernandez
Title:Senior Associate, Telecoms Practice Group
Organisation:Coudert Brothers, USA
PDF size:36KB

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Article abstract

One of the main reasons for the rapid expansion of privatisation among the developing countries is the fact that it constitutes a basic component of the economic adjustment programmes prescribed by international development financial institutions. This article analyses the range of telecommunications privatisation in Central America as part of the broader telecommunications liberalisation trend, looking at some of the prospective and concluded privatisations.

Full Article

According to the International Telecommunication Union (ITU), thirteen countries in Latin America and the Caribbean have privatised since 1987. Six more are expected to complete their privatisations during the next two years, four of these in Central America, namely, EI Salvador, Guatemala, Honduras and Nicaragua. (see Statistically Speaking on page 68). One of the main reasons for the rapid expansion of privatisation among developing countries is the fact that it constitutes a basic component of the economic adjustment programmes prescribed by international development financial institutions. This factor is particularly important to Central America. There are two main driving forces behind telecommunications privatisations in Central America. First, there is a lack of financial resources and technical expertise necessary to fulfil an increasing demand for modern services at a reasonable cost – regarded as essential to integrate successfully into the new global, information and communications-based economy. Second, there is the need to correct severe macro-economic disorders, mainly by raising funds to amortise external debt and reduce the governmental burden of operating capital-intensive public telecommunications providers. This article looks at prospective privatisations in Central America, particularly in Nicaragua and Honduras and the concluded privatisations in Guatemala, Belize, El Salvador and Panama. Prospective Privatisations Nicaragua Nicaragua’s first step towards telecommunications reform was the creation of a regulatory agency, Telecommunications Regulatory Entity (ERT), and a Telecommunications Privatisation Committee in 1993. In 1994, the Government of Nicaragua failed in its attempt to privatise the Instituto Nicaraguense de Telecomunicaciones y Correos. (TELCOR), after pre-qualifying AT&T, Telefonica Internacional de Espana, France Telecom, GTE, Cable and Wireless, STET, Sprint, Singapore Telecom and Korea Telecom to participate in the process. One year later, the legislature passed a new Telecommunications Act; however, the new law did not allow for the privatisation of the newly created public telecommunications operator, Empresa Nicaraguense de Telecomunicaciones (ENITEL). A separate Privatisation Act was enacted in 1995 to authorise ENITEL’s privatisation, which was initially scheduled for July 1997. Strong labour and political opposition, however, frustrated the second privatisation attempt. In June 1998, Nicaragua’s National Assembly authorised a new plan to privatise ENITEL. Under the privatisation scheme approved by the legislators, 40% of ENITEL will be offered to strategic investors (local and foreign). The Government is authorised to sell the remaining 60% within the six months following such equity sale to a strategic investor, provided that 10% is reserved for ENITEL’s employees at a preferential price. Telefonica Internacional de Espana, Singapore Telecom, Korea Telecom, AT&T, ENTEL of Chile and TELMEX have expressed interest in participating in the tender which had been scheduled to take place in October 1998. Recently, the Government of Nicaragua announced a new schedule, which provides that the pre-qualification of companies will take place from September to December 1998, and the auction will be held from December 1998 to May 1999. The winner of the bidding process will provide basic telecommunications services on a monopoly basis for a three-year period. Competition is allowed in cellular telephony. To date, however, NICACEL, a consortium led by BellSouth, is the only cellular provider in Nicaragua. Honduras Prior to 1995, telecommunications in Honduras were under the sole jurisdiction of the military. In that year, Honduras adopted a new regulatory framework for the telecommunications sector, the Framework Law for the Telecommunications Sector. This law separated operational and regulatory functions, created a telecommunications regulatory agency and allowed private investment into the sector. During the past several years, various attempts have been made to sell 100% of Honduras’ public telecommunications operator, Empresa Hondurena de Telecomunicaciones (HONDUTEL). However, these attempts have been derailed due to the company’s outdated infrastructure and huge debt, and a traumatic four-day strike in opposition to privatisation plans. Honduras now seems to have the political incentive to commence with the partial sale of HONDUTEL before the end of 1998. On September 18th 1998, Congress passed the HONDUTEL Privatisation Authorisation Bill, which authorises the Government to sell 50% of the state-owned telecommunications operator to a strategic investor. HONDUTEL’s privatisation is the principal requirement to reach an International Monetary Fund (IMF) standby agreement by the end of 1998. The IMF agreement is necessary to receive Paris Club debt relief from bilateral donors, a major goal of Honduran President Flores’ administration. Under the privatisation law, the international telecommunications operator will have operational and managerial control of a new company – Honduran Telecommunications Company (COHDETEL). COHDETEL will acquire exclusivity in basic telephony until 2005. The privatisation is scheduled to be completed by May 1999 and numerous international telecommunications carriers, including AT&T, France Telecom, Global One (Sprint/France Telecom/Deutsche Telekom consortium), GTE, Sprint, Telefonica Internacional de Espana and TELMEX, have shown interest. However, it remains to be seen whether this schedule will be met, given that significant issues remain open. Among the open issues are the value of the company, the use of the proceeds, the tariffs, the disposition of the employees and HONDUTEL’s debt. For example, the value of HONDUTEL ranges from US$400 million to US$1 billion (based on the opinions of certain Guatemalan Congressmen). Privatisations Concluded Guatemala In 1996, the Government of Guatemala enacted a new Telecommunications Act that authorised the privatisation of Guatemala’s public telecommunications operator, Empresas Guatemaltecas de Telecomunicaciones (GUATEL); created a separate regulatory agency for the telecommunications sector; and allowed for competition in basic and value-added telecommunications services. In August 1997, the Government qualified France Cable et Radio (a subsidiary of France Telecom), GTE, MCI, Southwestern Bell and TELMEX to participate in the public auction for 95% of GUATEL. In December 1997, the public auction took place, but the only qualified offer was that of TELMEX (US$529 million), which the Government rejected as too low. In July 1998, the Government of Guatemala announced that a second tender would take place in September 1998 and altered the strategic equity stake to be sold in Telgua (substitute of GUATEL) from 95% to between 51% to 95%. It qualified six companies (Deutsche Telecom, GTE, Luca (a local investor), Telered (an alliance between a local company and France Telecom), Telefonica de Espana and TELMEX). At the end of July 1998, Telefonica Espana and TELMEX announced their withdrawal from the privatisation process. In October 1998 the Government sold 95% of Telgua to sole bidder Luca, S.A, a Guatemalan Honduran group, for US$700.1 million, with the remaining interest held by employees and other Guatemalan investors. Luca, which has no telecommunications operators in its consortium, is currently talking to various international telecommunications operators to find some entity to manage and operate Telgua. Previously, public officials had declared that, before taking a final decision, the Government had to assess the effects of the global economic crisis on Telgua’s privatisation, particular (and not surprisingly) on the price that investors would be willing to offer. There were different opinions in Guatemala as to what could constitute a reasonable price for Telgua’s shares. Whereas Tegucigalpa’s major and residential pre-candidate recently declared that the Government of Guatemala should not accept an offer below US$750 million, one former Guatemalan Attorney General asserted that the price to be paid must be above US $l billion. Belize Belize was the second country in Latin America – after Chile – to privatise its public telecommunications operator. On December 30th, 1987, the Government of Belize replaced the Telecommunications Authority with a new company, Belize Telecommunications Ltd. (BTL). On January 1st 1988, BTL was granted a license to operate the national and international telecommunications services of Belize on a monopoly basis, until the year 2003. In that same year, British Telecom acquired 25% of the recently created BTL. British Telecom’s partners included local private investors and public entities such as the Social Security Board of Belize and the Government of Belize itself. In 1995, British Telecom sold its stake in BTL to MCI. Besides its monopoly over local, long distance and international telephony, BTL is also the only provider of cellular services in Belize. El Salvador Telecommunications reform in El Salvador began in 1995, with the enactment of a law that separated operational and regulatory functions and created the General Superintendency for Electricity and Telecommunications (SIGET). In 1996, the legislature passed the Privatisation Act, which authorised the sale of Administracion Nacional de Telecomunicaciones (ANTEL), the state-owned telecommunications operator, to a foreign strategic investor. In 1997, ANTEL was split into two new companies, namely Compania Telefonica de El Salvador (CTE) and Internacional de Telecomunicaciones (INTEL). The former retained ANTEL’s fixed infrastructure and received a concession for Personal Communications Services (PCS), while the latter became El Salvador’s wireless operator, with a license to operate mobile and fixed cellular services. The proposed privatisation plan called for the companies to be sold separately. In November 1997, the legislature approved the relevant privatisation proposal. Eight months later, France Telecom acquired 51% of CTE for US$275 million (CTE’s estimated value was US$527 million). France Telecom just slightly beat out TELMEX, which made a bid of US$271 million. The remaining 49% interest in CTE is being offered to CTE’s employees (10%) and through the local stock exchange (14%), with the Government retaining a 25% equity interest. In July 1998, Telefonica Internacional de Espana acquired 51 % of INTEL for US$40 million, beating out Bell-South and TELMEX. The remaining 49% is expected to be sold to the public through the local stock exchange. INTEL is expected to compete with Telemovil El Salvador (55% owned by Millicom International Cellular) in the provision of cellular services. Panama In early 1993, the legislature blocked a bill proposed by the Government of Panama to sell 55% of Instituto Nacional de Telecomunicaciones (INTEL), the state-owned operator. Telecommunications liberalisation in Panama did not start until 1995, with the restructuring of INTEL. The creation of a separate regulatory agency (Public Services Regulatory Entity), the enactment of a new set of regulations for the telecommunications sector and the relevant privatisation legislation occurred in 1996. In May 1997, Cable and Wireless acquired 49% of INTEL and full management and operational control of INTEL for US$652 million. INTEL’s employees were offered 2%, and the remaining 49% was retained by the state. Cable and Wireless will be the sole provider of local service, domestic and international long distance, public pay stations, and leased voice circuit service until January 1st 2003. Afterwards, any company will be able to offer these services with prices determined by the market. It is reported that the price paid for INTEL’s 49% equity stake is the highest price paid so far for a stake in a Latin American telecommunications operator on a per capita basis. Under a concession contract with the Government, Cable & Wireless was required to pay an additional US$72.6 million to initiate Band ‘B’, cellular service. Cable & Wireless began cellular service in January 1998. Band ‘A’ cellular service was auctioned in 1996 to BSC de Panama, a consortium headed by BellSouth, that holds a 20-year concession acquired in 1996 for US$72 million. Conclusion This article analyses the range of telecommunications privatisation in Central America, specifically El Salvador, Guatemala, Honduras, Nicaragua, Belize and Panama as part of the broader telecommunications liberalisation trend. These countries, among the poorest of the Americas, are members of the World Trade Organisation (WTO), and were present as observers during the deliberations of the Negotiating Group on Basic Telecommunications (NGBT). Of these countries, however, only Guatemala signed the 1997 WTO’s Basic Telecommunications Services Agreement (BTA) – officially designated as the Fourth Protocol to the General Agreement on Trade in Services (GATS). Nonetheless, initiatives toward telecommunications liberalisation are well on their way in these countries. New regulatory frameworks have been adopted and, despite strong opposition by unions, governments are taking significant measures to privatise the telecommunications sector, which is considered one of the first steps toward fundamental telecommunications sector restructuring.

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