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Ground-Floor Chance: More than half of troubled Hondutel is available
Tele.Com / February 28, 2000

By Larry Luxner

TEGUCIGALPA, Honduras -- Legislators in Honduras are trying to sell 51% of the government's inefficient telephone monopoly, Hondutel -- a move backed by the private sector but initially opposed by the telco's 3,800 workers, many of whom were wiped out in 1998 by Hurricane Mitch.

"We've had meetings with union officials that represent the workers and have come to an agreement," says Hondutel official David Rivera, who is responsible for preparing the company for privatization. "Most are no longer opposed to the process."

Eight companies have purchased the prequalification packages in advance of the Feb. 4 deadline. They are Teléfonos de Mexico (Telmex), France Telecom, four local Honduran companies and Videsh Sanchar Nigan Ltd., an Indian telco with 18 million lines in service in the New Delhi area. Honduran officials are also awaiting word from Telefónica de España, which has indicated it would be interested in bidding.

Rivera said there's a good chance at least one of the four local companies -- EPS Network Solutions, Central American Communication S.A., New Mark Representaciones and Radio Tronica -- would partner with an American company such as MCI WorldCom, though that couldn't be confirmed independently.

"There's no interest by American companies. We don't know why," says Mario Agüero Lacayo, chief of the Honduran government's privatization program at the Ministry of Finance.

A 1996 study by Price Waterhouse estimated the book value of Hondutel at $632 million. The company -- which until the late 1980s was run by the Honduran military -- reported 1999 sales of 2.8 billion lempiras, or about $193 million. Most of that revenue is generated by long-distance phone calls to and from the United States.

At the moment, Hondutel has 370,000 lines installed but only 260,000 actually in service, translating into a teledensity of only 4.3 lines per 100 inhabitants -- one of the lowest in the Western Hemisphere. Rivera says the government's goal is that under new ownership, Hondutel will boost coverage to 600,000 lines by 2005.

Handling the privatization process is British investment broker N.M. Rothschild & Sons Ltd., which will receive a fee of 1.98% of the proceeds when Hondutel is finally sold in late June.

"We'll offer exclusivity for six years for local telephony and long-distance, both national and international," says Lacayo. "We'll also offer PCS and all other value-added services."

"This is primarily a capitalization process rather than an outright sale," says Rothschild's Mexico City representative, Christian Pedemonte, who is overseeing the Hondutel transaction. "The operators will be injecting money in a company that they will control. Number two, it's an underdeveloped market, so the prospects for growth through expansion of the network are very strong. Thirdly, the transaction comes with mobile PCS licenses, so there's a lot of business potential there. Fourthly, it has an exclusivity period until the year 2005."

In pursuing the sale of Hondutel, local officials might learn some lessons from Juan José Daboub, the privatization czar of neighboring El Salvador.

In 1995, El Salvador's state-owned phone monopoly, Antel, had 175,000 fixed and 50,000 mobile lines. Today, there are 500,000 fixed and over 400,000 mobile lines. By the end of this year, says Daboub, El Salvador will boast more than a million lines in service for its six million inhabitants -- a teledensity of over 15 per 100.

What triggered the turnaround was the sale of 51% of Antel in July 1998 to France Telecom for $575 million. Another 10% was offered to the workers at book value, and at preferential financing rates, and 14% was sold to individual stockholders. The remaining 25% remained in government hands.

Prior to the sale, Antel derived 60% of its revenues from phone traffic to and from the U.S. -- which was quite substantial given the fact that over a million Salvadorans live and work in the United States -- yet there was no competition in the market.

"In 1995, to call your brother in the U.S. you had to pay at least $2 a minute. Now, it's between 10 and 20 cents," says Daboub. "In August 1996, local calls were 0.7 cents a minute. Now it's 1.2 cents. To get a line, you used to pay 20,000 colones (about $2,300) in the black market because there were hardly any lines. Today it's free, and you can choose your own number."

Daboub thinks the Honduran government is making a big mistake by offering six years of exclusivity.

"The idea is to minimize regulation and maximize competition," he said. "We eliminated the word exclusivity from the dictionary. I would not have been involved in the process if we had done it that way."

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