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Privatization Central
Tele.Com / October 13, 1999

By Larry Luxner

Five out Central America's six Spanish-speaking republics -- the exception being Costa Rica -- have sold or are trying to sell their highly profitable, yet bloated state-owned telephone companies.

With just over 12 million people, Guatemala is by far the most populated of all Central American nations, though its teledensity of only 2.7 per 100 is extremely low.

On Oct. 1, 1998, the government of President Alvaro Arzú took only 30 minutes of deliberation to sell a 95% share of telephone entity Guatel to the Luca S.A. consortium. As part of the deal, Luca has assumed $240 million in Telgua liabilities. The remaining 5% of Guatel went to company employees.

Although Luca President Ricardo Bueso admitted that his group -- which includes 12 Guatemalan and four Honduran partners -- "does not have much experience in telecommunications," he said he and his associates will manage the business profitably.

Nevertheless, not everyone has been happy with the deal. Rafael Arriaga Martinez, secretary general of the left-wing opposition New Guatemala Democratic Front, said the sale may have favored relatives of top government officials. "The speed with which the transaction was made indicates that something is wrong," Arriaga told local reporters recently.

The Telgua sale has been controversial ever since it was first announced in early 1997, when the government boosted the cost of 600 minutes of basic phone service from 66 cents to $17.30 in an attempt to make the telco more attractive to potential buyers. Yet Ernesto Vasquez Lemus, secretary general of the Telgua workers' union, says he and other employees understand that Telgua can no longer be competitive with a 6,000-person payroll.

In order to soften the impact of layoffs, says Vasquez, the union is preparing joint-management proposals, such as creating small companies from which Telgua could subcontract services.

Meanwhile, Telgua -- with 400,000 lines (80% of them in the capital city) and unmet demand of another 400,000 lines -- says it'll install 5,000 pay phones during 1999. And on May 3, Telgua announced it would become the first company in Guatemala to offer PCS. The new system uses an integrated 1900-MHz cdmaOne mobile wireless network from Nortel. This network, the first phase of a $72 million contract signed in February 1998, enables Telgua to provide voice, data and enhanced calling services to new subscribers in Guatemala City and Antigua. In the future, the network will be expanded to other regions including Quetzaltenango, Escuintla, Puerto Barrios and Puerto Quetzal.

At the same time, Telefónica Centroamerica, an affiliate of Telefónica Internacional, said March 24 it won the B-band license for the 15 MHz frequency for $33 million, which will permit the company to develop a full range of services as Guatemala's second telecom provider.

The company will invest $100 million over the next six months to develop a complete range of fixed and mobile telephone services by the summer of 1999. Telefónica recently acquired a Guatemalan telecom firm which had all the necessary licenses except one in cellular telephony.

Here's a look at telecom developments elsewhere in Central America:

EL SALVADOR: In July 1998, the government of President Armando Sol Calderón sold 51% of Antel, the state telecom monopoly, CTE, to France Telecom, in a deal worth $275 million. The remaining 49% was divided among the government, phone company workers and private stockholders. The transaction gives CTE a value of around $550 million -- a rather disappointing price, given the fact that CTE President Juan José Daboub had once placed the company's real value at around $800 million.

Antel currently has 400,000 lines in service, but there are pending applications for an additional 800,000 lines. The waiting period for a line is 6.2 years, and approximately 80% of Antel's network is digital; the company's goal is to boost teledensity from the current 4.75 to 20 lines per 100.

Also in July 1998, the government sold 51% of its cellular phone company to Telefónica de España for $41 million. Daboub said the latter deal would generate $100 million in new investment and create as many as 500 new jobs. Telefónica de El Salvador, the group's first affiliate in the region, has in less than five months won a 28% market share in cellular phones and over 30% in long-distance.

HONDURAS: Legislators in Honduras have offered to sell 51% of state-owned Hondutel for $632 million -- a move backed by the private sector but bitterly opposed by the telco's 7,500 workers, many of whom have been affected by the devastation of last year's Hurricane Mitch.

The government has announced its intention to sell a license to operate one of the country's two mobile phone networks before the end of 1999. Currently, Motorola operates the A-band network. Base price for the B-band concession is approximately $40 million.

Experts say the market for cellular phone service is estimated at 400,000 users, and demand is growing by 8% a month. That's mainly because of the widespread damage resulting from Mitch, which killed over 8,000 Hondurans and devastated the country's road, electricity and telecom infrastructure. Local investors have expressed interest in partnering with foreign investors in order to meet capital requirements and participate in the B-band bidding process.

NICARAGUA: Despite the devastation of Hurricane Mitch, Nicaragua's ambassador to the United States, Francisco Aguirre Sacasa, says "Enitel [the state-owned telephone monopoly] will be sold off. We expect to get half a dozen takers."

Seven companies -- AT&T, Sprint, GTE, France Telecom, Telefónica de España, Korea Telecom and Italy's Stet -- have expressed an interest in Enitel. Under a proposed law that has been languishing in Congress for several years, 40% of the new company's stock would go to an international bidder and 11% to workers. The operating concession is for 25 years, with seven years of exclusivity. Although 49% of the stock will remain in government hands, the outside company will have total management control.

PANAMA: In 1997, Panama sold a controlling interest in state-owned Intel to Cable & Wireless Ltd. for $654 million. Intel, considered one of Central America's best-run phone companies, has roughly 350,000 lines in service.

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