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Chaos in Caracas: Venezuela providers run to keep up with cellular demand
Global Telephony / September 1997

By Larry Luxner

Cellular telephones have become so popular in Venezuela that the system appears suddenly in danger of breaking down.

Despite severe economic problems over the last few years, the cellular industry has grown steadily to the point that Venezuela now has over 900,000 subscribers -- giving the oil-exporting nation of 21 million the highest cellular penetration rate in South America.

"They're growing much faster than they ever thought they would. They're scrambling to meet demand," says Robert Bottome, publisher of Caracas-based VenEconomy Weekly. Thanks to a recent promotion by both companies -- Telcel and Movilnet -- involving pre-paid debit cards, close to 200,000 customers have signed up just in the last three or four months, resulting in jammed lines and deteriorating line quality.

As a result, Venezuelan regulatory agency Conatel in late July issued an edict forbidding the nation's two cellular providers from adding new lines until these problems are addressed. Telcel is a venture between Atlanta-based BellSouth International and Venezuela's Grupo Cisneros, while Movilnet is a subsidiary of national phone monopoly CANTV, which is controlled by GTE Corp.

According to the U.S. Embassy in Caracas, "Conatel is also investigating the billing practices of one of the two companies [Telcel] because of many user complaints. Conatel furthermore has escalated its position to a threat of cancelling the concessions unless service is improved rapidly."

In responding to Conatel's complaints, Movilnet President Guillermo Olaizola has cited his company's recent switch to digital technology as the reason for problems reported by users earlier this year. Company spokeswoman Maria Lisette Ramos claims Movilnet -- which is suing Conatel in a petition filed before Venezuela's Supreme Court -- has since solved its problems, and that it'll invest $120 million this year in improvements. In Caracas, where Ericsson supplies the company's cellular infrastructure, Movilnet is 100% digital; by next year, she said, its operations in the Venezuelan interior should be 100% digital as well.

Fast-growing Telcel faces similar problems with Conatel. The company recently introduced a kit for $100, which includes a cellphone, battery, charger and $20 pre-paid calling card. The kit extends cellular service to lower-income Venezuelans by charging them only for calls they make; no monthly service charge is assessed. Such strategies have made cellular telephony even more popular, further jamming the circuits.

"They've prohibited us from selling more lines," says Aidee Salas, Telcel's vice-president of communications. "This wasn't anticipated in the concession. It's the first time this has ever happened in Venezuela."

Nevertheless, Salas said her company has no plans to sue Conatel, but is in "conversations" with the regulatory agency "to demonstrate the level of services we're adding throughout the country." The company, which estimates it has 620,000 customers (64% of the market), is implementing CDMA (code-division multiple access) technology throughout the country, at a cost of $160 million; a pilot test has already been completed in the Caracas suburb of Guarinas, using Motorola and Lucent equipment.

I think it's a very rude decision to stop sales just because of claims of deteriorating service," says Camacho, estimating Telcel takes in $90 per customer per month. "Right now, we're adding more capacity in the more congested areas."

According to the U.S. Embassy, "the extraordinary demand for cellular phone lines is based on the still-existing unsatisfied demand for normal phones. While CANTV has added several hundred thousand new subscribers every year, the initial unsatisfied demand for over two million lines at the time the company was privatized (1991) plus the considerable growth of towns throughout Venezuela and newly created demands by industrial and commercial expansion continues to exert more pressure on the phone company, which is unable to build the infrastructure as quickly as needed."

In addition, tariffs for conventional phone rates -- long kept artificially low by the Venezuelan government -- have risen much faster than those for cellular phones, making cellphones more attractive. That has sparked complaints, prompting Conatel to crack down on shoddy service. Yet not everyone's happy with Conatel either.

"This sort of a blanket prohibition [on new customers] doesn't make any sense at all," says Bottome. "I'm not sure it's even fair. It does make sense to open up a third concession and give them more competition, but they're having technical problems because they're updating their technology. There's no reason the regulators should be objecting to that."

"To me, it's a political issue," says one CANTV executive who declined to be identified. "Conatel didn't use any technical parameter to judge Movilnet's or Telcel's system to say their system is good or bad. It's not true that the network is congested."

The official added that Conatel "has in its hand some customer complaints" which it is using as an excuse to push for a third license to compete with Telcel and Movilnet.

Indeed, Conatel apparently intends to open competition soon for a third cellphone frequency in the 900-MHz band later this year. The agency's executive director, Jose Luis Avilez, has told Venezuelan media that consortia from the United States, Finland, France and China have registered interest.

The CANTV executive says that third company would most likely use GSM, a cellular technology popular in Europe but only now beginning to come into vogue in Latin America. Three rural companies that won licenses this year are already using GSM to provide fixed and wireless lines in western Venezuela. "Conatel can no longer split the A or B band with AMPS technology, so they'll have to go to another technology," he said, "and GSM is the most likely one."

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