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Expanding Ecuador
Global Telephony / February 1997

By Larry Luxner

QUITO -- Ecuador, known to the world mainly for its banana exports, Galapagos turtles and a huge monument marking the spot where the Pan-American Highway crosses the Equator, is finally getting noticed by international telecom firms.

In late November, the country's National Modernization Council (CONAM) pre-qualified five telecommunications giants vying for a 35% share of Emetel, the overstaffed, mismanaged state phone company: GTE, MCI, Italy's Stet, Korea Telecom and Telefónica de España. On Dec. 31, in preparation for the selloff, Emetel was officially split into two separate stock companies, Emetel Norte and Emetel Sur.

Under the rules, two operators will each have a 15-year concession, with a five-year monopoly for local, national and overseas phone services in their designated areas. An additional 10% will be sold to workers, with the state holding onto the remaining 55%. According to Latin American Telecom Report, the government of Abdalá Bucaram hopes to raise $1 billion from the privatization. Currently, Emetel Norte (serving 4.6 million inhabitants) has 345,000 lines in service, translating into a teledensity of 7.5%, while Emetel Sur (which covers 6.4 million people) has 403,000 lines in service, giving a teledensity of 5.9%. In January, Emetel opened a "data room" in Quito to give foreign investors access to information regarding the two new companies. The final public auction is set for late April 1997.

To make the company more attractive to potential buyers, Emetel recently launched a rural telecom project to repaid and extend its current phone network in the mountainous provinces of Cañar and Loja. This includes a $5.4 million turnkey project financed by the Canadian government in which SR Telecom installed two SR500 microwave radio systems to provide rural telephony to 53 towns. Likewise, the Spanish government is financing Emetel's Rural Digital Transmission Project, to supply 61 digital multi-access systems to 550 rural locations at a cost of $23 million. In addition, over the last few years, Emetel has paid California Microwave Inc. over $18 million for an earth station in Quito and 44 remote stations in the Amazon region, which supply four channels of voice and data for mining and petroleum operations.

Yet Ecuador -- with 11 million people -- has a teledensity of only 5.6 lines per 100 inhabitants and 1 per 100 in rural areas, well below the Latin American average. Its completion rate is only 44% for overseas calls and under 40% for local and domestic long-distance calls. Getting a new line installed costs $350, with an average wait of four years.

In a dramatic rebalancing effort, Emetel late last year raised local tariffs by 240%, from 5 sucres (about one-fifteenth of a cent) per minute to 17 sucres (half a cent) per minute. At the same time, overseas rates will drop by 50%, though tariff subsidies will remain for low-income subscribers using less than 900 minutes a month. An estimated 60% of Emetel's revenues come from international calls; of that, half or more are from incoming calls. Revenue could be even higher, say experts, if not for the illegal callback services that thrive on Ecuador's unfairly expensive rates for long-distance calls.

In a recent cable to Washington, the U.S. Embassy in Quito predicted that "the privatization of Emetel is expected to expand the Ecuadoran telecom market dramatically and open excellent business opportunities for U.S. companies."

This month, for example, Global One -- a joint venture between Sprint, France Telecom and Deutsche Telekom -- entered Ecuador's overseas phone market with a new product called Phone Club. The company says this will allow customers to be billed in sucres with our without the use of an international credit card. Using Global One, a three-minute call to the States costs $3.63 (compared to $8.25 for Emetel), while a 15-minute call costs $18.15 (compared to a whopping $41.20 for Emetel).

Meanwhile, Ecuador's TV Cable S.A. plans to launch commercial Internet access for its 50,000 subscribers in Quito and Guayaquil early this year, thanks to its recent purchase of SURFboard SB1000 cable modems from General Instrument Corp. The devices provide PC users with access to the Internet and multimedia services over cable networks at speeds of up to 27 megabytes a second. TV Cable now provides dial-up service for 4,000 subscribers equipped with conventional modems. Once SURFboard cable modems are introduced, however, existing customers will have the option to migrate to the much faster cable-based service.

Though not advanced enough for PCS, Ecuador's cellular market is heating up as well. Conecell, which reported 1995 sales of $26.8 million, has a subscriber base of 30,000, or 60% of the country's market. Its chief competitor is Otecel, which plans to completely digitalize its network by the end of 1997. Both companies were recently granted $8 million loans by the Andean Development Corp. to expand their systems.

ADC Mobile Systems, a subsidiary of ADC Telecom in San Diego, recently sold a turnkey Cellular Digital Packet Data (CDPD) system to Otecel's Bizmark, which offers cellular service in Quito, Guayaquil, Cuena and Latacunga.

CDPD is a wireless digital technology that efficiently transmits short bursts or "packets" of data over AMPS cellular frequencies. Using CDPD, remote workers gain immediate access to databases and can improve productivity. In addition, CDPD is ideal for applications such as inventory tracking, E-mail, credit-card verification, emergency and law-enforcement data access.

"This works with AMPS, though specifications are being defined to have CDPD incorporated into both CDMA and TDMA systems," said Premal Kazi, ADC's international business manager, in a phone interview. The company, which also supplies Otecel with its Pal phone -- a cellular phone with a wireless modem integrated into it -- says that "for Latin countries currently using analog cellular network, the addition of CDPD service could offer an economical solution to meet the data requirements of mobile users."

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