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Bolivian bonanza
January 1996

By Larry Luxner

In what may very well rank, line for line, as the most expensive acquisition in Latin American telecom history, Euro Telecom International N.V., an affiliate of Italy's STET, has walked away with a 50% stake in Bolivia's Entel after bidding $610 million -- more than four times the company's estimated $150 million book value.

The U.S. Embassy in La Paz, calling the sale price "staggering," said "government officials reveled in the result and claimed it was evidence that President Gonzalo Sánchez de Lozada's capitalization process is an unmitigated success."

STET easily outbid MCI's bid of $303 million and Telefónica de España's offer of $162 million. Under the capitalization agreement, which took effect Nov. 27, STET's $610 million will be invested directly into Entel's Bolivian operations; the other 50% are shares owned by all adult Bolivians and distributed through a yet-to-be-created pension fund. The Italian company gets six years of exclusivity and a 40-year concession to operate regional and international long-distance service, along with paging, cellular and cable licenses.

Asked in a phone interview what Bolivia's most pressing telecom needs are, Entel's new planning director, Francisco Salgueiro, responded: "Everything. There's not one specific area where we don't need improvements."

Indeed, Bolivia, whose per-capita income of under $1,000 makes it one of Latin America's poorest nations, has only 330,000 lines for its 7.4 million people -- translating into a teledensity of just 4.4 per 100 for a country the size of Texas and California combined. In winning the bid for Entel, STET agreed to double the number of access lines, interconnect all villages and towns with more than 360 inhabitants within six years and slash installation and repair time.

By avoiding an outright privatization, Sánchez de Lozada won political support from skeptical unions representing Entel's 1,750 employees. Unfortunately for STET, the ambitious capitalization program doesn't include Bolivia's 17 fiercely independent cooperatives, which provide 98% of all local phone service. "The cooperatives are seen as corrupt and inefficient, and demanded a financial premium for relinquishing their control of the local service sector," says Latin America Telecom Report, a monthly newsletter. "Given this history, STET will face a difficult task in crafting a cooperative business relationship with these key players. This uphill battle could impede STET's ability to fulfill its concession requirements."

While Entel's specific development plans won't be made public for another few months, it is known that STET -- which recently bought a 10% stake in Iridium Sud America, a satellite cellular venture -- plans on spending $240 million to expand Bolivia's international phone service to the United States and Europe, and install fiberoptic networks extending to Chile, Brazil, Peru and Argentina. Some $140 million will be invested in 1996 and more than $200 million in 1997.

"We assessed our investments and the return in a reasonable number of years," CEO Francesco Chirichigno recently told Global Telephony. "We hope that through Bolivia we might be able to get to Chile, where we have prepared one other bid.With regard to Bolivia, other operators who didn't bid have asked for licenses at higher prices than we paid for."

Before resigning as required under terms of the concession, outgoing President German Medrano said Entel would expand its Pacific submarine cable network, and wants to expand the country's cellular system beyond the current 5,000 to 10,000 subscribers. A rush of interest created by Bolivia's privatizations of the national airline, railroad, tin smelter, electric utility and eventually the state oil monopoly has lured executives to the landlocked nation, boosting the need for reliable communications.

"The Andean satellite digital network is the most significant project developed for the countries in our sub-region. It involves a satellite multi-point system that saves money," said Medrano, who has since been replaced by STET's Carlo Rugeri. "We want to digitize the south, renew the digitalization of the domestic satellite system in northeastern Bolivia, expand domestic exchanges, replace and install new regional exchanges, install a digital link between the city of Trinidad and Santa Cruz, establish a main station for the domestic satellite system in Trinidad, and install mobile satellite services, a compressed digital TV system, a fiberoptic image system and various other services."

Meanwhile, Reynaldo Carrasco, a consultant for Bolivia's newly created Superintendency of Telecommunications, says that within the next two months, Entel will seek bids for the cellular B-band. At the moment, Bolivia's sole cellular venture, known as Telecel, operates only in La Paz, Santa Cruz and Cochabamba.

Carrasco added that even though the cooperatives aren't part of the STET takeover, they'll still have to comply with certain requirements, such as adding a certain number of lines per year. "If they don't comply," he said, "25% of the market in each area will be taken away, and that piece of the market will be given to Entel."

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