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Bolivia: Tale of tangled telecom venture
The Miami Herald / April 4, 1998

By Larry Luxner

LA PAZ, Bolivia -- Last October, Fort Lauderdale-based Northern Telecom CALA proudly announced that La Paz, the highest capital city on earth, was getting the largest fixed-wireless network ever installed in Latin America: a $64 million, high-capacity system that would give local customer Telecel S.A. an additional 100,000 lines over the next three years, dramatically boosting teledensity in landlocked Bolivia, the continent's poorest country.

"This agreement will help us rapidly meet unfulfilled demand for local phone service, and provide the people of La Paz and El Alto with up-to-date, advanced features," Telecel's president, Fernando Campero, said at the time.

It hasn't turned out that way. So far, Telecel -- a subsidiary of Millicom International -- has only been able to sign up 500 subscribers for its new Digitel fixed-wireless service. Far from enjoying advanced features, these customers can only make and receive calls to Telecel's own network; they cannot make or receive long-distance calls, or even receive calls from the local phone provider.

The reason: Bolivian long-distance monopoly Entel, in conjunction with local telephone cooperative Cotel, has disconnected Digitel from the national grid, arguing that the new technology violates Cotel's monopoly on local phone service.

"Their rationale is we should not have the right to do it because they have a monopoly over local telephony, and to them that should include fixed cellular technology," says Telecel's frustrated executive president and CEO, Juan Pablo Calvo. "To them, it didn't matter that we had a concession. They say our concession is illegal."

Part of the problem is political. Telecel's deal was with the former government of Gonzalo Sanchez de Lozada, a pro-business president who favored privatization and capitalization of state-owned companies in this nation of 7.1 million people. The new president, Hugo Banzer Suarez, has vowed to review all capitalization contracts; Telecel appears to be caught between the two.

"The Italians who took over Entel were given a guarantee there would be a monopoly for five years," says Charles Bruce, president of the Bolivian-American Chamber of Commerce. "But Telecel had an agreement with the previous government, and their claim was they had that agreement before privatization."

Calvo concedes that while Bolivian law grants Entel and Cotel exclusivity until 2001, "the law also says all previous concession contracts must be respected."

One expert who agrees with Calvo is Alfonso Revollo, Bolivia's minister of capitalization during the Sanchez de Lozada government. While he wasn't directly involved with the Telecel negotiations, Revollo -- now a senior adviser with the World Bank in Washington -- warns that investment in Bolivia, and not just telecom-related investment, would be threatened if the current government doesn't respect the letter of the law.

"I don't think the government is capable of making any changes, because all of the companies that came during the capitalization process have contracts not with the government but with the country," he says. "If they revise one single contract, I think that will be the end of investment in Bolivia."

Telecel already has 45,000 conventional mobile subscribers -- representing a 55% market share -- who pay what Calvo says "are the lowest cellular rates in Latin America." Both Telecel and its chief rival, Entel (50% of which was sold by the government in 1995 to Telecom Italia for a record $610 million) offer cellular and roaming service in La Paz and other major Bolivian cities such as Cochabamba, Santa Cruz and Tarija.

"Bolivia has one of Latin America's lowest teledensities, about 4 lines per 100. That's why we decided to invest in fixed wireless technology," said Calvo. "In 1993, we obtained the right to offer fixed and mobile service. In 1994, frequencies were allocated to us. In 1996, we adjusted our contract to the new telecommunications law. Our contract with the Bolivian government gives us the very clear right to offer fixed wireless. Based on this contract, we have invested about $30 million so far."

Nortel's Proximity I system, which operates at 3.4-3.5 gigahertz, uses digital radio to link businesses and residences, giving immediate access to fax, data transmission, conference calling, call waiting, Centrex and ISDN. Similar wireline-equivalent systems are already in use or under construction in Colombia, Guyana, Suriname and half a dozen other countries.

In Bolivia, deployment of the system has been complicated by the country's varied topography; La Paz itself sits at 12,000 feet above sea level. "We have very high, mountainous cities like La Paz, and very low flat cities like Santa Cruz," says Calvo. "The more mountainous it is, the more complicated it makes the planning of frequencies."

But Telecel's legal problems have proved to be even more of a headache. On Sept. 30, local cooperative Cotel cut off the Digitel service; Entel pulled the plug 10 days later. Since then, Telecel has been fighting to get back in business. The government's previous superintendent of telecommunications, Carlos Saravia, ruled that Digitel was to be interconnected immediately; he later fined Cotel, but later resigned because, says Calvo, "he wasn't receiving backing from the government to do his job properly." Saravia's replacement, Guido Loayza, is studying the case.

Claude Bessť, general superintendent of SIRESE, the government's umbrella regulatory agency, said he couldn't discuss the case because it's currently in litigation. Ernesto Ortiz, a spokesman for Northern Telecom CALA's regional office in Sunrise, said that because of the political nature of the controversy, his company couldn't discuss the case either.

But Calvo doesn't mind commenting.

"This has been a very frustrating exercise for the only major telecom company in Bolivia that is customer-oriented," he says, adding that "the U.S. Embassy in La Paz supports our case." He warns that Telecel will sue the Banzer government if it doesn't get interconnected soon.

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