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Ecuador telephone company piques interest of U.S., European telecoms
The Miami Herald / February 16, 1996

By Larry Luxner

QUITO -- With presidential elections set for May 19, outgoing President Sixto Duran-Ballen is looking to wrap up the privatization of Ecuador's much-criticized phone company, Emetel, which has been in state hands for 85 years.

Under the telecom reform law approved by Congress last August, Duran-Ballen's government must divide Emetel into two companies to be sold to two international operators, each of whom would have 15-year concessions with five-year monopolies for local, national and overseas phone service in their designated areas. A 35% controlling interest would go to those operators and another 10% to Emetel's 5,500 workers; the government's remaining 55% stake will be controlled by the Solidarity Fund, a state agency.

"We will set a minimum price, though we don't know yet what it would be," said Francisco Swett, coordinator of the telecom unit at CONAM, the entity overseeing Ecuador's privatization program. He noted that Emetel has an installed capacity of one million lines and around 700,000 subscribers, and that the package also includes Emetel's cellular concession. "The system is not so good. That's why we're trying to change it. But the process takes time."

On Jan. 17, representatives of AT&T, MCI, Sprint and Ameritech met at the home of U.S. Ambassador Peter Romero to discuss Emetel's privatization. In addition, says Swett, Telefonica de Espana, France Telecom and Italy's Stet are also interested.

CONAM technical coordinator Luis Ortega says qualification bids will be advertised in early March, with bids due April 19. By May 20, Emetel will begin the due diligence process. A winner should be announced by the last week of August.

"I see them going forward on the privatization of Emetel," says Janice Corbett, commercial attache at the U.S. Embassy in Quito. "It's something the people want. They're doing a tremendous job pulling together labor unions and locals, letting them know what's going on."

According to a December 1995 study commissioned by Emetel, 50.8% of all Ecuadorans favor privatization, 35.0% oppose it and 14.3% have no opinion. Even Conautel, the labor union that represents 85% of Emetel's employees, has given its blessing to the plan.

Yet not everyone shares Conautel's enthusiasm. Telecommunications Superinten-dent Adolfo Loza said the selloff of Emetel is "physically impossible" given the country's energy crisis and ongoing political scandals.

"For three years I warned that the state enterprise was twiddling its fingers," Loza told the Quito daily El Comercio. "It did absolutely nothing. It has only been thinking, as in a daydream, about selling the company. It has not concerned itself with the catastrophic situation in which we Ecuadorans find ourselves."

Indeed, Ecuador -- with a population of 11 million and a per-capita GDP of $1,500 -- has a teledensity of just 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 less than 40% for local and domestic long-distance calls. Getting a new line installed costs $350, with an average wait of four years.

Says Corbett: "There are just over one million lines, but they're meeting only one-third of the demand. If you have a billing dispute with Emetel, you have to personally go down there, even to pay a bill. You can't do it over the phone."

Nevertheless, Loza's criticisms of Emetel are totally unfounded, charges Swett.

"Loza is unabashedly against privatization," says the former minister of finance. "The fact of the matter is that the regulatory mechanism over the old law gave him sole regulatory power over the entire sector, with no checks and balances and no accountability. That situation changes completely with the reform law which sets up Conatel, in which his vote is one of seven."

The U.S. Embassy says Emetel, whose annual revenues total $250 million, is valued at around $2 billion. Of the $250 million, 60% comes from international calls; of that, half or more are from incoming calls. Revenue could be even higher, he says, 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."

Meanwhile, Sergio Flores, executive president of Emetel, aims to boost Ecuador's teledensity to 14 lines per 100 by the year 2002. That, he said, will require $1.4 billion in investment over the next five years.

"Our plans this year are to double our investment from 200 billion to 400 billion sucres ($65 million to $130 million)," he said. "Last year we installed 70,000 lines. This year, we will install 120,000 lines."

Coincidentally, Ecuador's presidential elections are set for May 19, the day before Emetel is to begin the due diligence process. Yet observers say the political campaign is unlikely to affect Emetel's privatization, since all major polls give Jaime Nebot of the Social Christian Party an electoral share of around 35% -- more than twice as many votes as his two leading contenders, Abdala Bucaram of the Partido Roldosista Ecuatoriana and Rodrigo Paz of Democracia Popular.

"Nebot is in agreement with the privatization process," says Flores. "I don't think the election will change anything. It's a law not based on any political party, but one approved by Congress, and Nebot himself presented the original telecom law."

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