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Central America proceeds with telecom privatization
Development Business / July 31, 1996

By Larry Luxner

WASHINGTON -- The privatization bug is once again biting Central America, with two nations -- Nicaragua and Panama -- likely to sell their state-owned phone companies within the next 12 months. To succeed, they must convince the world's telecom giants that impoverished Central America is a good investment, while convincing skeptical unions that privatization will actually help them.

Moves toward privatization are less encouraging in the region's four other Spanish-speaking countries, due to political uncertainty, union opposition and government corrup-tion. BTL, the telco in Belize -- Central America's only English-speaking republic -- is already privatized.

Here's a look at regional telecom developments as of July 15:

COSTA RICA: In late June, opposition deputy Hernán Fournier introduced a bill in Costa Rica's Congress designed to preserve the state monopoly on telephone service, and to guarantee that the Instituto Costariccense de Electricidad (ICE) will remain a dominant force in Costa Rica's telecom and electricity sectors. In contrast, President Jose María Figueres is pushing legislation that would open both sectors to competition, requiring ICE to compete with private firms for future contracts. Fournier, an ex-chief at ICE, complains that the "telecommunications bill alone contains 10 or 11 violations of the Constitution."

Meanwhile, Millicom Cellular International S.A. is suing ICE and the Costa Rican government for $134 million plus expenses, claiming that the defendants wrongfully monopolized the cellular market that Millicom had developed in Costa Rica and unlawfully expropriated Millicom's properties, among other things. Millicom began offering cellular service in Costa Rica in 1988, though six years later, ICE petitioned the government to revoke the concession, saying it had been awarded through illegal means. In May 1995, the government forced Millicom to cease operations.

EL SALVADOR: The consortium of Morgan Stanley/Citibank has won a contract to advise the government on the privatization of state-owned Antel. According to Antel President Juan José Daboub, the government plans to sell 45% of the telco to a strategic partner, and 5-8% to the workers. The remaining shares will be sold on the local stock exchange and possibly on the New York Stock Exchange through ADRs.

"Under the current telecom law, Antel is the monopoly operator as well as regulator. In addition, Antel owns one of the largest hospitals in the country," Daboub told Latin American Telecom Report. "One of our first steps will be to separate these three activities by privatizing the hospital and establishing an independent regulatory agency."

Antel currently has 350,000 lines in service -- a number projected to rise to 430,000 lines by year's end -- but there are pending applications for an additional 800,000 lines. The waiting period for a line is 6.2 years, and approximately 80% of Antel's network is digital; the company's goal is to boost teledensity from the current 4.75 to 20 lines per 100. "We estimate the necessary investment to be $3 billion," Daboub said. "Given Antel's previous rate of growth, I believe it would take five to eight years to achieve this goal."

GUATEMALA: The Arzu government plans to change the structure of Guatel from a parastatal corporation to an incorporated entity. If the timetable is met, Guatel could soon be a public corporation ready to compete in a deregulated market. The telco's general mana-ger, Alfredo Guzmán, says 5% of the new company's stock will be transferred to workers, though no outright privatization is planned. The government will also establish a regulatory entity independent of Guatel and the Communications Ministry. Guatel, with 400,000 lines (80% of them in the capital city) and unmet demand of another 400,000 lines, "has yet to find a solution to the legal tangle resulting from the poorly executed tender process intended to award a license to operate a second cellular network utilizing the A-band," says the U.S. Embassy in Guatemala City. "Unless this impasse can be ended, litigation could delay the award by five years."

HONDURAS: Legislators in Honduras are debating whether to sell off state-owned Hondutel, a move backed by the private sector but bitterly opposed by the telco's 7,500 workers, who recently called a four-day strike to protest the talks. A proposal before the National Congress calls for 47% of Hondutel to be sold to a private firm, 4% to be sold to workers, and the remaining 49% to be retained by the government for two years, then sold on local or international stock markets. Honduran President Carlos Roberto Reina, who says Hondutel is worth more than $750 million, recently instructed the Ministry of Finance and a national committee to contract with Price Waterhouse for a feasibility study on privatization. Executives say Hondutel, operated by the Honduran military since 1963, is so heavily tapped that most business deals are done in person -- rather than by phone.

NICARAGUA: Seven companies -- AT&T, Sprint, GTE, France Telecom, Telefónica de España, Korea Telecom and Italy's Stet -- are seeking to buy a controlling interest in state-owned Telcor. To speed up the process, the Chamorro government has divided Telcor into postal and telecom units, and has put together legislation creating a new phone company, Teléfonos de Nicaragua S.A. Under the law, 40% of the new company's stock will go to an international bidder and 11% to Telcor's workers. The operating concession is for 25 years, with seven years of exclusivity. Although 49% of the stock will remain in government hands, the outside company will have total management control.

"All the technical work has been done, and all the regulatory framework has been drafted," said one observer close to the negotiations. "In general, workers seem to be satisfied with the idea because privatization will not mean a loss of jobs. With all the expansion that has to be done, there'll probably be more room for more employees."

PANAMA: On May 23, the Panamanian government prequalified three companies -- Telefónica de España, GTE Corp. and Southwestern Bell -- to bid for the purchase of up to 49% of Intel, which is considered the best-run phone company in Central America. The partial sale of Intel is the largest privatization effort undertaken by the Pérez Balladares administration, and the first one involving a public utility. No decision has been made yet on whether to sell the entire 40% block to a single company, or to offer a portion of it (10-19%) through the local stock exchange.

In any case, whoever buys the larger block of shares will become the operator of Intel, with another 2% of shares going to a trust fund for Intel's 3,689 employees. "The government's strategy to bring labor to the table since the beginning and incorporate them into the process made them feel they had a say in the whole process," according to Intel's general manager, Juan Ramón Porras. "We avoided the anti-privatization protests happening in [the rest of] Central America.

Intel, with 1994 assets of $414 million, revenues of $228 million and net income of $142 million, has roughly 320,000 lines. The company itself may be worth as much as $2.2 billion. Last year, Britain's Cable & Wireless Ltd. reportedly offered $1 billion to purchase Intel, but the government declined, opting instead for a bidding process. In January, BellSouth paid $70 million for an A-band concession to offer cellular service throughout Panama.

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