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Central America waits for dial tone
The Washington Times / November 30, 2000

By Larry Luxner

SAN JOSE, Costa Rica -- Earlier this year, when Nicaraguan entrepreneur Marco Zeledon launched ePagos Inc., a Miami dot-com specializing in Web hosting, design and online credit-card acceptance, he figured he'd go after supermarkets and retail chains in Latin America's main markets: Argentina, Chile, Mexico, Peru and Venezuela.

But Zeledon never imagined that Central America would play such a big role in the company's success.

"With a $150 setup fee and $150 a month, anyone can create a website and do online e-commerce transactions," said the former Visa International executive. "We already have 425 merchants in Central America who have created sites, from Belize to Panama. I was surprised to see that 120 have signed up from Honduras in the past four months."

Companies like ePagos are finding Central America a lucrative, untapped market as more and more people log onto the Internet.

At present, fewer than 350,000 of the region's 36.5 million people surf the web -- translating into an online penetration of under 1%. That's low compared to Argentina, Brazil or Mexico, but these numbers are expected to rise dramatically as Central America's phone companies are privatized and deregulated, leading to lower costs for the consumer.

In Costa Rica -- the most prosperous nation in Central America -- phone services are still tightly controlled by the government, with the state-owned Instituto Costarricense de Electricidad (ICE) responsible not only for all basic phone service but also Internet access.

Last March, a committee of the Costa Rican Congress approved a bill opening up the Instituto Costarricense de Electricidad (ICE) -- which has a monopoly on phone service -- to competition and deregulation. ICE's labor unions immediately took to the streets in protest, temporarily paralyzing the Costa Rican economy. Congress later backtracked and forwarded the proposal to a "mixed committee," where it now gathers dust.

"Companies come here because of political stability and our educated workforce, but we are sorely lacking in telecommunications," says Lynda Solar, executive director of the Costa Rican-American Chamber of Commerce. "You can buy a cellphone, but you can't get a cellular line. ICE has all kinds of restrictions placed on it. There are so many controls and such bureacracy that it becomes an impediment to progress. I know these controls were put in place with good intentions, but now it's a spider web you can't get out of."

Adds Danilo Arias, manager of corporate relations at microchip manufacturer Intel, one of ICE's leading customers: "We hope Costa Rica will return to the path of improving its infrastructure, but that's looking more and more unlikely because of ideological reasons. This will put Costa Rica behind most other Latin American countries. Ironically, this is the opposite of five years ago, when we were ahead of the rest of the region."

Data communications are provided by an ICE subsidiary, Radiografica Costarricense S.A. (Racsa), the only ISP for an estimated 30,000 accounts.

Executives and potential foreign investors may gripe, but the reason most Costa Ricans want to keep ICE in state hands is simple: the phones work here, even if new cellular lines are impossible to come by. ICE has close to 700,000 fixed lines in service, translating into a telephone penetration or "teledensity" of nearly 20 per 100 inhabitants.

"The government is trying its best to open up the state monopolies," said Jaime Daremblum, Costa Rica's ambassador to the United States. "We're making an effort in that direction, but everybody has to be patient."

He adds: "It was never our intent to privatize ICE, only to open it up to competition. In other Central American countries, the public is highly dissatisfied with the services rendered by state monopolies, but not in Costa Rica. Our main concern is that those services keep up with the challenges of the new century."

In El Salvador, where state-owned Antel was purchased by France Telecom two years ago, 500,000 fixed and over 400,000 mobile lines are in service -- up from 175,000 fixed and 50,000 mobile lines in 1995. Since then, more than a dozen long-distance providers have blossomed, all of them competing for business.

"In 1995, to call your brother in the U.S. you had to pay at least $2 a minute. Now, it's between 10 and 20 cents," says the government's chief of privatization, Juan Jose Daboub. "To get a line, you used to pay 20,000 colones (about $2,300) in the black market because there were hardly any lines. Today it's free, and you can choose your own number."

CTE, the privatized phone company, hopes to see the number of its Internet clients grow to 15,000 by year's end, a 300% growth; its biggest Internet competitor is Terra Networks S.A., a division of Spain's Telefonica.

In Guatemala, some 15 companies provide Internet service for an estimated 40,000 accounts in Guatemala -- a number expected to grow by 20% in 2000. Businesses such as banks, coffee exporters and even indigenous weavers are now recognizing the advantages of being online, said Juan Carlos de Leon, Telefonica's data expert in Guatemala.

Meanwhile, Telmex has announced plans to invest $400 million in recently privatized Telgua between now and 2002. Investments will cover IT modernization, expansion of public telephony and training of personnel.

Panama currently has 39 companies offering Internet access, including Cable & Wireless and BellSouth. In Honduras, 25 companies provide service, including state-owned Hondutel.

At the moment, Hondutel has 370,000 lines installed but only 260,000 actually in service, translating into a teledensity of only 4.3 lines per 100 inhabitants -- one of the lowest in Latin America. The government's goal is that under private ownership, Hondutel will boost coverage to 600,000 lines by 2005.

Without a doubt, Nicaragua lags behind the rest of Central America in telecom service. State-owned Enitel has only 155,000 lines serving a population of 4.9 million. That translates into a teledensity of only 3 lines per 100, one of the lowest in the Western Hemisphere.

Previous attempts to privatize Enitel, in 1996 and 1999, proved disastrous, partly because of Nicaragua's reputation for political instability. The latest effort in early September suffered a similar fate. At a Sept. 11 auction in Managua, France Telecom was the only company to present a bid, offering around $63 million for a 40% chunk of Enitel. That was substantially less than the government's minimum asking price of $79 million, a number that was kept secret until the auction itself.

Word is that the privatization process will now start from scratch. The government is once again prepared to offer three years of exclusivity for fixed-line services. A 49% share of stock in Enitel will remain in government hands, while Enitel's 2,300 workers will be given 1%, with the option to buy another 10%.

The license also includes cellular service on a national level. Currently, BellSouth is the only cellular provider in Nicaragua, with just over 80,000 customers in Managua and the Pacific coast region.

"I think Enitel will eventually be sold," says Armando Castillo, president of the Nicaraguan-American Chamber of Commerce. "Our telephone density is very low, so there's a big opportunity for growth."

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