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DE RUEHTG #0949/01 1451304
ZNR UUUUU ZZH
R 251304Z MAY 06
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC 2135
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEAFCC/FCC WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS TEGUCIGALPA 000949 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, EB/IFD, INR/IAA 
DOL FOR ILAB 
STATE PASS USTR: ANDREA MALITO 
 
E.O. 12958: N/A 
TAGS: ECPS ELAB KPRV PGOV ECON HO
SUBJECT:  Honduras: Telecom Debates in Final Round 
 
REF:  Tegucigalpa 00715 
 
¶1.  (U) This is an action request:  Please see para. 11. 
 
¶2.  (U) SUMMARY:  The CAFTA-compliant telecommunications 
sector framework law (Ley Marco), recently revised and 
shortened, is now set to be introduced to Congress.  A 
competing law by parastatal telecommunications company 
Hondutel has so far gained little traction in the Congress, 
but still counts the powerful telecom workers union as a 
supporter.  Meanwhile, Hondutel management has started to 
cancel contracts with competing operators -- allegedly 
because the permits are underutilized and to "reduce 
speculation."  Hondutel may also be looking to find a 
partner to develop its own mobile service.  Post requests 
Washington-based agencies' views on whether the proposed 
award of a new cell phone concession must be open and 
competitive under CAFTA rules.  END SUMMARY. 
 
------------------------- 
TWO BILLS SET TO COLLIDE 
------------------------- 
 
¶3.  (U) As reported in reftel, a shortened Ley Marco 
(telecommunications framework law) has been drafted and 
submitted to the Honduran Congress for formal introduction. 
The law was originally 120 articles long but was shortened 
to 80 articles for quicker comprehension by the largely 
freshman Congress.  At the same time Hondutel, the state 
telecommunications company, has submitted its own version of 
the Ley Marco to the Congress, one that seeks to roll back 
competitive initiatives and reestablish a more "ordered" 
environment.  The Hondutel law is strongly supported by the 
anti-globalization Bloque Popular, a group that on this 
issue is making common cause with the Hondutel workers union 
among others. 
 
¶4.  (SBU) The shortened Ley Marco was submitted quietly to 
Congress on May 17.  On the same day, almost 700 union 
workers marched from the Presidential house to the Congress 
to present the Hondutel version.  Despite the fanfare, Econ 
sources confirm that National Party congressman and 
telecommunications committee head Rodolpho Irias Navas made 
it clear to union leaders that the shortened Ley Marco would 
be the only law considered.  Irias Navas encouraged the 
union to present ideas and suggestions, but within the 
"spirit" of the law that calls for more competition.  The 
Hondutel version, which requests a two-year non-competitive 
period and would delay key CAFTA-inspired initiatives, would 
not meet that requirement. 
 
¶5.  (SBU) Hector Nunez, the head of a private industry group 
(ASETEL) in the sector, is confident that the bill will pass 
"within the next two weeks."  He stated that his strategy is 
to have the bill backed in Congress by President Jose Manuel 
"Mel" Zelaya, a move that he believes would help ensure its 
passage.  Nunez and several other private sector 
representatives will meet with Presidential minister Yani 
Rosenthal on May 23 to present this proposal, and request 
that he seek Zelaya's backing.  (Comment:  On May 19, Zelaya 
made a speech in which he criticized past privatizations as 
a mistake -- a stance which may not bode well for courting 
his support of a bill that opens telecommunications to 
greater competition and could force Hondutel to privatize or 
at least take on a strategic partner in order to survive. 
Ambassador raised the importance of a good "Ley Marco" in a 
May 22 meeting with President Zelaya, who tasked his Foreign 
Minister with following up with Minister Rosenthal on the 
issue.  End Comment.) 
 
------------------------------------------ 
HONDUTEL'S MONOPOLY - NOT SO EASY TO BREAK 
------------------------------------------ 
 
¶6.  (SBU) Meanwhile, Hondutel continues to try various 
tactics to ward off competition as long as possible. 
According to Irias, while the company's version of the Ley 
Marco (a sector-wide framework) will probably not be 
presented to Congress, the proposed Organic Law (which deals 
specifically with Hondutel itself in its role as a 
parastatal -- reftel) has gone nowhere.  This law attempted 
to restructure the former monopoly and allow the company 
broader discretion in spending, in order, they claim, to 
allow it to compete in the new environment.  (The company 
would not, for example, have to seek public, competitive 
bids for its equipment procurements.)  The proposed law was 
termed a "poorly written disaster" by World Bank 
representatives and former commissioners of CONATEL, the 
telecommunications oversight agency. 
 
¶7.  (SBU) Meanwhile, Hondutel has also moved to cancel 
licenses awarded to "sub-operators" that have not 
sufficiently developed their business.  These companies 
invested in Honduras in 2004 and 2005, offering telephone 
services under contract to Hondutel while awaiting the 
December 26, 2005, end of Hondutel's monopoly.  At that 
time, they were to have become fully independent operators, 
which could directly compete with Hondutel.  The regulatory 
changes that would have made this possible have not been 
passed, and the sub-operators remain in limbo.  Some suspect 
therefore that Hondutel's moves to cancel current contracts 
now are an attempt to reduce eventual competition once the 
market is opened. 
 
¶8.  (SBU) In a meeting May 4 with EconChief and EconOff, 
Hondutel second-in-command Marcelo Antonio Chimirri admitted 
that his legal department had been sending out cancellation 
letters to operators that "were not using their permits." 
Chimirri claimed this was done to "avoid speculation" in 
permits by companies seeking to "flip" the permit to another 
firm for a profit. (Comment:  This explanation rings false 
to Post, since no limit was placed by the GOH on the number 
of operating permits that could be approved.  With an 
unlimited supply, speculation is not possible, since prices 
cannot be made to rise.  Moreover, early reports suggest 
that permits for companies that are operating are also being 
canceled, calling into question Hondutel's alleged legal 
basis for the cancellation, as well as its rationale that 
the permits were being canceled because they were not being 
used.  End Comment.)  Per Chimirri, explicit in the service 
contract was a requirement to notify Hondutel, by payment or 
other means, that a company was using (or intending to use) 
its operating permit within 30 days of its approval. 
Chimirri also stated that any company whose permit was being 
canceled could appeal the cancellation.  (EconChief and 
EconOff will meet next week with one of the first companies 
to receive this letter to better understand the alleged 
legal basis behind the decision.) 
 
--------------------------------------------- - 
FUTURE PLANS INCLUDE PAY-PER-VIEW, DSL, MOBILE 
--------------------------------------------- - 
 
¶9.  (SBU) Later in the meeting Chimirri, a cable industry 
veteran, detailed some of Hondutel's business plans.  While 
Hondutel pushes for a two-year non-competitive period and an 
"ordered" market opening, the parastatal company will embark 
on a spending spree to take advantage of emerging 
technologies.  He echoed Hondutel President Jacobo 
Regalado's call to offer pay-per-view services, and 
confidently called for the roll-out of high speed DSL over 
Hondutel's aging copper phone lines "within the next four 
months."  Per the World Bank, Hondutel has spent about USD 
220 million over the past four years on new projects, many 
of which remain uncompleted. 
 
¶10.  (SBU) When asked about the potential development of 
Hondutel's mobile capability, Chimirri responded with a more 
realistic timeframe of nine months before service could be 
offered.  He indicated that Hondutel has the license and 
equipment available to offer the service but lacks the 
necessary market acumen and funding to make the service a 
success.  To that end Hondutel has publicly stated that they 
are seeking a potential partner to outsource or invest in 
Hondutel to launch a mobile service.  By their own 
admission, the mobile market most probably has room for only 
one more player, bringing the total to three cell-phone 
companies serving a market that is currently only 1.3 
million users.  Post is concerned that the GOH could award 
such a cell license to Hondutel in a non-competitive or non- 
transparent manner.  Post is also concerned about reports 
that Hondutel head Regalado has suggested that the two 
existing cell phone concessions be cancelled.  Post 
understands the Presidency quashed that idea, but such a 
proposal speaks to Regalado's view of markets. 
 
¶11.  (SBU) ACTION REQUEST:  FOR USTR: Post requests comment 
on the Hondutel initiative to partner or attract an investor 
to help develop its mobile service, specifically if this bid 
falls under the CAFTA guidelines on government contract 
bidding and transparency.  Confirmation of this could allow 
the bidding process to be extended to U.S. companies. 
Options for a potential partner could range from a limited 
investment or consulting role to a complete outsourcing. 
END ACTION REQUEST. 
 
¶12.  (SBU) COMMENT: With the legislative slate relatively 
clear and momentum apparently on the side of the "shortened" 
Ley Marco, this could be an opportune moment to get the 
advances under CAFTA codified into law.  ASETEL's initiative 
to have the GOH executive back the proposal may pave the way 
for the bill to make the Congressional agenda, and begin 
discussion before Congress breaks for recess in June.  The 
competing bill from Hondutel remains a threat, however, and 
how the Bloque Popular and others react to the Congressional 
debate may still affect the outcome of the new Ley Marco. 
END SUMMARY.