VZCZCXYZ0014
PP RUEHWEB

DE RUEHLP #2770/01 2891817
ZNR UUUUU ZZH
P 161817Z OCT 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 0885
INFO RUEHAC/AMEMBASSY ASUNCION 6185
RUEHBO/AMEMBASSY BOGOTA 3499
RUEHBR/AMEMBASSY BRASILIA 7360
RUEHBU/AMEMBASSY BUENOS AIRES 4621
RUEHCV/AMEMBASSY CARACAS 1876
RUEHPE/AMEMBASSY LIMA 1919
RUEHME/AMEMBASSY MEXICO 1815
RUEHMN/AMEMBASSY MONTEVIDEO 4083
RUEHQT/AMEMBASSY QUITO 4512
RUEHRO/AMEMBASSY ROME 0274
RUEHSG/AMEMBASSY SANTIAGO 9088
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 002770 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/AND 
STATE FOR EB/CIP/BA/NFETCHKO 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EINV BL
SUBJECT: TELECOMMUNICATIONS UPDATE 
 
REF: A. LA PAZ 1660 
 
     ¶B. LA PAZ 2196 
     ¶C. LA PAZ 1661 
 
¶1. (SBU) Summary:  The Bolivian telecommunications sector has 
grown and increased in competitiveness significantly since 
privatization and market opening during the last decade.  The 
GOB announced in June that it would seek to regain majority 
ownership of the former state-owned telecommunications 
company, Entel (ref A).  The Director General of 
Telecommunications told Econoff on October 12 that the 
government does not want to take over operating control of 
Entel, but merely wants majority ownership to have access to 
the company's profits to use for expanding rural telephone 
services.  The GOB's plan to eliminate the current regulatory 
system and create new regulatory agencies under ministry 
control (ref A) will not likely be implemented before 
mid-2007.  The government aims to expand rural telephone 
services through the creation of community information 
centers and placement of public phones.  End summary. 
 
Background: Sector Growth Since Capitalization 
--------------------------------------------- - 
¶2. (SBU) The state-owned telecommunications company, Entel, 
was partially privatized (capitalized) in 1995.  Telecom 
Italia purchased 50 percent of the company, 47.5 percent was 
given to managers of Bolivian pension funds for benefit of 
the Bolivian public, and 2.5 percent went to state workers. 
Entel held a monopoly on long-distance services until 2001, 
when the market was opened up for private investment.  Today 
there are 10 long distance operators, 17 local operators (16 
cooperative plus Entel), and 4 mobile service providers, 
including two U.S. investors.  Although there has been little 
growth in fixed line service since 1996 (installing a fixed 
line costs approximately USD 1,200), mobile service market 
penetration has gone from zero percent to 25 percent. 
According to the President of Entel, Franco Bertoni, Entel 
controls approximately 65 percent of the long distance 
market, 65 percent of the mobile market, and 80 percent of 
the data market.  Bolivia has the lowest tariffs in Latin 
America, Bertoni said. 
 
GOB Wants to Leave Operations to Private Sector 
--------------------------------------------- -- 
¶3. (SBU) The GOB announced in its National Development Plan 
in June that it intends to regain majority ownership of nine 
of the companies that were capitalized in the 1990s (ref A), 
including Entel.  However, because of the significant 
obstacles it has encountered in the hydrocarbons sector (ref 
B), it is unlikely to attempt to implement this plan in the 
foreseeable future.  According to Bertoni, the GOB has not 
yet discussed this plan with Entel.  Both Telecommunications 
Director General Pedro Solares and Telecommunication 
Superintendent (regulator) Clifford Paravicini told Econoff 
on October 12 that the government does not want to take over 
Entel's operations and that government wants to take a more 
careful approach in telecommunications than it did in 
hydrocarbons.  They agreed that the government wants majority 
ownership of Entel to have access to Entel's profits in order 
to implement social programs, like expanding rural telephone 
networks, but does not want to operate the company. 
According to Solares, the government realizes that private 
operators are more efficient, less corrupt, and less 
politicized than state-run businesses and does not want to 
harm the sector.  Meanwhile, Telecom Italia, as part of its 
overall Latin America strategy, is seeking to sell its shares 
in Entel.  Bertoni denied rumors that the company has had 
discussions with Venezuela's CANTV regarding the sale. 
 
GOB's Plans to Reform Regulator Delayed 
--------------------------------------- 
¶4. (SBU)  The government announced in June that it plans to 
eliminate the current independent regulatory system and 
create new regulatory bodies within the ministries (ref A). 
A U.S. telecoms investor told Econoff previously that 
although the regulator was at times corrupt, the 
telecommunications sector had achieved significant advances 
under the current independent regulatory system that tended 
to be more transparent than the prior system of ministry 
oversight and was based on free competition.  He added that 
the elimination of the regulator and transfer of oversight 
functions to the ministry would mean that sector decisions 
would be based on politics rather than economic or consumer 
concerns (ref C).  According to GOB representatives, the new 
system would seek a better balance between industry and 
consumers, because the current system, they argue, favors 
industry at the expense of consumers and has failed to ensure 
rural services access.  Director General Solares said that 
the plan was designed to strengthen the ministries, but that 
the independence of the regulators would be maintained.  The 
ministries would set the norms, but would not interfere in 
the daily functions of the regulators, he explained. 
However, reforming the regulatory system would require 
several legal changes, and thus the reforms would not likely 
be implemented until mid-2007, Solares said. 
 
GOB Seeks to Expand Rural Services 
---------------------------------- 
¶5. (SBU) Director General Solares explained that the 
government aims to increase rural telephone coverage through 
a USD 130 million investment over the next four years in 
community information centers and public phones.  He 
explained that while 60 percent of urban dwellers have access 
to personal telephones, only 0.6 percent of rural residents 
do, and only 30 percent of rural dwellers have access to 
public phones.  The community telephones would be partially 
financed through a telecommunications fund, which now 
contains more than USD 3 million from company fines. 
Superintendent Paravicini said that the superintendency plans 
to work with small private companies to provide community 
information centers, including telephones, Internet, and 
television, to 240 towns by February 2007.  The government 
also plans to grant subsidies to companies to extend coverage 
to rural areas. 
 
¶6. (SBU) Comment:  Director General Solares' comment that the 
government wants to take a more careful approach with 
telecommunications than it has with hydrocarbons suggests 
that the government is not likely to rush into taking over 
telecommunications businesses, but will focus on the high 
profile sectors of hydrocarbons and mining for now.  The 
remarks of Solares and Superintendent Paravicini are 
reassuring in that they indicate that the government 
understands the benefits that private sector investment has 
brought to the public and that it does not want to impede 
private operations in the telecommunications sector.  End 
comment. 
GOLDBERG