VZCZCXYZ0003
RR RUEHWEB

DE RUEHSJ #2750/01 3462152
ZNR UUUUU ZZH
R 122152Z DEC 06
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 6819
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

UNCLAS SAN JOSE 002750 
 
SIPDIS 
 
WHA/CEN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECIN ELAB PGOV CS
SUBJECT: COSTA RICA'S TELECOM MONOPOLY PREPARES FOR CHANGE 
 
REF: SAN JOSE 2041 
 
¶1. SUMMARY. With CAFTA-DR ratification slowly moving forward, and 
telecom competition on the horizon, Costa Rica's telecom monopoly, 
ICE, (Instituto Costarricense de Electricidad) is making moves to 
modernize under new ICE President, Pedro Pablo Quiros.  The new ICE 
leadership is clearly engaged in strategic preparation for the 
future, spurred to action by the specter of competition.  For 
instance, ICE recently announced that it will invest US$20M to 
install 8,000 new multi-use public pay phones and has started 
offering Wi-Max internet service in selected areas.  ICE also 
recently began offering higher speeds of internet service at about 
half previous prices through its subsidiary internet service 
provider. Meanwhile, to counter union opposition to CAFTA-DR, Quiros 
is by-passing union leadership and meeting directly with rank and 
file members weekly to explain that with recently enacted executive 
decrees and pending legislation, ICE can effectively compete in an 
open market.  END SUMMARY. 
 
¶2.  PHONE LINES:  CAFTA-DR requires that Costa Rica open its telecom 
market to competition for wireless service, data transmission and 
internet services when the treaty enters into force.  Breaking up 
part of the government telecom monopoly is arguably the most 
contentious step.  ICE is one of the most popular public 
institutions in Costa Rica for delivering land lines to 65% of homes 
nationwide (at the reportedly low cost of US$8 per month), and plans 
to expand coverage (via public phone) to the remaining (mostly 
low-income) 35% of households, which rely heavily on public phones. 
Currently 400 aging pay phones, many of which are broken, are 
installed in the metropolitan area which has a population of 
approximately two million people.   These old pay phones are being 
replaced by 8,000 new public phones with modern technology that will 
cost about $2,500 per phone and will be installed throughout the 
country.  The new phones will have text messaging and e-mail 
capability and will accept tokens, a new generation of prepaid phone 
cards with computer chips, as well as the older prepaid "Viajera 
199" card. 
 
¶3. INTERNET:  According to ICE, in 2003 only 0.6% of Costa Ricans 
had access to the internet.  Now 22% of Costa Ricans have access, 
primarily via offices and internet cafes, although residential 
installations continue to increase.   In the past several months 
ICE's internet subsidiary has announced the availability of faster 
internet speeds at about half previous prices, and recently the 
current monopoly provider began offering Wi-Max service in two 
upscale suburban neighborhoods.  The new ICE leadership is clearly 
engaged in strategic preparation for the future, spurred to action 
by the specter of competition. 
 
¶4. MOBILE SERVICE:  ICE's president recently stated that 35% of 
Costa Ricans have mobile phones, up from 3.6% in 2000.  ICE's 
wireless infrastructure is sorely taxed and although there are 
plenty of cell phones for sale in the local market, there are long 
waiting lists to activate service.  An industry source says that the 
tortuous public contracting process is partly at fault.  In December 
2002 ICE issued public tenders for the purchase of 600,000 cell 
phone line (GSM) infrastructure.  Ericsson was the successful bidder 
at US$130 million.  By the time the contract was finally awarded -- 
nearly 28 months later -- the technology was already outdated and 
worth only about US$65 million.  ICE thus ended up paying a hefty 
premium for outdated technology as a result of such slow processing. 
 
 
¶5. The same industry source says that additional cell phone 
infrastructure is badly needed.  Because of the lengthy contracting 
process ICE will probably extend the Ericsson contract, purchasing 
more outdated technology, at an increasing premium as the market 
value of the old technology continues to decline.  The industry 
source summed it up aptly: ICE's current contracting process is 
longer than product lifetime.  It is one of the reasons the ICE 
President has on his list of needed reforms, "a more agile and 
efficient contracting process". 
 
¶6. LEGISLATION AND DECREES:  Some of the reforms requested by ICE 
President Quiros were included in an executive decree recently 
signed by President Arias.  Others that require legislation are 
included in a bill known as the "Strengthening ICE Law". In that 
bill, in addition to improved contracting authority, ICE is asking 
for more autonomy, the capacity to make investments, and the ability 
to operate internationally and form strategic alliances.  This 
strengthening legislation is an important bargaining chip being used 
to convince the politically strong ICE union to accept breaking its 
monopoly in the wireless and data segments of the market. 
 
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COMMENT 
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¶7. LEADERSHIP MATTERS:  ICE President Quiros has proven to be an 
adept choice by President Arias to lead the public telecom agency in 
a time of change. Arias's first selection to head ICE lasted only 
four months.  Quiros's previous ICE and international work 
experience lend him credibility.  He is engaged in a very active 
campaign to convince both internal and external audiences that ICE 
can compete effectively in an open market.  He recently told the 
Charg that he meets weekly with union rank and file, by-passing 
obstinant union leadership, to discuss the changes and opportunities 
that lie ahead.  In addition, he regularly appears in public fora 
where he pitches the same story.  Post expects Quiros to be a very 
effective witness in the upcoming Asamblea hearings on bills to 
strengthen ICE and open the telecom market. 
 
FRISBIE