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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0194 0371105
ZNR UUUUU ZZH
R 061105Z FEB 07
FM AMEMBASSY MADRID
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INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
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UNCLAS MADRID 000194 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR WHA/FO (DMCCARTHY) AND EUR/WE 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN ETRD PREL
SUBJECT: SPAIN:  TELEFONICA'S VIEW OF VENEZUELA AND REST OF 
LATIN AMERICA 
 
¶1.  DCM, accompanied by ECONOFF, met February 5 with Jose 
Maria Alvarez-Pallete Lopez, President of Telefonica 
International, to discuss Chavez's telcoms (e.g., CANTV) 
nationalization threats and their potential impact on 
Telefonica's Venezuela operations/investment. 
Alvarez-Pallete said that Telefonica was very concerned by 
Chavez's public remarks, but noted that it was still not 
clear what he actually intended to do.  The details of 
Chavez's plans remain obscure (e.g., nationalization or 
expropriation, cell or just land lines, price to be paid) and 
until they were clarified, Telefonica could not assess their 
impact on its Venezuela operations/investment.  To try to 
gain clarity, Alvarez-Pallete would fly to Caracas February 
¶6.  Alvarez-Pallete noted that Telefonica International 
enjoyed a good working relationship with Verizon 
International and that both were waiting for Telmex's offer 
for Verizon's stake in CANTV (if not rendered moot by 
Chavez's plans). 
 
¶2.  Alvarez-Pallete said that Telefonica's mobile phone 
operation was far more important than its seven percent stake 
in CANTV.  He said that Telefonica was the largest of the 
three players in the Venezuelan cell phone market (40 percent 
market share) and was making money in the business. 
Telefonica's problem, however, was repatriating profits out 
of Venezuela. 
 
¶3.  Turning briefly to the rest of the continent, 
Alvarez-Pallete said that the alleged leftist drift of Latin 
America had been exaggerated and that Latin America at the 
end of 2006 enjoyed a better business climate than at the 
beginning of that year.  He cited successful elections and 
stable business climates in Brazil and Mexico, as well as the 
stability of the Chilean, Peruvian and Central American 
markets.  He argued that Venezuela, Bolivia and Ecuador were 
the exceptions, not the rule.  He also stressed that 
Telefonica was making money in Argentina and was in the 
Argentine market for the long-haul, notwithstanding the 
mercurial nature of the Argentine leadership. 
 
¶4.  Alvarez-Pallete said that Telefonica did business in 
every Latin American country with the exception of Paraguay, 
Bolivia and one other country whose name he could not recall. 
 He said that Telefonica participated in a group of 20-25 
businesses that advised the Spanish political leadership with 
respect to Spain's Latin America policy.  He noted that 
Telefonica was not in the U.S. market (except for a corporate 
office in Miami) and was still smarting from its 2000 
purchase of Lycos just before the tech bubble busted (a 
operation in which he admitted that Telefonica "lost its 
shirt").  He did underscore, however, that 20-30 percent of 
Telefonica's stock was held by U.S. individuals and entities. 
 Asked for his views about U.S. policy in Latin America, 
Alvarez-Pallete encouraged U.S. business to stay in the 
region, noting that U.S, influence would decline if U.S. 
business abandoned the playing field. 
Aguirre