VZCZCXYZ0014
RR RUEHWEB

DE RUEHGT #1036/01 2261427
ZNR UUUUU ZZH
R 131427Z AUG 08
FM AMEMBASSY GUATEMALA
TO SECSTATE WASHDC 5916

UNCLAS GUATEMALA 001036 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/CEN AND EEB/CIP/BA FINTON, PLEASE PASS TO USTR 
CATHERINE HINCKLEY AND ANDREA MALITO 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EINV GT
SUBJECT: GUATEMALA'S TELECOMS CAFTA DISPUTE 
 
REF: A. GUATEMALA 81 
     ¶B. GUATEMALA 689 
 
¶1. (SBU) Summary: USTR and Embassy officials met with GOG 
trade and telecoms officials July 23-25 in an effort to 
resolve a potential CAFTA arbitration complaint by a U.S. 
telecoms investor (Americatel) and to discuss broader 
CAFTA-DR compliance issues related to the case.  Discussions 
centered on why Guatemala's telecom regulator (the 
Superintendancy of Telecommunications, or SIT) was unable or 
unwilling to force the reconnection of four high-speed data 
(E-1) lines after Telgua, Guatemala's dominant 
telecommunications provider, unilaterally disconnected them 
in clear violation of CAFTA-DR in October 2006.  Discussions 
exposed fissures between the Ministry of Economy, which is 
committed to the rapid resolution of the case, and the 
Ministry of Communications and the SIT which appeared 
complicit in Telgua's strategy of delaying a judicial 
resolution.  The deadlock makes a final decision unlikely and 
increases the likelihood Americatel will seek relief via the 
CAFTA-DR arbitration mechanism in Washington.  The case 
exposed gaps in Guatemala's telecoms regulatory regime and 
all parties agreed that it needs reform.  USTR and Embassy 
officials are currently working on an action plan to assist 
the GOG in taking the necessary steps.  End Summary. 
 
 
BACKGROUND 
---------- 
 
¶2.  (SBU) In June 2006 an American entrepreneur purchased 
Americatel Guatemala, a Guatemalan telecommunications 
operator which had a pre-existing inter-connection agreement 
with Telgua, the major telecommunications operator in 
Guatemala (a subsidiary of America Movil, owned by Mexico's 
Carlos Slim).  Under the existing interconnection agreement, 
Americatel had 16 E-1 lines interconnecting with Telgua. 
That number was later increased to 20 E-1 lines.  The 
interconnection agreement expired in 2003, but Americatel had 
begun the process of trying to renew the agreement and 
eventually requested the intervention of the SIT to resolve 
disputes over the terms of the contract renewal.  The main 
issue in dispute was the per-minute price which Telgua would 
charge Americatel for connection.  The Ministry of 
Communications deemed that Americatel filed its papers one 
day late with the SIT and therefore the rates which Telgua 
had proposed in the renewal should be accepted.  Americatel 
is in the process of appealing this decision and, until there 
is a resolution, believes that it is entitled to continue 
paying the per-minute rate established in the initial 
interconnection agreement, given that the agreement 
stipulates that the rates shall remain in force while the 
agreement is being renewed. 
 
¶3.  (SBU) In apparent retaliation for Americatel's refusal to 
pay the new rate Telgua proposed for the renewal of the 
interconnection, on October 7, 2006, Telgua disconnected four 
of Americatel's E-1 lines.  This action was a clear violation 
of CAFTA-DR Chapter 13, Article 13.2. Americatel initially 
sought relief through the SIT and later brought court action 
to force the reconnection of these E-1 lines.  The SIT issued 
several letters to Telgua asking the company to reconnect the 
lines.  Telgua ignored the requests, and instead pursued a 
strategy of delaying judicial resolution of the case.  The 
SIT took no further action. 
 
¶4.  (SBU) On November 9, 2007, the Guatemalan Constitutional 
Court issued a decision in favor of Americatel ordering 
Telgua to reconnect the E-1 lines.  Despite this decision, 
Telgua succeeded in delaying its enforcement and has not 
reconnected the E-1 lines. 
 
 
USTR Visit 
---------- 
 
¶5. (SBU) In efforts to resolve the issue, Embassy Officers 
Q5. (SBU) In efforts to resolve the issue, Embassy Officers 
repeatedly demarched SIT and Ministry of Economy officials 
and succeeded in bringing together the officials from the 
Ministry of Economy, the Ministry of Communications and the 
SIT to discuss the case in early July.  This meeting brought 
to light possible deficiencies in Guatemala's 
telecommunications regulatory regime that needed to be 
reviewed by trade experts.  USTR's Regional Director for 
Central America, Director of Telecom and E-Commerce Trade 
Policy, and Legal Advisor to Guatemala agreed to visit 
Guatemala July 23-25 to discuss solutions and the CAFTA-DR 
compliance implications of the dispute.  The delegation met 
first with Minister of Economy Caballeros who expressed his 
strong support of CAFTA-DR and for quickly resolving the 
Americatel dispute.  He said he would work with the Ministry 
of Communications to ensure the case is resolved before it is 
submitted to international arbitration.  Caballeros regretted 
that the SIT had not resolved the case previously and 
suggested that existing processes be used to accelerate 
settlement.  USTR noted the SIT's long-standing position that 
it lacks the authority to force Telgua to reconnect the four 
E-1 lines and stressed that CAFTA-DR requires each signatory 
country to provide its regulator with sufficient authority to 
ensure interconnection is provided by major carriers. 
Caballeros offered to pressure the SIT and Ministry of 
Communications to take immediate action to resolve the case. 
The Minister added that a long-term solution was needed to 
improve competition in the telecommunications market and that 
the Ministry of Economy would, together with the USG, develop 
a proposal that would strengthen Guatemala's 
telecommunications regime. 
 
¶6. (SBU) The Superintendent of Telecommunications and lawyers 
from the Ministry of Communications met next with the USTR 
and Embassy team.  SIT representatives reiterated previous 
assertions that the SIT only had conciliatory powers in cases 
where two parties do not reach a commercial agreement on 
interconnection.  The SIT would only be empowered to levy 
fines in the event an administrative court ordered Telgua to 
reconnect and Telgua failed to do so.  Americatel's appeal to 
a penal rather than an administrative court prevents the SIT 
from acting.  While the SIT's authority is weak, we believe 
it could do more to help solve the situation.  Its current 
position of inaction fits well with Telgua's strategy of 
delaying final resolution of Americatel's claims and 
highlights the lengthy appeal and injunction processes in 
Guatemala that make it difficult to determine when a court 
decision is final. 
 
¶7. (SBU) During a wrap-up meeting on July 25, SIT 
Superintendent Samayoa reiterated the SIT's need for a 
"final" decision by the Constitutional Court to act, but 
committed to taking immediate action to require Telgua to 
reconnect the four E-1 lines as soon as a provisional 
decision was received.  When pressed for details, the SIT 
claimed they had a technical team ready to deliver a formal 
demand for reconnection, and would inspect the facilities to 
ensure the connection was made.  The SIT offered to invite 
Econoff to witness the event.  The SIT then noted, in 
passing, that it is now also waiting for the Constitutional 
Court to issue a clarification requested by Telgua to define 
the exact requirements for interconnection.  This process 
could add additional months to the final decision.  The SIT 
would not commit to imposing punitive measures against Telgua 
if it refused to comply with the Constitutional Court 
decision.  Vice Minister of Economy Ruben Morales noted he 
would coordinate the development of the GOG's strategy to 
resolve the dispute and strengthen Guatemala's 
telecommunications regime.  He hoped to present a draft 
action plan for discussion with the Embassy and USTR in a 
video conference to be held August 13. 
 
¶8. (SBU) Comment: The Minister of Economy's commitment to 
resolve the dispute with Americatel and bring Guatemala into 
compliance with CAFTA-DR on telecoms issues reflects his 
understanding of Guatemala's broader interest in improving 
the investment climate to attract foreign capital, as well as 
his recognition of the role a well-regulated and competitive 
market plays in advancing Guatemala's development.  Through 
inaction and clear lack of political will, the SIT and 
Qinaction and clear lack of political will, the SIT and 
Ministry of Communications appear complicit in the 
implementation of Telgua's strategy to delay resolution of 
the case.  While willing to accept technical assistance and 
improve regulation, there is no indication the SIT or the 
Ministry of Communications want to resolve the specific 
Americatel dispute.  This case is therefore likely to move to 
CAFTA-DR arbitration.  If that happens, Guatemala will have 
the dubious distinction of being the only CAFTA-DR signatory 
with two investment dispute cases before arbitration (the 
other involving U.S. investor Railroad Development 
Corporation.) 
McFarland