VZCZCXRO5254
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0084/01 0261646
ZNR UUUUU ZZH
P 261646Z JAN 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 0111
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0724
RUEHBO/AMEMBASSY BOGOTA 5403
RUEHBR/AMEMBASSY BRASILIA 0637
RUEHBU/AMEMBASSY BUENOS AIRES 0400
RUEHCV/AMEMBASSY CARACAS 1351
RUEHPE/AMEMBASSY LIMA 1914
RUEHME/AMEMBASSY MEXICO 0693
RUEHLA/AMCONSUL BARCELONA 3761

UNCLAS SECTION 01 OF 02 MADRID 000084 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ECPS SP
SUBJECT: TELEFONICA GIVES PERSPECTIVE ON ITS LATIN AMERICAN 
ACTIVITIES 
 
REF: A. 08 MEXICO 3513 
     ¶B. 1/21 LAMELA-RICHARDSON EMAIL 
 
MADRID 00000084  001.2 OF 002 
 
 
 ¶1. (SBU) Summary. Post met with Telefonica Latin America 
leads January 16 to discuss perspectives on Latin America and 
to raise ref A labor concerns on Telefonica subsidiary Atento 
Mexico.  Eduardo Navarro, Director of Strategy and Regulation 
for Telefonica International, expressed a positive outlook 
for the thirteen Latin American countries in which Telefonica 
operates, with expectations for the highest level of growth 
in Brazil, Colombia, Mexico, and Peru.  He said the greatest 
challenges to Telefonica operations were faced in Mexico, 
followed by Argentina.  On the Atento labor issue, Navarro 
expressed concern and said that a Telefonica representative 
would follow-up with Embassy Mexico City on the allegations. 
Telefonica is the leading foreign investor in Latin America 
and has advised the GOS on Latin American policy along with 
other major Spanish investors in that region. End Summary. 
 
--------------------------------- 
PROSPECTS IN LATIN AMERICA "GOOD" 
--------------------------------- 
 
¶2. (SBU) On January 16, EconCouns and section members spoke 
with Telefonica's Latin America leads about perspectives and 
investment in Latin America.  Present at the meeting were 
Eduardo Navarro, Director of Strategy and Regulation of 
Telefonica International; Daniel Arias, Deputy Director of 
Regulation and Wholesale; and Diego Molano, Director of 
Corporate Relations in Latin America.  Navarro expressed 
optimism for Telefonica's growth in the region, but noted 
obstacles in Mexico and Argentina.  Despite these obstacles, 
the Telefonica experts indicated that prospects in all 
thirteen countries in which Telefonica operates were 
promising, with the highest level of growth anticipated in 
Brazil, Colombia, and Mexico.  He confirmed a future $22 
billion investment plan for the region, declining to give 
details other than saying that about $5-6 billion was related 
to maintenance-type costs.  On Cuba, the Telefonica officials 
said that the company was eyeing the country for future 
investment should there be change.  He noted that current 
restrictions have resulted in a scant 1 percent mobile 
penetration. 
 
--------------------------------------------- ---------- 
MEXICO AND ARGENTINA MOST CHALLENGING, VENEZUELA "FAIR" 
--------------------------------------------- ---------- 
 
¶3. (SBU) Navarro pointed to Mexico as the most challenging 
market for Telefonica given regulatory and institutional 
barriers and the economic and political strength of Carlos 
Slim's companies.  Despite this, Navarro was pleased with 
Telefonica's current position as an established mobile 
alternative (Movistar), and characterized Telefonica's 
opportunities for expansion as promising.  He said that 
company officials were optimistic about their efforts to 
change a law limiting the level of investment by foreign 
companies in fixed telecommunications lines.  He opined that 
there was strong political will among elected officials to 
support the changes, although hampered at times by "outside 
pressures."  He added that the upcoming Congressional 
elections would likely delay action on the draft bill, which 
had already been approved within an internal committee in the 
legislature. 
 
¶4. (SBU) In a related topic, Econoff raised reftel labor 
concerns at Atento Mexico.  Navarro expressed appreciation 
and concern for the information, and indicated that 
Telefonica representatives would follow up directly with 
Embassy Mexico City (Ref b). 
 
¶5. (SBU) On Argentina, Navarro noted that Telefonica's 
greatest concerns were related to the GOA practice of fixed 
rate tariffs on fixed-line operations and rules that 
Telefonica believes provides competitor Claro with an unfair 
advantage on voice, TV, and cable services.  When asked about 
Venezuela, Navarro said that the company was generally 
pleased with operations and GOV treatment there, noting that 
it had  been treated "fairly" even during times of difficult 
relations between Spain and Venezuela.  He mentioned that 
Telefonica had been compensated generously when Chavez had 
nationalized CANTV in 2007, in which Telefonica had a small 
 
MADRID 00000084  002.2 OF 002 
 
 
stake.  Venezuela, Argentina, and Brazil pull in the highest 
level of profits in Latin American for Telefonica.  (Comment: 
Navarro noted, however, that Telefonica could not easily 
repatriate its profits from Venezuela.) 
 
------- 
COMMENT 
------- 
 
¶6. (SBU) Latin America is Telefonica's highest profit and 
growth region, representing 38 percent of total profits for 
the company in 2007.  In turn, Telefonica's presence and 
investment is significant to the region itself, with profits 
reaching up to 2 percent of GDP in countries such as Peru and 
Chile.  Given strong prospects, along with cultural and 
historical ties, it is no surprise that Telefonica hopes to 
expand its position in the region.  In addition to its 
operations in Latin America, Telefonica has the dominant 
position in Spain, and a sizable operation in the rest of 
Europe.  Telefonica has told us that it is also interested in 
China as a growing market, but apart from its small stake in 
China netcom, it is watching and waiting before it makes any 
major moves. 
 
CHACON