US embassy cable - 03TEGUCIGALPA2250

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 002250 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CIP 
GUATEMALA FOR COMMATT:MLARSEN 
 
E.O. 12958: N/A 
TAGS: ECPS, EINV, KPRV, HO 
SUBJECT: Big Bang, Motorola Wants Out - Honduras Telecom 
Highlights 
 
REF: A) 02 Tegucigalpa 02043  B)02 Tegucigalpa 02563 C) 02 
 
Tegucigalpa 03151 
 
1. (U) Summary.  Within the next week, President Maduro is 
expected to make a "Big Bang" announcement on the opening of 
the telecommunications market to private carriers wishing to 
enter into joint ventures and begin servicing communities as 
sub-contractors of Hondutel.  Two American companies already 
in business with Hondutel have recently had mixed results in 
investment disputes with the state-owned monopoly.  AT&T 
succeeded at having their circuits reconnected, but the 
company, along with Sprint, still does not have approval to 
locate phone booths in public locations including call 
centers.  Domestically, Hondutel and the two cellular 
service providers, Celtel and Megatel, are having 
difficulties reaching an agreement amongst themselves on 
connection rates.  Motorola wants to sell its shares as 
technical advisor to the European firm, Millicom, but has 
not yet succeeded in securing approval for the sale from 
Conatel.  End Summary. 
 
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Big Bang Announcement - Opening the Market 
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2. (U) The announcement of the opening of the 
telecommunications sector, originally scheduled for April 
25, then August 11, is now scheduled to occur before the end 
of September.  President Maduro is expected to announce the 
official opening of the telecommunications market for joint 
ventures with Hondutel, Honduras' state-owned telephone 
monopoly.  Under the proposed program new carriers, both 
foreign and domestic, will be able to register with 
Honduras' regulatory body, Conatel, as sub-contractors for 
Hondutel.  (Note: Though full privatization is not 
anticipated until December 2005, this is seen as a positive 
step towards the liberalization of the telecom sector.  End 
note.) 
 
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American Company Investment Disputes with Hondutel 
--------------------------------------------- ----- 
 
3. (U) The U.S. telecommunications company Sprint approached 
the Embassy in mid-May requesting assistance with its 
international calling booths that were removed from 
Hondutel's public calling centers.  Sprint notified Embassy 
officials that AT&T had its phone booths removed as well. 
AT&T representatives also requested assistance after being 
notified of Embassy advocacy on behalf of Sprint.  Embassy 
and State EB/CIP officers raised the American companies' 
concerns with Hondutel's President, Alonso Valenzuela on 
multiple occasions. 
 
4. (U) Valenzuela, along with a team of Hondutel attorneys 
responded to the complaints by noting that according to 
Honduran law, as Honduras' state-owned monopoly, Hondutel 
has exclusive rights to all public telephones and calling 
centers unless otherwise stipulated by private agreement. 
In an effort to prepare for privatization in 2005, Hondutel 
claims it is trying to 'get its house in order' by 
rectifying all outstanding irregularities such as the 
unauthorized use of public call centers by third party 
companies.  Unfortunately, to date, neither Sprint nor AT&T 
have been able to provide copies of the requested 
documentation showing authorization to use the calling 
centers, nor have they registered as a sub-contractor with 
Conatel.  Therefore the Embassy considers this issue closed. 
Any and all companies wishing to open their own calling 
centers will be allowed to do so after the big bang 
announcement and the program goes into effect. 
 
5. (SBU) AT&T raised its additional dilemma regarding an 
unresolved payment dispute in the amount of USD 7.3 million 
dating back to the 1980's.  When negotiations between AT&T 
and Hondutel broke down, AT&T decided to stop payments to 
Hondutel from August 2002 through April 2003 to recover 
funds it claims Hondutel owes (Hondutel in return claims 
AT&T owes it USD 12.8 million).  In May 2003, as a response 
to the six months of non-payment, Hondutel shut off all AT&T 
circuits, both incoming and outgoing.  Partially as a result 
of Embassy and Department advocacy, Hondutel and AT&T 
returned to the negotiating table which led to the eventual 
reconnection of AT&T circuits in August.  AT&T agreed to pay 
the six months of service from August to April, with the 
understanding that both parties would continue negotiations 
on the 20 year old settlement dispute. 
 
6. (SBU) As an additional part of the agreement, both 
Hondutel and AT&T agreed to speak with their respective 
governments concerning the need to move rates closer to 
costs and regional averages.  Hondutel states that it 
understands the need to reduce rates but indicates the GOH 
is not yet supportive of this position.  However, Hondutel 
has agreed to approach the GOH on the matter.  AT&T has also 
forwarded a letter to the Embassy detailing AT&T's position 
and the importance of getting rates closer to costs. 
Comment:  US - Honduran settlement rates of USD 0.23 per 
minute contribute to extraordinarily high per minute call 
rates.  The GOH understands the impact on competitiveness 
and the investment climate but is likely to resist giving up 
too much Hondutel revenue at this juncture as the GOH is 
trying to reduce its budget deficit and reach agreement with 
the IMF on fiscal targets.  A gradual approach will be 
needed.  End Comment. 
 
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Cellular Service Providers 
-------------------------- 
 
7. (U) On April 25, 2003, the Swedish-Honduran consortium 
Megatel-EMCE won the bid for a cellular service contract, 
the second such existing contract in Honduras (refs b,c). 
The only other cellular provider, Celtel, has been operating 
in Honduras since 1996.  Though Megatel's contract 
stipulates the company must be fully operational by June 
2004, the company has stated it will begin operations before 
Christmas 2003.  Conatel confirmed the projected early start- 
up date, but noted problems emerging between Celtel, Megatel 
and Hondutel related to connection rates.  There also 
appears to be some discontent with Hondutel and Celtel 
regarding international connection rates.  Eighty percent of 
current cellular users buy prepaid cards in lieu of signing 
a contract with Celtel.  In order to make it feasible for 
these users to receive or complete international calls, 
Hondutel and Celtel (and presumably Megatel should they use 
the same pricing structure) would need to reduce 
international call rates by 20 cents per minute.  Per 
Hondutel, the current international rate to the U.S. is 84 
cents per minute.  Due to tariff pricing issues, all three 
companies are having difficulty reaching interconnection 
agreements. 
 
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Motorola Wants Out 
------------------ 
 
8. (SBU) As part of a worldwide corporate move, Motorola has 
decided to relinquish its role of operator in foreign 
markets, opting instead to be solely a provider of equipment 
and accessories.  When Motorola informed GOH officials and 
Conatel of its desire to sell its shares as technical 
advisor to the European firm, Millicom, a surprising refusal 
was handed down by Conatel officials stating Motorola is 
technically the main concessionaire of the 10-year contract 
published in 1996, not the technical advisor, therefore 
Motorola can not sell out its shares. 
 
9. (SBU) Rocafuerte Inc. (which later became Celtel) won the 
bid for the 10-year cellular contract in 1996.  When the 
contract was officially published in Honduras' federal 
register, La Gazetta, in June of 1996, Motorola Inc. was 
listed as the main concessionaire instead of Rocafuerte Inc. 
In order to correct the error in concessionaire, in 1999, 
Conatel issued a resolution changing Celtel as the main 
party, and, at the same time extended the contract from the 
original 10 years to 25 years.  Apparently, for political 
reasons, the attorney general's office sued the board 
directors who issued the resolution, stating they had acted 
in a way exceeding their authority.  The resolution has 
remained in judicial limbo ever since.  Now that Motorola 
wants to sell its shares to Millicom, Conatel is reluctant 
to give authorization for the sale since it was never 
clarified that Motorola is actually the technical advisor, 
not the main concessionaire. 
 
10. (SBU) Conatel officials indicated that Celtel / Motorola 
has two options.  The first option would be for Celtel to 
submit the contract to congress for rectification.  Celtel 
chooses not to pursue this option as a change in 
concessionaire, though obvious, would be considered a 
fundamental change to the contract, therefore giving 
congress the ability to change anything else in the contract 
it chooses.  As Celtel believes some members of the congress 
may have outside economic interests in cellular service, 
they are leery of submitting the contract for open 
rectification.  The second option is to wait until the 
Supreme Court rules on the legality of the 1999 resolution. 
Conatel officials claim once the case is decided it can go 
ahead and issue authorization for the sale. 
 
Pierce