US embassy cable - 04PANAMA861

UNCLAS SECTION 01 OF 03 PANAMA 000861 
 
SIPDIS 
 
 
USTR FOR JWOLFE 
STATE FOR EB/CIP - J.COOPER 
COMMERCE FOR USDOC4332/ITA/MAC/WH/OLAC/MGAISFORD 
 
 
E.O. 12958: N/A 
TAGS: ETRD, ECPS, PM, ECONOMIC AFFAIRS 
SUBJECT: PANAMA'S TELECOM/TECH SECTOR: AN OVERVIEW 
 
 
1.  Summary: Panama's telecommunications and technology 
sector is growing, and now represents 6% of GDP.  The 
regulatory authority "Ente" has maintained a fairly good 
record for enforcement over the sector, though the former 
monopoly, Cable & Wireless Panama (CWP) has been slow in 
negotiating interconnection agreements.  Fixed-line services 
are dominated by CWP, though new entrants, including those 
offering internet phone calls, are beginning to compete in 
the market since deregulation in 2003.  Panama has no/no 
universal access fund.  Wireless telephony is a duopoly by 
CWP and BellSouth since the exit of trunking operator TriCom 
in March, but BellSouth may soon be sold to Telefonica. 
Internet service is widely available; e-government and 
e-commerce are still underused.  In sum, the GoP has proved 
to be forward thinking in telecom policy and had been 
somewhat successful in regulatory enforcement.  End Summary. 
 
 
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Regulatory Overview 
------------------- 
 
 
2. Legislation passed in 1996 provided for the privatization 
of telecommunications services and the creation of an 
independent regulatory authority for public utility 
companies-- the Regulating Entity for Public Services (ERSP 
or "Ente").  Ente's role has increased in recent years, as 
telecommunication services now represent approximately 6% of 
Panama,s GDP and 80% of voice and internet traffic between 
North and South America pass through Panama's fiber optic 
hubs.  It controls the frequency spectrum, grants wireless 
concessions, and regulates tariffs under monopoly or 
non-competitive situations (otherwise the market will 
determine prices.)  It also has an enforcement mechanism. 
For example, Ente has fined former monopoly Cable & Wireless 
Panama (CWP) over $1 million since 2001, mostly for delays in 
implementing interconnection agreements with competitors.  In 
fact, Ente has had to intervene in over half of the 
interconnection negotiations between CWP and its competitors. 
 
 
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Fixed Line Services: Partially Deregulated 
------------------------------------------ 
 
 
3. In May 1997, the Government of Panama sold a 49% stake in 
the national telephone company, INTEL, to Cable & Wireless of 
the United Kingdom for $651 million.  The government 
maintained a 49% of the shares with INTEL workers controlling 
the remaining 2%.  Under this arrangement, C&W gained 
operational control over the company and was granted an 
exclusive concession to offer basic telecommunications 
services until 2003.  The company was re-named Cable & 
Wireless Panama (CWP).  The company currently has 300,000 
subscribers; and claims to have invested $700 million in new 
infrastructure in Panama in past six years. 
 
 
4. On January 2, 2003, Panama liberalized local, long 
distance, and international fixed-line telecommunications 
services effectively ending C&W's monopoly.  Consumers are 
now allowed both contractual and immediate consumer options, 
allowing a choice on a per-call basis.  The contractual 
carrier provides billing for all services.  Metering is in 
second increments, and numbers are portable.  Nineteen local 
and international companies immediately applied to Ente to 
provide service; and by April of this year, more than 100 
operators had applied for basic service concessions. 
Although only five license holders have successfully 
negotiated interconnection agreements with C&W and only two 
are offering competitive service, the cost of an 
international call has decreased between 200% and 400% since 
the market opening in January 2003.  In March 2004, the GoP 
removed a $1 flat tax on all international phone calls and 
replaced it with a 12% per-minute tax, further reducing the 
cost of the call to the end consumer.  In spite of this, 
there were only 365,000 landline subscribers in Panama at the 
end of 2003, a drop of 100,000 since 1999, due mostly to 
increased mobile phone use. 
 
 
5.  Panama has no universal access fund, though the Ministry 
of Economy and Finance and Ente have been drafting a law on 
the issue since 2003.  Under the terms of its concession, CWP 
maintains 12,000 public phones throughout the country. The 
company estimates that 9,000 of those are net money losers, 
and calculates this "subsidy" to be over $40 million 
annually.  CWP expects to cease this subsidy when the terms 
of universal access are negotiated, likely to happen by the 
end of 2004. 
 
 
6.  Ente issued a resolution in October 2002 ordering 
Internet service providers in Panama to stop offering Voice 
over Internet Protocol (VoIP) phone calls, on the basis that 
the companies were not paying the dollar tax on international 
phone calls.  In November 2002, Panama's Supreme Court 
ordered an indefinite suspension of the resolution.  As of 
April, this suspension remained in effect, and will likely 
never be lifted, as VoIP providers are now included in the 
12% tax that replaced the dollar tax in March. 
 
 
------------------------------ 
Wireless: A Duopoly until 2007 
------------------------------ 
 
 
7.  The mobile market in Panama is currently served by a 
duopoly consisting of BellSouth and CWP.  In 1997 the two 
operators were granted concessions to provide mobile services 
in the A and B Bands, respectively.  The government will 
begin further liberalization of this sector in 2007 when it 
will auction nationwide PCS licenses.  As in much of Latin 
America, the wireless market has shown significant growth in 
Panama.  In 1999, there were 223,000 cellphone subscribers; 
in 2003 there were 810,000.  Mobile penetration exceeded 28% 
at the end of 2003.  Approximately 87% of the sector comes 
from pre-paid services with post-paid representing 13%.  At 
the end of 2003, market share was split 51% BellSouth to 49% 
CWP. Both operators have recently upgraded their 
networks*BellSouth to CDMA and CWP to GSM/GPRS. 
 
 
8.  BellSouth Panama is 56% owned by the Panamanian 
investment company Multiholdings Corporation (MHC) and 44% by 
BellSouth.  The joint venture paid $72 million for the 
concession in 1997.  BellSouth and MHC are currently in 
negotiations to sell all of the company or BellSouth's 
holdings to Telefonica of Spain for an undisclosed sum, 
though industry sources indicate that the sale price may be 
as high as $700 million. 
 
 
9.  In April 2001, Tricom, a Dominican Republic-based 
company, but 18% owned by Motorola Corporation and with 38% 
of its stock listed on the NYSE, entered the Panama market 
with the intent to offer cellular-like products based on IDEN 
digital trunking technology.  TriCom invested a total of $52 
million in infrastructure, employed 115 employees, and had 
11,000 users until March.  The company estimated its 2003 
revenue at $14 million.  BellSouth protested this service on 
the grounds that Tricom did not possess a mobile license and 
filed numerous legal suits against the company.  In March, 
TriCom closed its Panamanian operations due to the high legal 
costs and liquidity problems related to currency devaluation 
in the Dominican Republic, and sold its assets for $12.5 
million to a local investor who plans to transfer the 
equipment to Nicaragua.  Ironically, BellSouth now provides 
the same IDEN-based technology on its network. 
 
 
--------------------------------------------- -------- 
Internet/Broadband Wireless, E-commerce/E-government 
--------------------------------------------- -------- 
 
 
10.  Internet service is fairly widespread in Panama.  As of 
mid-2003, there were more than 250 internet cafes in Panama, 
charging rates as low as $1 per hour.   The GoP National 
Secretariat of Science, Innovation, and Technology (SENACYT) 
 
SIPDIS 
offers subsidized internet nodes throughout the country for 
students and teachers, especially in underserved areas, 
charging 25 cents per hour using VSAT satellite technology. 
For-fee services for cable modem, DSL, A/DSL, and dialup are 
also readily available.  Since January, hotspotpanama.com has 
offered seven broadband wireless (wi-fi) hot spots in Panama 
City. 
 
 
11.  In spite of easy access, e-commerce and e-government are 
still in their nascent stages.  Business to Consumer (B2C) 
e-commerce is almost nonexistent, with the exception of the 
country's three major supermarkets (even in this case, the 
market focuses more on expats who wish to send food instead 
of remittances to family members in Panama).  Almost all 
government agencies have an online web presence (accessible 
via www.pa), though the quality of content varies greatly. 
The Panama Canal Authority is the only GoP body to offer 
procurement opportunities completely online, however the GoP 
now publishes most public tenders online 
(www.e-compras.gob.pa) and is moving to make the process 
entirely electronic. 
 
 
----------------------------------------- 
Comment: Moving forward slowly but surely 
----------------------------------------- 
 
 
12.  Overall, Panama's telecom and technology sector is 
experiencing positive and continued growth.  The GoP has 
shown initiative to develop internet access generally and 
government information specifically.  The Ente has had some 
difficulty in reigning in the former monopoly CWP--especially 
given the conflict of interest posed by the GoP's 49% stake 
in the company, but also has proved that it has enforcement 
capability by issuing high fines to CWP for noncompliance. 
MCMULLEN