US embassy cable - 04MADRID2133

UNCLAS SECTION 01 OF 02 MADRID 002133 
 
SIPDIS 
 
STATE FOR EB/CIP 
USDOC FOR NTIA AND ITA 
FCC FOR INTERNATIONAL 
 
E.O. 12958: N/A 
TAGS: ECPS, EINV, EINT, ETRD, SP 
SUBJECT: SPAIN:  TELECOM AND INFORMATION TECHNOLOGY 
DEVELOPMENTS 
 
REF: A. MADRID 1673 
 
     B. MADRID 1562 
 
1.  This cable summarizes selected developments in the 
Spain's telecommunications and information technology 
sectors.  In this issue: 
 
--  New Ministry of Industry, Tourism and Commerce 
responsible for telecom issues (para 2) 
-- Spain,s public television under review (para 3) 
-- New government office to defend telecom users (para 4) 
-- Telefonica Moviles and Vodafone Espana launch 3G (UMTS) 
services (para 5) 
-- Spain,s ADSL subscriber base up; Telefonica proposes 
doubling its ADSL connection speed (para 6) 
-- Telefonica Moviles continuing Telefonica's increasing 
influence in Latin America (para 7) 
 
2.  NEW MINISTRY OF INDUSTRY, TOURISM AND COMMERCE 
RESPONSIBLE FOR TELECOM ISSUES 
Telecommunications issues are now primarily the 
responsibility of Spain's newly formed Ministry of Industry, 
Commerce and Tourism (Ministry of Industry), headed by 
Minister Jose Montilla Aguilera, a Catalan who has a 
reputation for being serious and disciplined.  He also 
remains the secretary general of the Catalan Socialist Party, 
and has shown that his loyalties to Catalonia (which includes 
Barcelona) are steadfast (see ref A).  In a recent interview 
Montilla said the GOS is studying the possible consequences 
of liberalization of telephone rates which the former 
government had planned for 2005.  Montilla demurred to a 
question about financing of universal service, which industry 
has been expected to shoulder in the past, by stating that 
the ministry must first study and define what services should 
be provided to all of Spain before determining how to fund 
universal service. 
 
3.  SPAIN'S PUBLIC TELEVISION STATIONS UNDER REVIEW 
With a huge deficit (currently at around 8 billion euros or 
9.79 billion dollars) and a reputation as the government 
propaganda mouthpiece since the 1970s, the possible reform of 
Spain's publicly-owned television company (RTVE) has been a 
perennial source of campaign promises during national 
elections.  During his campaign, President Zapatero vowed to 
create a committee of experts to study the problem.  He has 
already made good on this commitment, establishing a group to 
come up with recommendations by early 2005.  He also has 
replaced the head of RTVE with Carmen Caffarel, who has been 
described as an "independent academic."  Some of the 
challenges facing Caffarel and the committee of experts are 
how to shrink the company's deficit, work with the unions 
that will fight moves to shrink its 8,000-strong workforce, 
define the role of public television in Spain, and free RTVE 
of political influence.  State Secretary for Finance Miguel 
Angel Fernandez Ordonez, who is committed to fiscal restraint 
(see ref B), recently mentioned that privatization of RTVE 
was being considered in order to improve the company's 
finances.  Caffarel opposes the privatization but says she 
intends to make RTVE an independent entity. 
 
4.  NEW OFFICE TO DEFEND TELECOM USERS 
A new Defender of Information and Communication Technologies 
Users has been established by the Ministry of Industry.  This 
official will have responsibility for addressing citizen 
complaints regarding Internet connections and mobile 
telephone contract terms.  Complaints for telephone service 
and Internet connection deficiencies have increased 
exponentially in the last few years. 
 
5.  TELEFONICA MOVILES AND VODAFONE ESPANA LAUNCH 3G (UMTS) 
SERVICES 
Both Telefonica Moviles and Vodafone Espana launched 3G 
(UMTS) services in Spain during the last week of May. 
Telefonica Moviles, a subsidiary of Group Telefonica, will 
initially provide UMTS services in Madrid, Barcelona, and 
other large cities in Spain.  Javier Aguilera, CEO of 
Telefonica Moviles, expects mass usage of UMTS facilities to 
be a reality by the end of 2005.  Between 2003 and 2006, 
Telefonica Moviles plans to invest 1 billion euros (1.22 
billion dollars) to develop its UMTS service.  Vodafone 
Espana launched its services one day after Telefonica 
Moviles.  While offering services initially to 22 Spanish 
cities representing 23 percent of the population, Vodafone 
Espana plans to extend the service to all of the country's 
provincial capitals by the end of the year.  Meanwhile, the 
GOS is reviewing UMTS licensing agreements to ensure that all 
four of Spain's UMTS license holders (also Amena and Xfera) 
establish services and comply with their agreements. 
 
6.  SPAIN'S ADSL SUBSCRIBER BASE UP; TELEFONICA PROPOSES 
DOUBLING ITS CONNECTION SPEED 
As of April, Spain had 1.9 million ADSL subscribers.  At the 
current rate, Spain will have 3 million ADSL lines by the end 
of 2005, according to Spain's Association of Internauts 
(Internet users).  Telefonica's 1.2 million ADSL subscribers 
may soon benefit from doubling of connection speed at no 
extra charge if CMT, Spain's telecom regulatory body, 
authorizes the proposed plans.  This will involve an 
investment by Telefonica of as much as 100 million euros 
(1.22 billion dollars).  COMMENT:  An intriguing aspect of 
the proposed promotion is how it challenges Telefonica's 
competitors:  Telefonica owns virtually all of the fixed-line 
infrastructure in Spain and is required to provide its 
competitors access to its network.   Regulations prohibit 
Telefonica from differentiating its competitor-clients from 
its other clients when upgrading this type of service.  So 
the added speed will be passed on to Terra, Wanadoo, Tiscali, 
Ya.Com, etc. for no extra charge.  However, these competitors 
would need to incur some unanticipated investment costs to 
pass the increased speed on to their retail clients. 
Although not required by regulation to benefit their clients 
with the doubled speed, Telefonica's competitors risk losing 
significant client base to Telefonica if they don't.  End 
Comment. 
 
7.  TELEFONICA MOVILES CONTINUING TELEFONICA'S INCREASING 
INFLUENCE IN LATIN AMERICA 
Telefonica Moviles will fully acquire Telefonica Movil Chile 
from Compania de Telecomunicaciones de Chile (CMT) for a 
little over 1 billion euros (1.22 billion dollars).  Under 
management by Telefonica Moviles since 2000, with parent 
company Telefonica already holding a 43.6 percent share of 
CMT, analysts say that although the deal appears overpriced, 
consolidation makes "strategic sense." 
ARGYROS