US embassy cable - 02TEGUCIGALPA3151

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 003151 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CIP, EB/CBA 
GUATEMALA FOR COMMATT:DTHOMPSON 
 
E.O. 12958: N/A 
TAGS: ECPS, EINV, KPRV, HO 
SUBJECT: CELLULAR PROVIDERS PRE-QUALIFIED 
 
REF: a) TEGUCIGALPA 02043  b) TEGUCIGALPA 02563 
 
1. (SBU) Summary.  Bellsouth was one of three firms found to 
prequalify to participate in the upcoming 25-year wireless 
telephone service concession on November 7, along with the 
Chilean company ENTEL and a Swiss-Honduran consortium. 
Digicel Honduras, a company with partial U.S. ownership, was 
disqualified on the basis that it did not adequately 
demonstrate its ties to an operating telecom company 
(Digitel of Venezuela).  Digicel officials will soon present 
clarifying documentation and ask Conatel to reverse the 
disqualification.  Econoffs have discussed the issue with 
Conatel officials and worked with Digicel reps to understand 
the key reasons for disqualification and possible routes for 
remedy.  At this point, the company has not asked for any 
specific USG advocacy.  End Summary. 
 
2. (SBU) Of the six companies who submitted paperwork to pre- 
qualify for the upcoming 25-year wireless telephone services 
concession, three were found eligible by the Honduran 
telecom regulator, CONATEL, on November 7.  These three 
firms were: the U.S.'s  Bellsouth, Chilean company Empresa 
Nacional de Telecomunicaciones (ENTEL), and a Swiss-Honduran 
consortium Megatel-Emce.  Among the three disqualified 
bidders was the other company with U.S. participation - 
Digicel Honduras - and two firms related to the Mexican 
utility Telemex.  Conatel is giving the disqualified 
companies time to file a rebuttal to the disqualification. 
The issuance of the tender package is now delayed until 
approximately January of 2003 and the opening of the bids 
estimated for sometime in March 2003.  Digicel 
representatives visited the Embassy on November 14 to 
explain their concern about the company's disqualification. 
Bellsouth has not been in contact with the Embassy to date. 
 
3. (SBU) CONATEL provided a long list of legal, technical 
and financial deficiencies in Digicel's prequalification 
package.  Some are spurious and easily clarified.  However, 
the key requirement for prequalification was a demonstration 
that the bidder was a significant participant (20 percent or 
more) in an operating wireless telecom company.  Digicel 
Honduras is claiming that its shareholders' participation in 
the Venezuelan telephone company Digitel de Venezuela 
satisfies this requirement.  However, the complexity of the 
consortium's financial structure apparently raised serious 
questions in Conatel that the requirement was satisfactorily 
met. 
 
4. (SBU) Digicel Honduras consists of Digicel Holdings Ltd. 
(61 percent), Venezuelan Ventures (35 percent) and other 
unspecified shareholders (4 percent).  Venezuelan Ventures 
is itself a consortium of four firms that together represent 
21 percent of the shares of Digitel de Venezuela (slightly 
higher than the required 20 percent): GSM Venezuela (2.78 
percent), Venconsul (16.04 percent), Norconsult Telematics 
Americas (1.0 percent) and Citibank through its subsidiary 
Latin Investment (1.88 percent).   Conatel raised questions 
about the following issues: 
 
-- Conatel did not credit Latin Investment's 1.88 percent of 
Digitel as counting in the calculation of the amount 
controlled by Venezuelan Ventures because the bid documents 
did not adequately identify the firm as a Citibank 
subsidiary.  This left Venezuelan Ventures slightly short of 
the required 20 percent holdings in Digitel.  Digicel plans 
to provide further documentation showing the financial ties 
between Latin Investment and Citibank, and hopes that will 
resolve the problem. 
 
-- Digicel Honduras provided financial statements for (the 
non-qualifying) Venezuelan Ventures rather than for the 
individual consortium members in Venezuelan Ventures.  This 
deficiency will also be eliminated as a problem, if Conatel 
accepts Latin Investment's ownership by Citibank and thus 
Venezuelan Venture's status as a significant participant in 
Digitel de Venezuela. 
 
-- Digicel's regional representative Marnie Martin signed 
the bid documents as regional representative of Digicel 
Holdings.  The prequalification package, according to 
Conatel, was missing a sworn declaration indicating that Ms. 
Martin is the legal representative of Digitel de Venezuela. 
The package also omitted the legal domicile and exact 
address of the financial associate, technical associate and 
the company through which the technical credentials were 
presented.  Conatel indicates that these legal requirements 
are considered disqualifying; documents cannot be 
substituted or added to clarify or qualify this missing 
information. 
 
5. (SBU) At this point, Digicel has not requested Embassy 
assistance on their disqualification.  An earlier advocacy 
request by Digicel -- for assistance in convincing the GOH 
to change the terms of the concession to allow for more than 
one wireless contract - has been overtaken by their 
disqualification for the moment. 
 
6. (SBU) Comment.  Requirement that the bidders in a 
concession have a track record of operating a similar 
company elsewhere is a common way of determining bona fides 
of companies prior to the opening of the concession process 
(a similar requirement was included in the concession of 
Honduras' international airports in 2000).  Digicel's 
relatively complex financial structure appears to have made 
this determination more difficult than is the case for other 
companies. Conatel fanned the fires a bit by adding to its 
legitimate concerns a series of spurious documentation 
problems (like the alleged omission of a table of contents). 
However, Embassy believes Digicel executives now understand 
the key challenges ahead to getting the disqualification 
dismissed.  End Comment. 
 
 
PALMER