US embassy cable - 05QUITO2737

UNCLAS SECTION 01 OF 02 QUITO 002737 
 
SIPDIS 
 
DEPT FOR EB/CIP/BA 
 
E.O. 12958: N/A 
TAGS: ECPS, ECON, ETRD, EINV, EC 
SUBJECT: ECUADOR - INTERNATIONAL CIRCUIT BLOCKAGE A DOMESTIC 
MATTER 
 
REF:  STATE 177365 
 
SENSITIVE 
 
1. Summary.  The blocking of international telephone traffic 
from the United States to Ecuador over the past 18 months 
has less to do with the negotiating tactics referred to in 
reftel than with local political and economic interests.  In 
Ecuador, the blocking of circuits to impede the termination 
of international calls to cellular phones is driven by 
domestic contractual disputes between domestic fixed-line 
and mobile operators.  Because of this dispute, Ecuadorian 
mobile operators and US carriers have had to enter into 
direct agreements that bypass Ecuadorian fixed-line 
operators.  Meanwhile, in their negotiations with Andinatel 
and Pacifictel, US carriers note that they have not 
experienced the type of tactics referred to in reftel.  End 
Summary. 
 
ECUADORIAN CIRCUIT BLOCKAGE AND INTERCONNECTION RATES 
--------------------------------------------- -------- 
 
2. The blocking of circuits connecting US telecom traffic to 
Ecuadorian cellular numbers is associated with 
interconnection rate disputes between Ecuadorian mobile and 
fixed-line operators.  Interconnection rate agreements 
between fixed-line and mobile operators ended in April 2004 
when the parties could not agree on a new rate.  With the 
end of the prior interconnection agreement, fixed-line 
operators ceased sharing interconnection revenue with the 
mobiles.  Complaints from the mobiles were ignored by the 
fixed-line operators.  In retaliation, mobile operators 
began to disconnect circuits, blocking international phone 
calls to Ecuadorian cellular phones. 
 
3. (The main Ecuadorian fixed-line operators are Andinatel 
and Pacifictel, which were created in 1997 when regulators 
broke up state-owned telecom EMETEL.  Although they 
technically became private companies in 1997, the GOE, 
through state holding company Fondo de Solidaridad (FS), 
still owns 100% of Andinatel and Pacifictel.  The main 
mobile companies in Ecuador include Spanish-owned Movistar, 
Mexican-owned Porta, and Allegra, which is a joint Andinatel- 
Pacifictel venture.  Growth among the mobiles has far 
exceeded that of the fixed-line operators, and currently 
there are more than three mobile phones for every fixed line 
in service.) 
 
4. In July 2005, after more than a year of unsuccessful 
negotiations between operators, Ecuadorian telecoms sector 
administrator Senatel announced new interconnection rates to 
govern traffic between mobile and fixed-line operators in 
Ecuador.   The decision followed a 30-day warning from 
Senatel to operators indicating that it would establish 
rates if they were unable to do so.  Under the Senatel 
decision, interconnection rates for calls from fixed-line to 
mobile operators are $0.1131 per minute, while those from 
mobile to fixed are $0.02 per minute.  The new rates reduced 
fixed to mobile and mobile to fixed line interconnection 
charges by 43% and 62% respectively. 
 
5. Despite Senatel's action, international traffic from the 
United States to cellular numbers in Ecuador remains blocked 
because the dispute over unpaid charges continues. 
Movistar, for example, claims that Andinatel and Pacifictel 
still owe it $40 million in unpaid interconnection charges. 
In total, mobile companies are owed a reported $100 million 
from interconnection charges from fixed-line operators. 
 
ESTABLISHING DIRECT LINES TO MOBILE OPERATORS 
--------------------------------------------- 
 
6. (SBU) (Information commercially sensitive - please 
protect.)  Faced with a domestic dispute that impedes their 
ability to establish connections to cellular phones, US 
carriers have re-routed such traffic, establishing their own 
direct lines to Ecuadorian mobiles.  Hernan Ordonez, 
Movistar's Vice-President of Regulation, acknowledged to 
Econoff that Movistar has established direct lines with the 
main US carriers.  For example, according to Ordonez, 
arrangements with AT&T and Sprint began in April and May 
2005, respectively, and those with Bell South Long Distance 
go back to October 2004 when their operations were owned by 
Bell South.  In many cases, US carriers are routing traffic 
through Telefonica, Movistar's parent company. 
Representatives from some of the US carriers have confirmed 
these arrangements. 
 
US CARRIER RELATIONS WITH ANDINATEL AND PACIFICTEL 
--------------------------------------------- ----- 
 
7. That US telecom traffic to cellular phones is disrupted 
by domestic commercial disputes does not mean that US 
telecoms are not having contractual problems with Ecuadorian 
fixed-line operators.  Both AT&T and MCI reported to Econoff 
that 2005 contracts with Andinatel have yet to be signed. 
According to Mary Hoberman, AT&T's Director of International 
Public Policy, continuous changeover in executives at 
Andinatel has directly affected AT&T's ability to obtain 
closure on their 2005 agreement.  Luis Montenegro, MCI's 
International Carrier Services provider in Quito, tells a 
similar tale.  Meanwhile, both carriers report that 2005 
agreements with Pacifictel are in place. 
8. At Mary Hoberman's request, Econoff spoke to recently- 
arrived Andinatel President Gales Chiriboga about the 
outstanding contract.  The Commercial Section also has 
raised the issue in recent months with Chiriboga's 
predecessor.  Chiriboga expressed genuine concern that the 
contract had not been concluded, and rightly so, as the lack 
of a contract precludes payment by AT&T.  Chiriboga said 
that he would make sure that the issue is resolved soon. 
 
9. It is important to note that contracting delays with 
Andinatel are not associated with circuit blockage.  Despite 
the lack of contracts for 2005, phone calls from US carriers 
to Andinatel are not blocked.  International traffic 
continues to reach fixed-line operators. 
 
COMMENT 
------- 
 
10. The US carriers with whom Econoff spoke note that the 
difficulties they are experiencing in other Latin American 
countries referred to in reftel are completely different 
than what they are experiencing in Ecuador.  That is, their 
experience does not indicate that Andinatel and Pacifictel 
are blocking circuits in order to obtain higher 
interconnection rates from US carriers, nor does it suggest 
pressure from the GOE to extract higher interconnection 
rates from US carriers in order to increase tax revenues to 
pay for other domestic programs. 
 
11. However, while not a result of negotiating tactics, 
circuit blockage to cellular phones in Ecuador has the same 
effect on US carriers.  Re-routing traffic through direct 
lines to Ecuadorian mobiles has not come cheaply.  US 
carriers claim that the cost of re-routing traffic has had 
the same net effect on them cost-wise as that which they 
have been experiencing as a result of circuit-blocking 
tactics elsewhere in Latin America. 
 
BROWN