Opening ICE Monopoly May Hurt Its Finances

April 23, 2004

THE Costa Rican Electricity and Telecom Institute (ICE) predicts its yearly revenues will be cut in half if key sectors of the country’s telecommunications monopoly are opened to private competition under the Central America Free-Trade Agreement (CAFTA) with the United States, the daily La República reported.

During CAFTA negotiations, which ended last January, Costa Rica committed to approving a law aimed at modernizing and strengthening ICE by Dec. 31, 2004.

The country also will be required to draft and implement “modern legislation” to regulate the sector by Jan. 1, 2006.

Costa Rica agreed to open Internet services and private data networks to private competition by Jan. 1, 2006. Cellular telephone service must be opened by Jan. 1, 2007 under the agreement, which still must be approved by the U.S. Congress and Costa Rican Legislative Assembly (TT, Jan. 30).

The projections, based on a study conducted by the International Telecommunication Union (UIT), were presented last week to the legislative commission in charge of reforming ICE by Alvaro Retana, Sub-Manager of Telecommunications for ICE.

The report considered several possible scenarios. Under every scenario, it was predicted ICE would lose a substantial portion of its telecom revenues once private firms entered the market.

Under the worst-case scenario – private competition without the reforms to strengthen ICE and make it capable of competing – the institution’s revenues would be reduced to just 34% of what they are now.

Under this scenario, ICE would not be able to generate the revenues needed to invest in improving its services, Retana said.

ICE’s revenues would drop to 49% if an ICE reform bill is approved and the institution remains state-owned.

The best possible results under CAFTA would be obtained if the reform is passed and ICE is opened to partial private investment. Under this scenario, ICE revenues would drop to 58% of current levels, according to the study.

Under this model, ICE would open itself to private investment, but the government would retain majority control.

ICE would be required to conduct major price adjustments to be able to continue to provide universal coverage.

However, the institution could see improved profit margins within five years of the opening of the monopoly, Retana said.

 

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