San José, Costa Rica, since 1956

President Launches Telecom Reform

With the stroke of a pen, President Oscar Arias stripped the state-run telecommunications and electricity monopoly of some of its bureaucratic shackles yesterday.

Arias signed a decree that will empower the enormous Costa Rican Electricity Institute (ICE) by giving it more flexibility, a reform ICE heads say is long overdue. It is expected to help the institute in the increasingly likely scenario in which it will have to compete with private companies under the controversial Central American Free-Trade Agreement with the United States (CAFTA).

Meanwhile, the Legislative Assembly is taking up two pieces of legislation to open Costa Rica’s $1.5 billion telecom sector to private competition and create a watchdog to guard the industry.

The two highly anticipated proposals lay out regulations for the constantly evolving, rapidly innovative sector in Costa Rica, which has become the last remaining Latin American country to make such telecommunications reform.The bills would also further strengthen ICE and prepare the half-century-old bureaucracy to compete in a free market.

Attempts to reform Costa Rica’s telecom sector have a turbulent history in Costa Rica, and have been cause for massive protests and high-emotion clashes between politicians and public workers. The current proposals are the result United States’ demand that Costa Rica break up its state-run service monopolies –telecom, electricity and insurance – to be included in the U.S. free-trade pact with the United States (TT, Oct. 3, 2003).

The reform has staunch opposition from academics and union leaders alike, who say the reform will be costly to consumers by selling a long-time public service to multinational interests at the demand of the United States.

“By law, ICE doesn’t have profits. (In a competitive market) someone will have to invest, pay taxes, and then make profits. That will automatically increase costs to consumers,” said ICE union leader Fabio Chávez, a vocal CAFTA opponent.

In fact, Costa Rica resisted opening its services sectors at the beginning of CAFTA negotiations, but the administration of former President Abel Pacheco (2002-2006) finally caved in to pressure from the northern trade behemoth (TT, Oct. 31, 2003). Costa Rica ceded to a “partial opening” of its telecom sector – specifically high-speed Internet, cellular phone and data-network services as part of CAFTA, even though the United States has long resisted the demand of Costa Rica and the rest of the developing world to quit filling the pockets of its farmers with billions of dollars in agricultural subsidies.

When previous President Miguel Angel Rodríguez (1998-2002) tried to pass similar legislation, the country broke out in several weeks of violent protests and blockades that eventually forced the government to withdraw the bill (TT, March 24, 2000).

Union leaders are now promising similar protests (see separate article). But the Arias administration has said it is moving forward with the reform despite threats of protests and violence.

New ICE executive president Pablo Quirós says the legislation is more “substantive” than the “ICE Combo,” a reform proposed in 2000 that would have restructured the electricity and telecommunications sector and was controversial in part because it would have allowed companies to develop hydroelectric and geothermal projects in national parks. Massive protests caused Rodríguez to suspend the bill, which was later taken out of consideration completely when the Constitutional Chamber of the Supreme Court (Sala IV) ruled that the assembly had violated its own procedures in handling the project.

The new reform will restructure and likely expand the massive bureaucracy involved in managing the sector, although Quirós said the idea of the new plan isn’t to expand the bureaucracy.

“To the contrary, the plan is to professionalize the (telecommunications) workforce,” he told The Tico Times.

The reform would create a new regulatory agency, the Superintendence of Telecommunications (SUTEL). Currently a small branch of the Public Services Regulatory Agency (ARESEP), SUTEL would see a major expansion as part of the reforms.

The new agency would be responsible not only for making sure a market with monopolistic tendencies remains competitive, but would also be responsible for redistributing a tax on telecommunications services to provide rural, low-income areas with service.

That tax would be decreased from the current 9% to between 3-6%.

ICE Gears Up for Change

Quirós said the new decree, which gives ICE more flexibility to go into debt, reinvest its earnings and contract personnel and equipment, is necessary whether or not the two bills are passed.

The bills would further strengthen ICE in the face of competitors by giving the institution tax breaks and more administrative flexibility.

Quirós wants ICE to be able to go into almost twice as much debt as it currently is (from $370 million annually to $700 million).

Quirós said he wants ICE to be able to take on more debt, so as to be able to modernize the land-based telephone network, and substitute the old technology with wireless systems.

ICE, which currently has a grip on Costa Rica’s telecom market, provides cellular services to 1.5 million Costa Ricans, land phone lines to 900,000 and Internet services to 45,000, in addition to the services provided by Radiográfica Costarricense S.A., the stateowned Internet provider and an ICE subsidiary.

RACSA provides 105,000 individual and 7,000 corporate accounts in addition to other services (TT, Sept. 15).

RACSA spokesman Mario Zaragoza said RACSA and ICE have plans to set up 400 wireless Internet (WiFi) hotspots – which provide wireless Internet access in commercial and office centers and public areas such as downtown San José – by the end of 2007.

The service will be free to users whose computers can receive WiFi service.

Zaragoza said RACSA has already set up 10 pilot WiFi hotspots in commercial centers and universities, and plans to set up 50 by the end of this year.

The company has also begun providing WiMax – wireless Internet connections that reach up to 10 kilometers – in places like Escazú and Santa Ana. The hotspots are part of ICE’s plans to expand Internet access with wireless services.

“Wireless technology is the technology of the future,” Quirós said in a recent conference with reporters to explain the new reforms.

The decree would also allot $9.5 million a year to open up 917 new jobs for the public institution, which has nearly 13,000 employees. Quirós said those jobs would allow ICE to provide better services to customers amid a growing demand for Internet and cellular services. He said most of the jobs would be in customer service. Quirós has said ICE is not ready to compete in a free market.

Monopoly Watchdog

If the bills are approved, the restructuring would make the Ministry of Environment and Energy (MINAE) manager of the entire sector, adding yet another duty and a letter to its acronym, making it MINAET (Ministry of Environment, Energy and Telecommunications).

MINAET would formulate and regulate telecommunications policies and create a national telecom development plan and a national plan of electrical frequencies.

Under the new system, SUTEL would intervene in the telecommunications market at its own discretion. Nelly Vargas, an aide for the Minister of Foreign Trade, explained that SUTEL would step in if it determines there is no effective competition in the market.

It would do so by setting a price ceiling and floor for services until effective competition can be reestablished and other companies enter the market.

SUTEL would also be responsible for managing the Telecommunications Fund (FUNATEL), which redistributes taxes on Internet and cellular services to provide landlines and public telephone access in poorer areas. SUTEL would also create a national telecom registry to give the industry transparency and would be in charge of inspections and protecting consumer rights.

To carry out its functions, Vargas said “quite a few jobs”would have to be created in SUTEL, though neither she nor Quirós could say exactly how many jobs would be created if the reform goes through.

The two laws, the General Telecommunications Law and the Strengthening and Modernization of Public Agencies in the Telecommunications Sector were presented to Congress last month, but have not yet been opened for discussion in commissions.

“In Costa Rica, a general telecommunications law was never created. But now it has been presented and it is in the hands of the legislators,” ICE spokesman Giovanni Bonilla said.


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