San José, Costa Rica, since 1956

Hurdles Remain for Private Phone Service

In a boardroom somewhere in the world, men and women in suits are plotting an entry into Costa Rica’s cellular phone market.

That boardroom could belong to Telefónica, or to Telmex, multinational companies that have registered their brands in Costa Rica. It could even belong to one of the Chinese communications companies that Costa Rican President Oscar Arias visited on his trip to China last month.

Their plans, however, may have to wait for a bit.

Although the approval of the Central American Free-Trade Agreement with the United States (CAFTA) in a referendum last month gives these private companies a tentative green light to offer cell services here, technical and political obstacles remain.

Those obstacles will likely keep private cellular service providers out of Costa Rica for several more years, say industry experts and government officials.

First and foremost, the law needed to open Costa Rica’s state-run telecom monopoly has yet to pass the Legislative Assembly, and so far not even its supporters can agree on what it should look like.

The law must go into effect by March 1 in order for Costa Rica to enter CAFTA, but the country might try to get that deadline extended.

Once that law does pass, however, the government will still have to figure out how to administer the radio spectrum – the finite number of frequencies on which signals for TV, radio, wireless Internet and cell phones travel.

In particular, the entire section of the radio spectrum reserved for GSM cell phone traffic is right now concessioned out to the Costa Rican Electricity Institute (ICE), the state company that holds a monopoly on cellular phone service.

It’s not clear how the government would get the unused parts of that frequency back from ICE to concession them out to private companies who want to offer cell service here.

“It’s going to be complicated,” said Guillermo Muñoz, assistant director of telecommunications for the Public Services Regulatory Authority (ARESEP).

The bill in the Legislative Assembly has two basic goals. First, it will make it legal for private companies to offer telecommunications services to the public.

Second, it will set up a regulatory framework to deal with all the activity in the newly opened market.

“Until today, we haven’t had a framework law,”Muñoz said.

The new law would reduce ICE to the role of service provider. Regulation of the market would be in the hands of a new agency called the Superintendence of Telecommunications (SUTEL, under the authority of ARESEP), while the Ministry of Environment and Energy (MINAE) would be in charge of development policy.

Here, however, is where the bill hits a snag in the assembly. Under the current version of the proposed law, MINAE will also be in charge of handing out concessions – basically, deciding which private phone companies get a section of radio spectrum so they can operate in the country.

That has both the pro-CAFTA Libertarian Movement (ML) and the anti-CAFTA Citizen Action Party (PAC) upset. They would rather have a technical body, like ARESEP, hand out concessions.

MINAE is part of the executive branch, and therefore, they have said, political. “Imagine when MINAE, a political entity, has to consider whether to give a frequency to ICE – a state political entity – or give it to a private party,” asked Libertarian legislator Carlos Gutiérrez. “Who will they give it to?”

Even if the Libertarians and the National Liberation Party (PLN) do disagree on some details of the bill, however, Libertarian faction head Luis Antonio Barrantes said that disagreement might have to be forgotten for the moment, because of the looming March 1 deadline for passing the law.

“There is very little time to approve the implementation agenda,” Barrantes said.

Assuming the law does eventually pass, technical and financial hurdles remain for cellular phone companies that might want to enter the Costa Rican market.

For one thing, ICE controls all five subbands of the radio spectrum in which GSM cellular phone technology operates. A single one of those sub-bands would be enough for 5 million lines, according to Melvin Murillo, director of the National Radio Administration.

Instead, what ICE has done is sprawl across three of the sub-bands by using three different, incompatible systems, effectively using 30 million lines worth of spectrum real estate to offer about 1 million lines.

“It hasn’t been very efficient,”Murillo said.

In theory, that leaves two sub-bands unused – enough space for 10 million cell phone lines – meaning that they could be redistributed to private companies if the telecom law passes the assembly in its current form.

In practice, the National Radio Administration doesn’t even have the right equipment to tell whether ICE is using those subbands or not.

“They can tell us today they’re using 100 percent of the spectrum assigned and we have to believe them,”Murillo said.

Murillo said ARESEP is in the process of investing in $3 million worth of equipment that can scan the radio spectrum and tell for sure who is using what, and how much of it. But even if the law passed in its current form, there could still be significant legal hang-ups.

ICE executive president Pedro Pablo Quirós acknowledged that the law’s preliminary form would require ICE to give back the two sub-bands it is not using.

“But it doesn’t say how or when,” Quirós said, calling the requirement “political” rather than technical.

Quirós also called it “probable” that ICE would ask the government for compensation for its two unused sub-bands, under the right circumstances.

Add all the political and technical complications to the infrastructure and investment hurdles, and it will take a few years before any other cell phone companies come to Costa Rica, said Juan Manuel Campos, head of the Chamber of Information Technology.

“They’re going to do the Central Valley first and the rest will be roaming… while (the companies) build their own networks,” he predicted.

Muñoz, the ARESEP official, was less certain it would take so long. “Private companies move very fast,” he said. “They’re very different from what we’re used to.”

Landlines To Open as Well?

The Central American Free-Trade Agreement with the United States (CAFTA) doesn’t require Costa Rica to open up its landline market to private competition – only cellular phone service, Internet and private networks.

So why does the bill in the Legislative Assembly seek to open landlines to competition?

Information Technology Chamber head Juan Manuel Campos chalks it up to technical considerations: Telecommunications equipment these days is all multiservice, handling voice and data traffic.

“From a technical point of view it doesn’t make any sense to approve the opening of only a few services,” he said, especially considering that Voice over Internet Protocol (VoIP) technology – technology used by Skype and Vonage to send phone calls over the Internet – is increasingly blurring the line between the telephone and the Internet.


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