San José, Costa Rica, since 1956

Preparing for Telecom Industry Competition

In June, the Costa Rican Superintendence of Telecommunications (SUTEL) welcomed six telecommunications companies into Costa Rica’s newly opened market, officially beginning an era of competition for the country’s Internet service providers, voice over Internet protocol (VoIP), network infrastructure providers and other Webbased services.

In the two months since the authorization of the original six companies, SUTEL has granted access to 13 more companies and has received requests from hundreds of others hoping to claim a piece of the open market.

As potential competitors line up, companies are polishing their services and planning marketing strategies to vie for spots in the lucrative market.

“The number of solicitations and authorizations is growing each week,” said SUTEL President George Miley Rojas. “We expect to have 20 to 25 companies authorized by the end of August and have around 75 more that are in the authorization process.”

According to a statement released by SUTEL, approximately 500 requests to enter the telecommunications market have been received. Of those, 389 are from Internet cafés or other businesses looking to provide wireless service (WiFi) to patrons. Miley said the addition of smaller businesses, such as Internet cafés, combined with some of the larger providers, will provide easy Internet access to most of the country in the years to come.

In the meantime, as the market slowly widens, customers and telecommunications companies anxious for business will continue to wait.

The Waiting Game

and Application Process

In June of 2008, the Legislative Assembly passed a law allowing competition in the telecommunications market. The law ended the monopoly of the Costa Rican Electricity Institute (ICE), which had controlled the market for decades. In August of that year, another law created a regulatory body for the telecommunications industry. SUTEL was inaugurated as that body in February of this year and has been receiving applications since then.

A lengthy wait for entry has become customary for businesses hoping to participate in the telecommunications and cellular telephone markets. As SUTEL, ICE and the government develop regulations, companies sit on the sidelines.

However, as in the case of the telecom market, SUTEL could only begin receiving requests from Internet companies this past February. The first six companies – Dodona SRL, Intertel Worldwide S.A., Worldcom de Costa Rica S.A., Call My Way NY S.A., Redes Inalámbricas de Costa Rica S.A. and JASEC – were authorized four months later, in June. Because of the extended wait, only a trickle of companies has entered the market, rather than many at once.

“The authorization process takes about three months overall,” said Miley. “Companies have to present legal documentation, all of their business plans and full financial information, approved by a certified public account or a financial firm… If they are a new company, they have to submit their three-year business plan, and we check to see if their financial plans match their expected cash flows. Basically, we try to ensure that all businesses entering the market are legitimate.”

As the applications for entry stack up, authorizations are granted on a first come, first-served basis. Miley said he expects the Internet market to start blossoming around the end of the year and in early 2010.

“In the next few months I expect that customers will begin migrating from one service provider to another,” Wiley said. “At that point, probably around Christmastime, companies might start showing signs of becoming more aggressive in their promotion, advertising and marketing efforts to try to sway customers.”

The cellular phone market, however, will open more slowly.

SUTEL announced in May that the market would permit the entry of three cellular phone providers. At present, ICE is the only cellular phone service provider in Costa Rica.

In order to configure the cellular market, SUTEL must receive instruction on how to proceed from the executive branch. According to Miley, no instruction has arrived as yet, and this has delayed the opening of the market and caused added frustration on the part of anxious would-be providers. He said the executive branch is expected to issue instructions soon, and SUTEL will need four to six months to review requests received and assure the market is prepared for their entries. The best-case scenario, said Miley, has the cellular phone market open for competition during the first quarter of 2010, over a year after the ICE monopoly was effectively dissolved.

Preparing for Competition

Nineteen companies are currently authorized to participate in the telecom market, though SUTEL reports that several more Internet providers, Web-based software companies and infrastructure providers will enter soon.

Of the 19 authorized companies, currently only AMNET offers Internet and cable TV service. Others – including CableTica, Costa Rican Internet Service Provider (CRISP), Cablevision and Super Cable – are expected to join in the hunt soon. Radiográfica Costarricense, S.A. (RACSA), the one-time ICE subsidiary, also will offer Internet and cable service.

AMNET, which provided the infrastructure for cable modems and service for RACSA, announced its intentions to end a 10-year contract with RACSA at the end of the year. Though RACSA claims the two are in negotiations to potentially remain together for one more year, both have made strategic moves in the past weeks to attract and retain customers. RACSA recently announced that all customers leaving RACSA services will lose their RACSA e-mail accounts. AMNET countered with the announcement that the e-mail accounts they provide will be powered through Google mail (gmail).

“In anticipation of the opening of the market, we have changed our image this year,” said Mario Zaragoza, coordinator of information at RACSA. Zaragoza then alluded to a statement by the managing engineer at RACSA, Alberto Bermúdez, who said,“In the short term, we will offer diverse services, such as the best capability for Internet access, up to one gigabyte through a fiber-optic cable to each house or business, and will continue to provide the latest technology available through ICE.”

Bermúdez added that RACSA is undergoing improvements in customer service and aims to provide broadband or WiFi to its customers in the near future.

Service Across the Country

According to a study conducted by RACSA and market research company CID Gallup in March, 46 percent of homes in Costa Rica have a computer and 45 percent of Costa Ricans have Internet access. The percentage of Internet users has doubled since 2005, when it was reported that only 22 percent of Costa Ricans had Internet access.

The 46 percent of homes with Internet connections represent an estimated 565,000 homes. Many homes in Costa Rica want Internet service but are unable to receive it due to the lack of a provider or insufficient telecommunications infrastructure in their areas. Miley believes that, with the opening of the telecom market, the number of Internet users will continue to increase.

“That is one of the beautiful things in the opening of the telecommunications market,” Miley said. “Companies are out there to make a profit and, if you’re in an untapped market and companies see an opportunity to make a reasonable rate of return, they will most likely aim to provide service to remote areas at a reasonable rate to consumers. Also, when WiFi service becomes more widely available, many more homes should be Internet-ready.”

In the meantime, requests continue to arrive at SUTEL, and the telecom industry slowly evolves from a one-provider system to wide-open competition.


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