San José, Costa Rica, since 1956

Changes Afoot in State Telecom Industry

The laws of nature dictate that big fish will eat the smaller ones. Likewise, in business, survival sometimes requires that bigger companies devour smaller ones – even if they’re family.

Internet provider and telecommunications company Radiográfica Costarricense S.A. (RACSA) was informed this week that the Costa Rican Electricity Institute (ICE) is considering absorbing the company.

RACSA, a subsidiary of ICE since its creation in 1964, has handled different aspects of the international communications sector over the years, including the introduction of the Internet to Costa Rica. But since ICE began offering Internet access to its clients in 1994, RACSA’s future and even its purpose have been questioned.

In a surprise announcement this week, RACSA General Manager Alberto Bermúdez resigned after extensive meetings with the ICE Board of Directors and ICE’s executive president, Eduardo Doryan. According to a statement released by Pablo Ureña, a member of RACSA’s Board of Directors, Bermúdez’ resignation is an indication that RACSA is likely to soon be downgraded from a relatively autonomous telecom company to the status of “a simple customer service company” under ICE that will “no longer offer its own services.” Currently, RACSA provides Internet access and telecommunications services to over 120,000 clients in Costa Rica.

During a press conference Tuesday, July 6, Doryan vehemently denied that any decision had been made regarding the absorption of RACSA and indicated that Bermúdez’ resignation was due to personal reasons. Doryan also repeatedly said that any decision made by ICE regarding a change in the status and functions of RACSA would be made in order to strengthen both companies.

“I want to say very clearly and with all my heart that I came to ICE to strengthen each and every one of its parts,” Doryan said. “ICE represents an important part of the national heritage and RACSA, as part of ICE, is an integral part of (that).”

Doryan explained that since the Central American Free-Trade Agreement with the U.S. (CAFTA) opened the telecom and cell phone markets in January 2009, ICE has had to change make the company more competitive, including redefining the role of RACSA.

Doryan also said that a $360 million bond issue RACSA had expected to offer through the Banco Nacional de Costa Rica has yet to be approved, casting doubt upon the viability of RACSA’s existing plans.

RACSA had intended to use the bond issue to provide 1 gigabyte high speed Internet access in 2011.

Prior to CAFTA, ICE and its subsidiary RACSA had been the sole Costa Rican telecommunications providers. The only exceptions to this rule were companies authorized by ICE to provide Internet service on a limited basis.

“ICE has never had to be a marketer or salesman or promoter,” Doryan said. “We are experts in telecommunications but we have a lot to learn about marketing and sales. In times like these, there will be many technological, regulatory and personnel changes.”

But according to representatives of RACSA, the potential changes to the company’s operations blindsided them, coming just days after Costa Rican President Laura Chinchilla praised the company and alluded to their probable success should they be permitted to function independently. Prior to this week’s surprise announcements, RACSA had hoped to gain its independence from ICE in order to compete as an independent telecommunications provider in the open market.

“When the time comes for the decision to be made, it seems important (to cut) all of the ties between RACSA and ICE,” Chinchilla said on July 1. “RACSA is a company with great potential, and if we release them, if ICE lets them go, I have no doubt that they could become one of the biggest operators in the telecommunications market in the future.”

In only a matter of days, that promising declaration by the president seemed a distant memory for RACSA and its employees, who are now wondering if their jobs are in danger. Doryan said that while no plan for redefining the role of RACSA has been confirmed, ICE will definitely experience a number of “technical, technological, financial, competitive and strategic changes” in 2010 and 2011.

These looming changes have the 320 employees of RACSA concerned about what their new roles would entail, or even whether their jobs will survive the potential restructuring.

“The employees of RACSA are worried about the announcement of this news,” Erick Cordero, a spokesman for RACSA employees, told The Tico Times this week. “They want to be involved in the process of redefining their specific role in telecommunications under ICE.”

Cordero said RACSA employees met Monday, July 5 to discuss Bermúdez’ resignation and the possible changes in the company’s situation. During the meeting, employees and the Board of Directors agreed to send a letter to Chinchilla requesting a detailed explanation of ICE’s restructuring plans. As of Wednesday, Cordero said there had been no communication between Doryan and RACSA.

As for the 120,000 clients that receive services from RACSA, Cordero said he doesn’t know how they might be affected should the company’s role be adjusted.

“We don’t want to say goodbye to anyone,” Doryan said on Tuesday. “We want to work together. We aren’t going to get rid of RACSA. We are going to find a way to strengthen both companies.”

RACSA’s Board of Directors and employees are hoping those words are true.

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