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### Viewing cable 06SANJOSE2750, COSTA RICA'S TELECOM MONOPOLY PREPARES FOR CHANGE

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06SANJOSE2750 | 2006-12-12 21:52 | 2011-03-21 16:30 | UNCLASSIFIED | Embassy San Jose

`

    VZCZCXYZ0003
    RR RUEHWEB

    DE RUEHSJ #2750/01 3462152
    ZNR UUUUU ZZH
    R 122152Z DEC 06
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC 6819
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

` `

    UNCLAS SAN JOSE 002750

    SIPDIS

    WHA/CEN

    SIPDIS

    E.O. 12958: N/A
    TAGS: ETRD EINV ECIN ELAB PGOV CS
    SUBJECT: COSTA RICA'S TELECOM MONOPOLY PREPARES FOR CHANGE

    REF: SAN JOSE 2041

    ¶1. SUMMARY. With CAFTA-DR ratification slowly moving forward, and
    telecom competition on the horizon, Costa Rica's telecom monopoly,
    ICE, (Instituto Costarricense de Electricidad) is making moves to
    modernize under new ICE President, Pedro Pablo Quiros.  The new ICE
    leadership is clearly engaged in strategic preparation for the
    future, spurred to action by the specter of competition.  For
    instance, ICE recently announced that it will invest US$20M to
    install 8,000 new multi-use public pay phones and has started
    offering Wi-Max internet service in selected areas.  ICE also
    recently began offering higher speeds of internet service at about
    half previous prices through its subsidiary internet service
    provider. Meanwhile, to counter union opposition to CAFTA-DR, Quiros
    is by-passing union leadership and meeting directly with rank and
    file members weekly to explain that with recently enacted executive
    decrees and pending legislation, ICE can effectively compete in an
    open market.  END SUMMARY.

    ¶2.  PHONE LINES:  CAFTA-DR requires that Costa Rica open its telecom
    market to competition for wireless service, data transmission and
    internet services when the treaty enters into force.  Breaking up
    part of the government telecom monopoly is arguably the most
    contentious step.  ICE is one of the most popular public
    institutions in Costa Rica for delivering land lines to 65% of homes
    nationwide (at the reportedly low cost of US$8 per month), and plans
    to expand coverage (via public phone) to the remaining (mostly
    low-income) 35% of households, which rely heavily on public phones.
    Currently 400 aging pay phones, many of which are broken, are
    installed in the metropolitan area which has a population of
    approximately two million people.   These old pay phones are being
    replaced by 8,000 new public phones with modern technology that will
    cost about $2,500 per phone and will be installed throughout the
    country.  The new phones will have text messaging and e-mail
    capability and will accept tokens, a new generation of prepaid phone
    cards with computer chips, as well as the older prepaid "Viajera
    199" card.

    ¶3. INTERNET:  According to ICE, in 2003 only 0.6% of Costa Ricans
    had access to the internet.  Now 22% of Costa Ricans have access,
    primarily via offices and internet cafes, although residential
    installations continue to increase.   In the past several months
    ICE's internet subsidiary has announced the availability of faster
    internet speeds at about half previous prices, and recently the
    current monopoly provider began offering Wi-Max service in two
    upscale suburban neighborhoods.  The new ICE leadership is clearly
    engaged in strategic preparation for the future, spurred to action
    by the specter of competition.

    ¶4. MOBILE SERVICE:  ICE's president recently stated that 35% of
    Costa Ricans have mobile phones, up from 3.6% in 2000.  ICE's
    wireless infrastructure is sorely taxed and although there are
    plenty of cell phones for sale in the local market, there are long
    waiting lists to activate service.  An industry source says that the
    tortuous public contracting process is partly at fault.  In December
    2002 ICE issued public tenders for the purchase of 600,000 cell
    phone line (GSM) infrastructure.  Ericsson was the successful bidder
    at US$130 million.  By the time the contract was finally awarded --
    nearly 28 months later -- the technology was already outdated and
    worth only about US$65 million.  ICE thus ended up paying a hefty
    premium for outdated technology as a result of such slow processing.

    ¶5. The same industry source says that additional cell phone
    infrastructure is badly needed.  Because of the lengthy contracting
    process ICE will probably extend the Ericsson contract, purchasing
    more outdated technology, at an increasing premium as the market
    value of the old technology continues to decline.  The industry
    source summed it up aptly: ICE's current contracting process is
    longer than product lifetime.  It is one of the reasons the ICE
    President has on his list of needed reforms, "a more agile and
    efficient contracting process".

    ¶6. LEGISLATION AND DECREES:  Some of the reforms requested by ICE
    President Quiros were included in an executive decree recently
    signed by President Arias.  Others that require legislation are
    included in a bill known as the "Strengthening ICE Law". In that
    bill, in addition to improved contracting authority, ICE is asking
    for more autonomy, the capacity to make investments, and the ability
    to operate internationally and form strategic alliances.  This
    strengthening legislation is an important bargaining chip being used
    to convince the politically strong ICE union to accept breaking its
    monopoly in the wireless and data segments of the market.

    -------
    COMMENT
    -------

    ¶7. LEADERSHIP MATTERS:  ICE President Quiros has proven to be an
    adept choice by President Arias to lead the public telecom agency in
    a time of change. Arias's first selection to head ICE lasted only
    four months.  Quiros's previous ICE and international work
    experience lend him credibility.  He is engaged in a very active
    campaign to convince both internal and external audiences that ICE
    can compete effectively in an open market.  He recently told the
    Charg that he meets weekly with union rank and file, by-passing
    obstinant union leadership, to discuss the changes and opportunities
    that lie ahead.  In addition, he regularly appears in public fora
    where he pitches the same story.  Post expects Quiros to be a very
    effective witness in the upcoming Asamblea hearings on bills to
    strengthen ICE and open the telecom market.

    FRISBIE

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