Uruguay to Permit Private Companies to Enter Cell Phone Market

BY ESTEBAN RUSSELL (UNIVERSIDAD AUSTRAL OF ARGENTINA)AND FACUNDO FERNÁNDEZ BEGNI (UNIVERSIDAD DEL SALVADOR OF ARGENTINA)

From: Latin American Finance & Capital Markets

Introduction

URSEC, the entity in charge of Controlling Communication Services of Uruguay created by Act 17296/2001, has announced the auction of Mobile Communication Services: PCS Personal Communication Services; and Third Generation (3G).

The companies providing telephone services are:
• ANTEL: a public company and monopoly that provides basic telephone services (local, long-distance and international longdistance services) in a system of monopoly. The Congress has authorized the
privatization of the company. The privatization sale is scheduled for later in 2002. Most of the fixed lines owned by this company are in Montevideo (the capital city). (A referendum on February 20, 2002,
may have gathered enough signatures to force the government to schedule a popular vote. This vote could overturn the action by Congress to privatize ANTEL. The Supreme Court will determine if a sufficient
number of valid signatures have been placed on the referendum);
• ANCEL: is a business unit of ANTEL: Cellular Telephony. It has 283,892 lines (8.5 lines per 100 inhabitants);
• Movicom Bellsouth: a private, Cellular Telephony, it rents frequency bands to ANTEL. It has 227,114 lines (6.8 lines per 100 inhabitants).

Auction Conditions

In the auction for mobile communication services bands, the following entities may participate:
• foreign companies as well as local companies—Act 16,906 forbids discrimination against foreign investors. Further, there are no restrictions against repatriation of capital or profits;
• individual companies or consortiums;
• companies that have provided telecommunication services for at least two years;
• companies whose net worth is at least $1 million.

Parent companies and subsidiaries of companies that meet these requirements may also participate.

Registration Fee and Deposit
Companies wishing to participate in the bid are required to purchase tender documents. The cost is $10,000. Further, companies must deposit $1 million as security. The security deposit will be returned 15 days after the conclusion of the Final Stage of the Procedure.

Rights and Obligations

Companies will be authorized to provide services for 20 years, renewable for an additional 20 years:
• 4208—bandwidth frequencies may be subleased or assigned, with prior authorization of the URSEC;
• 4211—frequencies may be used to provide mobile communication services such as PCS or 3G;
• 4212—the 5 MHz segments offered amount to 30 MHz in the 1800 band, to 50 MHz in the 1900 band and to 30 MHz in the 2100 band. Technology and technical configuration to be used may be freely chosen by the provider, providing it complies with the project conditions submitted and delivers appropriate service
quality.

The deadline for installing and operating equipment is 30 months as of the date of the award. URSEC may extend the deadline by a further 30 months.

Interconnection

Interconnection between new entrants and incumbents will be governed by the Interconnection Regulations adopted by Decree 442/01. However, the terms of the current interconnection agreement between ANTEL and Movicom Bellsouth and ANCEL are not public, and it has not yet been established whether this agreement
must comply with the provisions of Decree 442/01. Companies that are awarded contracts at auction will be required to comply with Decree 442, however.

Regarding the cost of interconnection (an extremely sensitive point for whoever should be the Auction Awardee, as it will have to interconnect with current and future providers), the Decree establishes, until September 1, 2003, the following Benchmark Values:

Perhaps due to lack of Uruguay’s experience in this type of procedure, some mechanisms that are usually included in auctions to provide assurances to investors have not been defined.

Examples of such assurances include the definition of interconnection terms that will govern relations among incumbents, accounting for cost allocations that can be identified to ANTEL and ANCEL, as well as clarification of inconsistencies contained in the recently adopted Interconnection Regulations.

The application to participate in the competitive process must be filed by April 12, 2002.

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