Costa Rica - Liberalisation

Congress Votes for Telecoms Market Liberalisation in Costa Rica

Congress yesterday approved in a first hearing the General Telecommunications Law, which opens the way to competition as part of the implementation of the free-trade agreement with the United States, Agencia EFE reports.

Global Insight Perspective

Significance - Lawmakers approved in a first hearing the bill that will open Costa Rica's telecoms business to private investment.

Implications - This is the eighth of a set of bills that need to be implemented to allow Costa Rica's entry to the free-trade agreement with the United States.

Outlook - The deal's opponents fear a negative impact as they experience an escalation in the rhythm of investment by telecoms monopoly ICE, particularly in the mobile telephony and internet segments.

The bill was approved, by 39 votes to 13, with 52 of 57 congress members present. The second and last hearing will follow in the next few days. Congress first voted for the new telecoms legislation in February 2008, but because of a series of required amendments a second debate was fixed for 30 April. The law sets the basis for the creation of the Telecommunications Superintendency, which will be ascribed to the Regulatory Authority of Public Services (ARESEP) and in charge of telecoms regulation and pricing issues. This new legislation is the eighth in a set of bills dubbed "complementary" or "implementation" bills.

Outlook and Implications

Costa Rica became the last country party to the Central American Free-Trade Agreement with the United States (CAFTA-DR) to ratify the deal—via a referendum—in October 2007. CAFTA-DR's actual coming into force has yet to materialise, however, since the country remains to turn into law a set of bills, the "complementary bills", that acts as compulsory pre-requisite for the deal to be effective. Amongst others, the bills provide for the liberalisation of state monopolies, notably in the telecommunication and insurance sectors, with specific requirements for free competition in the wireless, internet, and virtual private networks segments. Undermined by the opposition's tactics, Costa Rica's congressional members struggled to complete the compulsory legislative agenda by the initial 29 February 2008 deadline. Costa Rica's fellow CAFTA-DR members therefore agreed to grant an exception and final extension of the deadline to 1 October 2008. Since then, Congress has made swift progress on a series of bills, four of which have become full-fledged law. Along with the telecom-market opening bill, the insurance sector's liberalisation was approved in a first hearing last week. The approvals of both highly sensitive bills bode well for the overall CAFTA-DR implementation process, which the executive hopes to complete weeks prior to the October deadline.

State-owned Instituto Costarricense de Electricidad (ICE) holds the monopoly in both the fixed-line and mobile segments, with respective penetration rate figures standing at an approximate 25% and 34% at the end of 2006. The obligatory opening of the market and introduction of additional players is seen by CAFTA-DR opponents as undermining the welfare nature of the Costa Rican administration, with fears of negative impact on the most economically and socially vulnerable segments of the population and declining revenue figures from state monopolies such as the one held by ICE, despite the positive outcome on stimulating greater growth levels. As such, Costa Ricans appeared near-equally split on the question of CAFTA-DR ratification. President Oscar Arias campaigned on a pro-CAFTA platform in the 2006 election, only to win with a thin margin against his anti-CAFTA-DR nemesis, reflecting the electorate's ongoing divisions on the matter—as also seen in Congress's years of indecision on the issue. Immediately after the conclusion of October 2007 referendum, ICE's President Pablo Quirós was cited in local daily El Financiero as saying that liberalisation would require a minimum of four years before coming into effect.
In an attempt to show its capability to advance technologically even outside a free-competition environment, ICE has recently announced plans to expand its ADSL network, launch WiMAX-based services in the capital city (San José), free a large number of GSM lines, and deploy third-generation mobile services after securing US$225 million in financing from the Central American Bank for Economic Integration (BCIE). The eventual opening of mobile telephony to private investment is set to attract interest by usual suspects Telefónica and América Móvil, which are already present in most Latin American markets, as well as other regional players such as Pan-Caribbean player Digicel, which holds operations in 23 markets.