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Ecuador Government Plans Higher Taxes on Mobile Operator Profits

President Rafael Correa of Ecuador has announced that he intends to change Ecuador's telecommunications law on the allocation of 15% tax on profits.

The tax currently goes to telecom workers. Correa claims that telecom companies are making extraordinary profits and that it is unfair the bulk of earnings are accrued to foreign players.

The mobile sector in Ecuador is virtually a duopoly between Claro, owned by Carlos Slim’s América Móvil and Movistar, owned by Telefónica. Former state incumbent CNT comes a distant third in the wireless market, while continuing to dominate in the fixed wire business sector.

As part of a strategy to expand its national coverage CNT was awarded spectrum by Ecuadorian telecom regulator CONATEL early last year for a 4G LTE network. CNT became the first operator to launch 4G LTE services, in partnership with Alcatel-Lucent, at the end of 2013. CNT had a existing partnership with Alcatel-Lucent for it's 3G network in 2012, as reported here at the time.

CNT’s 4G LTE network covers the major cities of Guayaquil, Cuenca, Machala and Loja and the Pacific Coast and Southern area of the country. As well as voice, the network provides high speed data services including HD video, online games, telepresence, e-learning and public safety.

In April this year CONATEL negotiated with Claro and Movistar in preparation for the release of spectrum to enable them to launch 4G LTE services to compete with CNT by the end of 2014.

According to analyst IHS, the proposed amendments to the tax regime and the strong statements from Correa suggest that telecom firms will most likely have to pay higher taxes if they secure 4G licences, in the forthcoming auctions. However, with taxes going up, operators are also expected to lower their bids to reflect projected lower proceeds.

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