Living up to this reputation as a radical leader, Bolivian president Evo Morales has used the opportunity of May Day to announce that he will be nationalising Entel, his country's main telco. He also declared that he would take over four foreign-owned gas companies. Key to the decision is the fact that 50% of Entel's ownership is in the hands of Telecom Italia SpA. Negotiations whereby Entel would purchase Telecom Italia's share go back several months and have been complicated.
President Morales is obviously keen to proceed, not least as he has even sent police officers to stand outside Entel's offices in the capital La Paz and the eastern city of Santa Cruz. This physical presence supports his determination which he has expressed in the following words: "Basic services - call them energy, water or communications - cannot be in the hands of private business. They're public services," he stated in his May Day address.
Quite how much money will change hands will become apparent in the next two months, according to Bolivian Public Works Minister Oscar Coca. Regarding employment in the intended new entity, the government has said that Entel employees would be keeping their jobs. The background to Telecom Italia's acquisition of 50% of Entel is complicated. The Government of Bolivia realised in 1995 that a company generally accepted as struggling needed major and urgent improvement. For this reason 50% of the company was handed to Stet International, which promised US$608 million investment. Stet ultimately merged with Telecom Italia. At this point in time Telecom Italia maintains that it has spent more than the US$608 million to build up the largest mobile/Internet enterprise in Bolivia; the Morales administration charges that US$25 million in tax remains unpaid.
The negotiations which have impeded the take-over started in October last year when Telecom Italia filed its claim seeking international arbitration to block President Morales efforts to take over Entel. The law suit has since been with the World Bank's International Center for Settlement of Investment Disputes (ICSID). In recent weeks talks have collapsed when Bolivia refused Telecom Italia's request to move the negotiations to another country. Of course, accusation and counter-accusation have been frequent. Telecom Italia believes the intention to nationalise Entel violates the contract signed when Entel was capitalised in 1995. Bolivia's government has said it is planning to withdraw from the ICSID; a government official has accused ICSID of favouring multinational companies in its rulings. President Morales has also declared that Entel has spent far less than it should have done. This has been promptly denied by Telecom Italia.
So where does this leave Bolivian telecoms? Well, there is some competition left for those who do not want to dial long-distance or use a mobile with Entel. The competition can only go one way - up - as it is only 10% of long-distance telephone and just 30% of the mobile sector. Of course, this assumes that the Morales regime will leave the other companies alone - he is quite strident in his intentions and rhetoric. And if there is a change of government? Would any new administration want to go through another process of privatisation involving consultants, stockbrokers and precious political time? At a time when private hands are the norm for telcos it is easy to be sceptical about a model which is dominated by politicians, bureaucrats, and possibly workers' representatives. It is unfashionable but that does not in itself make it wrong. One recent development does leave President Morales isolated - Raul Castro's allowing Cubans to purchase mobile phones. One wonders what will happen in Bolivia when the current network is up for repair or replacement. An injection of foreign capital, perhaps?
* Developing Telecoms acknowledges the initial reporting of this story by Associated Press reporter Dan Keane. The opinions expressed are those of Developing Telecoms alone.