www.latintrade.com March, 2003

María Elena Carrero had been out of work for a year when she found a job in Venezuela’s fastest-growing underground industry—telecommunications. A friend hired the former secretary to sit at a table on a busy pedestrian boulevard and charge passers-by for the use of a pair of cellular telephones.

Pay phones a few feet away are several times cheaper than what Carrero charges, but she says many Venezuelans don’t carry prepaid pay phone cards—sold by dominant telecom Compañía Anónima Nacional Teléfonos de Venezuela (Cantv)—nor can they afford their own cellular phones. Venezuelan pay phones do not take coins.

“What can one do?” Carrero says of her work, at which she clears US$30 a week. “I was in the house all day long.”

A virtual army of the unemployed provide rent-a-phones on sidewalks across the country, cutting pay phone use in half in less than two years. Such is Venezuela’s changing telecom business, where cable TV companies aspire to lop off the top residential consumers, wireless handsets hide inside home-phone units and long distance is under attack from a dozen by-the-minute discounters. Through it all, ex-monopoly Cantv—now controlled by a consortium led by former U.S. baby bell Verizon—fights to stay on top.

Cantv competitor TelCel, owned by another U.S. baby bell, BellSouth, seized the lion’s share of Venezuela’s cellular market when it launched a decade ago. Today, TelCel controls 45% to Cantv-unit Movilnet’s 38%. (Telecom Italia-controlled Digitel has the rest of the market.) Meanwhile, BellSouth’s ‘Telcel fijo’ units, which use wireless technology in a standard desk-style phone, have taken a 15% bite out of the residential market in less than two years. Venezuela has 3.2 million fixed lines for a population of 24 million, plus 6 million wireless lines.

More threatening still are a dozen new companies determined to skim off the 10% of customers that provide more than half of revenues. One is NetUno, a cable-television provider that offers home-telephone service in the upscale Caracas neighborhoods where its cables already run. Chile’s Entel, a subsidiary of Telecom Italia, also says it will invest $80 million in Venezuela by 2007 and expects to win 20% of the Internet and long-distance markets.

“In the areas where we are, we are taking many clients away from Cantv,” says NetUno publicity manager Jorge Parra. “It’s not much now, but there will come a time when it will be tremendous.”

In response, Cantv has cut long-distance rates, though not enough to match the competition, and it is offering new services such as home surveillance and medical diagnosis via Internet, as well as spending US$190 million to upgrade its cellular system to permit wireless Internet service. And it has introduced a popular tarjeta única, a single pre-paid card for home telephone, Internet and long-distance services.

A pack of start-ups, too, now offer monthly and call-by-call long-distance deals at substantially lower rates. The new long-distance carriers have stolen away between 5% and 7% of the market. “The competing companies are going to go after the large customers, so Cantv has to be prepared,” says Gartner Dataquest analyst Marta Kindya.

Cantv is still in the driver’s seat in most segments, including home telephony, long-distance, Internet and data transmission services. Through its Caveguías subsidiary, it also publishes Venezuela’s telephone books, and it has nearly 400 ‘Communication Center’ franchises, where the public can make calls, use the Internet and send and receive faxes. Calls from the centers have taken off even as the economy weakened.

Fighting back. Cantv reported net income down nearly 4% in the first nine months of 2002, even as it added income from services like broadband Internet and business data services. It blamed a weak economy but also pricing pressure in long-distance.

“We’re worried, but we’re not terrified,” says Chief Operating Officer Vicente Llatas, who says the company is fighting back with discounted rates and its own version of TelCel’s fijo wireless home phone.

The winner in phone privatization has been ordinary Venezuelans. Cantv once obliged customers to wait 15 minutes for a dial tone and an average of eight years for installation. During the 1990s, the company reduced its workforce 30% and slashed its debt load, a move which helped it fend off a 2001 hostile takeover bid by AES Corp., a U.S. energy company. Today, dial tones come in seconds and new phones are installed in days.

Cantv may have another advantage. In the minds of many Venezuelans, the company is still synonymous with basic telephone service. Being big has proven best in many markets in Latin America, most clearly in countries like Mexico, where the former state monopoly continues to rule the roost. Converting itself into the next Telmex, however, will take some serious focus.

Author: Mike Ceaser • Caracas

sg.biz.yahoo.com Wednesday March 12, 10:23 PM

CARACAS -(Dow Jones)- Venezuela's National Assembly late Tuesday approved a one-year extension, to Mar. 14, 2004 for a tax applied to all financial transactions.

Currently at 1%, the tax rate will drop to 0.75% on July 1, 2003, and to 0.5% on Jan. 1, 2004.

The extension is expected to contribute about 1.5 trillion bolivars ($1=VEB1598) to government coffers by the end of this year, officials have said. This year's budget is a bit under VEB40 trillion.

Venezuela is adjusting its finances after revenues were severely affected by a two-month general strike against President Hugo Chavez's leadership that began Dec. 2.

The action virtually shut down the country's vital oil industry, which accounts for about half of government income, and badly affected tax collections as thousands of businesses, along with the stock market, shut their doors.

Economists have said the government will likely have financing needs of up to 10% of gross domestic product this year as the economy shrinks more than 25%.

The economy shrank about 9% last year.

-By Jehan Senaratna, Dow Jones Newswires; 58212 564 1339; jehan.senaratna@dowjones.com

boston.com By Associated Press, 3/11/2003 16:39

CARACAS, Venezuela (AP) Venezuela's government will not grant U.S. dollars for the importation of electronic equipment, clothing, footwear and some fruits, according to a list posted by the nation's exchange control commission on Tuesday.

The list of 6,000 items deemed essential by the exchange control commission, or Cadivi, includes various food products, medicines, personal hygiene items and industrial raw materials. The list was posted on Cadivi's Web site.

Most of the items on the list are not produced in Venezuela, which imports more than half of the goods it consumes. Almost all the medicine used by Venezuelans is imported. U.S. dollars must pay for those imports.

Restrictions on imports form part of a new currency exchange control system that President Hugo Chavez's government is gradually implementing.

The controls are meant to protect the bolivar currency, which lost a quarter of its value during a two-month general strike seeking to force early elections. The strike, which cost Venezuela an estimated $6 billion, ended last month without achieving itsobjective.

Due to delays in implementing the new currency plan, the government hasn't sold any dollars for two months. The lack of dollars has led to scarcity of some goods, including medicine and some raw materials.

This month the government plans to sell $645 million, which will go toward expenses like supporting students abroad and paying for business travel.

Cadivi decides on an individual basis how much and how often foreign currency will be sold to importers.

Opponents of Chavez fear he could use the controls to punish his adversaries, including opposition-led newspapers that must import newsprint. But newsprint appeared on the list of essential goods.

Imports averaged a bit more than $1 billion a month last year and are expected to fall by roughly half that amount as a result of the new foreign exchange controls system.

The economy contracted almost 9 percent in 2002. Unemployment stands at 17 percent according to official government statistics, but economic analysts argue close to one out of five Venezuelans is actually jobless.

The bolivar currency lost a quarter of its value this year before currency sales were halted on Jan. 21.

Under the new exchange controls program, the bolivar is set at a fixed rate of 1,598 to one U.S. dollar. The bolivar trades as high as 2,800 to the dollar on the black market.

On the Net: www.cadivi.gov.ve

www.vheadline.com Posted: Tuesday, March 11, 2003 By: Patrick J. O'Donoghue

Small to medium industrialists (Pymi) say they welcome the government's new policies to strengthen the hard-hit sector.

Nueva Esparta Chamber of Small to Medium Businessmen & Artisans (Capmine) president Adelino Marquez praises the chance for small businessmen to pay their social security obligations by installments ... "paying 10% of the debt we can get the solvency card and pay the rest in a maximum of 36 months."

Marquez says the Pymi Federation has signed three such agreements with the government and believes that it will help create jobs and get production in the sector on an equal par again.

www.forbes.com Reuters, 03.11.03, 12:38 PM ET By Susan Schneider NEW YORK, March 11 (Reuters) - Brazilian sovereign bonds tread water on Tuesday, mirroring the country's domestic markets, as investors awaited further news on President Luiz Inacio Lula da Silva's reforms and a likely U.S.-led war in Iraq before extending the debt's heady recent rally. Brazil's share of J.P. Morgan's Emerging Market Bond Index Plus was little changed on the day, as the country's benchmark C bond <BRAZILC=RR> notched up gains of 0.5 point to 78.75 bid. The lukewarm day by the market's heavyweight kept the broader index flat in terms of daily returns. Brazilian debt has surged 15 percent higher since the start of the year, fired by optimism on Lula's planned reforms of the onerous tax and social security regimes. But with any congressional approval of the reforms months away, investors are taking a breather, said analysts. "The higher Brazil goes, the more vulnerable it is to profit-taking," said Siobhan Manning, Latin American debt strategist at Italian investment bank Caboto. "You want to price in the fact that the Lula risk was overdone, but you don't want to assume that it's going to be smooth sailing for the reforms because it's going to be a major challenge," she said. Lula, who took office on Jan. 1, was the source of heavy investor angst last year due to fear that his political inexperience and calls in previous campaigns for debt restructuring would spell chaos for the economy. While Brazil and the broader market have largely resisted the uncertainty surrounding a looming U.S.-led invasion of Iraq, investors have been unsettled by war worries, fearing a conflict would damage an already lukewarm U.S. economy. In Brazil, doubts about its high interest rates are also creeping into the market ahead of next week's meeting of the Central Bank's Monetary Policy Committee, said a trader. In a bid to stem rising prices, Brazil's Central Bank has hiked interest rates five times in as many months to leave the benchmark Selic rate at 26.5 percent in February. "Interest rates are high and they're probably going to go up again and I think people are starting to question that policy," said the trader. "Before they were just very happy that they were fighting inflation, but if you look behind it, it's going to make it very difficult for that country to grow." VENEZUELA TREKS HIGHER Venezuelan bonds, however, bucked the broader market's performance to coast 0.4 percent higher on the day, according to the EMBI-Plus. The country's DCB bond <VENDCB=RR> underpinned the move, climbing 0.5 point to 72.5 bid. The positive move came as investors took some comfort from the continued climb in Venezuela's oil production, the backbone of an economy otherwise crippled by a fierce recession. "We're seeing the oil numbers creeping up and creeping up and that's good for the country going forward, so maybe some people are just getting in front of that trend," said the trader. Crude output levels, pummeled in recent months by a general strike staged by foes of President Hugo Chavez, are now around 2.65 million barrels per day, according to Energy and Mines Minister Rafael Ramirez. The opposition has set output levels at a lower 1.9 million bpd, although the figure still represents an increase from earlier this year. Venezuela, normally the world's fifth-largest oil exporter, was pumping more than 3.1 million bpd before the strike. Turkey's bonds, under close scrutiny because of the pivotal role the nation could play in a war in Iraq, slipped 0.46 percent on the day as investors awaited news on whether the government would resubmit a motion to parliament allowing Iraq-bound U.S. troops to use Turkish territory. The approval of the U.S. troop request would open the door to billions of dollars in U.S. aid that would shield Turkey's fragile economy from a war's financial fallout.