US$20 million line of credit for Telcel Celular of Venezuela

(Caracas, January 31, 1992).- CAF granted a US$20 million line of credit to the consortium formed by Telcel Celular, CA of Venezuela. The funds will be used to finance acquisition of equipment to complete the Band A network of mobile cellular telephony, whose concession was granted to Telcel by the Venezuelan government in 1991.

The agreement was signed today by CAF President & CEO Enrique García, and Telcel President Oswaldo Cisneros.

The agreement raises to 47 the number of lines of credit which CAF has approved in favor of Venezuela - totaling US$310 million - to promote the country’s foreign trade.

Formed by five countries (Bolivia, Colombia, Ecuador, Peru and Venezuela), CAF is the financial body of the Andean Group. Given that all members are committed to a process of modernizing their economies, CAF is actively contributing to the processes of reconstruction, privatization and industrial reconversion, which are critical if the countries are to participate with some advantages on international markets.

SUPPORT MECHANISMS

For foreign trade operations, CAF has two support mechanism: SAFICO (Andean Trade Finance System) and MECOFIN (Letter of Credit Confirmation and Finance Mechanism for Imports from Third Countries).

Operations through these mechanisms – supplementary to the domestic finance and support systems – have significantly increased in member countries in recent years due to the formation of a financial intermediation network with the active participation of Andean commercial banks and companies or private business groups, which have been granted lines of credit for exports and imports.

Telcel Celular

In May 1991 the Telcel Celular consortium was formed as a joint venture with 58% local interest. Company capital is owned by BellSouth Enterprises (USA) with 40%; Comunicaciones Telefónicas (Oswald Cisneros) 35%; Sociedad Financiera Bancor (Juan Santaella) 15%; Telecomunicationes BBS (Nelson Belfort) 8%; and Racal Telecom PLC (UK) 2%.

Its objective is to design, install and operate cellular telephony communications systems and any other activity related to telecommunications in Venezuela.

Eight months ago, the Venezuelan Ministry of Transport and Communications (MTC) awarded the Band A mobile telephony concession to the consortium - subject to payment of over US$5 billion bolivars. The new system will compete with Band B of CANTV.

Under the concession agreement, the system must provide coverage in line with a three-year expansion program, whose minimum capacity will be:

• First year (1992) - 16,400 subscribers in Caracas, Maracaibo, Valencia, Litoral Central, Maracay and La Victoria.
• Second year (1993) - 31,400 subscribers in the areas mentioned plus Barquisimeto, Ciudad Guayana, Barcelona, Puerto La Cruz, and San Cristóbal.
• Third year (1994) - 51,500 subscribers in the mentioned geographical areas plus Cumaná, Guarenas, Guatire, Cabimas, Acarigua, Araure, Valles del Tuy, Los Teques, Porlamar, Pampatar, and Lagunillas.

At the end of the third year, the concession holder must cover all cities and localities where at least 60% of the country's population resides.

PRIVATIZATION OF TELECOMMUNICATIONS

The opening of mobile cellular telephony and its transfer to the private sector was one of the first steps taken under the Venezuelan state telecommunications privatization plan.

In fact the case of Telcel is more a process of economic opening than privatization as such because it is the sale of the right to use a segment of the radio spectrum with no transfer of assets. The important aspect is that it marks a change of attitude in a sector traditionally reserved for the State.

The process is now going forward rapidly, which is welcomed by users and experts who have identified this sector as one of the most important for improving the productivity of local companies.

In the case of Telcel, for example, all expectations have been surpassed in relation to the number of subscribers projected for its first year of operations.

REGULATOR STATE

Although Telcel’s capital is wholly private, the State will continue setting the ground rules and regulating the sector.

Privatization, especially when it involves joint venture consortia, offers several advantages, especially access to modern technology which the foreign partners contribute, combined with knowledge of the domestic market contributed by the local partners.

But other needs are also covered: managerial experience, marketing capacity and achieving the goal of providing a good service to all the community. Lastly - but no less important – it meets the need for good basic services in an economy which has to compete on international markets.

In the case of Telcel Celular, the Ministry will oversee technology updating and compliance with the principle of equal access between existing and future competing operators.

The Ministry will use research techniques to evaluate the degree of satisfaction of customers and the waiting time for obtaining the service in comparison with international experience in developed countries.

The tariffs for the services will be fixed by Telcel within the maximum and minimum authorized by the Ministry, in accordance with the Telecommunications Law.

The concession granted to Telcel Celular is for 20 years, with the possibility of extension for a similar period.