VENEZUELA, learns to diversify after turbulent political times LATEST REPORT April, 2002
Venezuela emerging from a difficult decade
Interview with
LINDA M. WELLSTEIN,
Managing partner, Latin America and Caribbean Office, of the Iinternational Information Technology, Telecommunications and Transactions firm of
WILKINSON) BARKER) KNAUER) LLP
FOR World Investment News Ltd, November 10, 2000
In order to introduce you to our readership, could you give us a brief historical background of the firm and focus on the main activities?
This has been our first year of operations for Wilkinson Barker Knauer’s Latin America and Caribbean Office. The firm also has offices in Washington, DC and Europe. With respect to Latin America and the Caribbean, the firm has served and continues to serve numerous private and public government entities in the region before it established its in-region office and personnel presence. I personally have established telecommunications companies, counseled on privatization matters as well as negotiated and concluded joint ventures, acquisitions, and counseled extensively on international telecommunications commercial and regulatory matters in-country in Mexico, Brazil, Argentina, Chile, Venezuela, Colombia, Panama, Ecuador, Guatemala, Bolivia, Paraguay and before the Organization of Eastern Caribbean States. In a one-year period, we are happy to say that we have acquired two full time excellent regional attorneys who speak French, Spanish, and English and whom have substantial local, regional, and international commercial and telecommunications transactions and regulatory experience. We have eight contracted specialist attorneys who are "on call" to support the broad range of associated issues which arise in business matters associated with any industry sector such as criminal law, litigation, labor, etc. We have been very active representing clients in the region before the Organization of American States (OAS) CITEL Meetings, sharing our knowledge and experience through counseling advising, and invitations for speaking before the Caribbean Association of National Telecommunications Organizations (CANTO), the Organization of Eastern Caribbean States (OECS), Caribbean Latin America Action (CLAA), Camara de Empresas de Servicios de Telecomunicaciones (CASETEL), Consejo Nacional de Informatica Telecomunicaciones y Electronica (CONINTEL), Consejo Latino Americano de Estudiosos del Derecho Internacional y Comparado (COLADIC). We are also serving on the Information Technology Committee of the Venezuelan American Chamber of Commerce (VENAMCHAM).
We have a tremendous wealth of experience in the telecommunications industry generally and in the region. We represent leading fixed, wireless, broadband, cable, Internet, e-commerce and Information Technology (IT), services and equipment firms as well as government entities and regional businesses transitioning into the new global telecommunications economy through privatization and sophisticated investment and commercial transactions. We have managed and assisted in major information technology outsourcing deals in the region as well as performed all the transactional work that goes with it, e.g., issues concerning interconnection, teaming, service, distribution, licensing, leasing, finance, equipment purchase, enterprise and all other agreements and transactions associated with the telecommunications and information technology industry. We constantly analyze "best practices" with our colleagues in Washington and Europe to give our clients in the region our very best, and the best counseling that the region can provide.
We believe as a firm, that the Latin America and the Caribbean region is one of the places to be; I have always believed that. Our clients are in the region and others are looking hard on whether, how or when to enter the region. They seek a regional "feel" as well as high quality international expertise and service. We are here to provide them that, and more. The firm’s combined experience totals forming and advising companies and governments in Mexico, Central America, the Caribbean and in almost every South America country, with the exception of Uruguay and Paraguay. Clients have found it hard to justify the cost of entering these two small markets, which have little development in their legal infrastructure to encourage investment. I am happy to see that Paraguay has begun its telecommunications liberalization and the government will start its "road show" for investors early next year. In Uruguay, basic telephony remains in the hands of the government. We understand that the Senate in Uruguay right now is discussing whether to open its cellular market to competition, but there is strong political opposition to this and we understand that the Senate will make an announcement in early January 2001 which does not look too promising for further competition in the marketplace. Venezuela has been enjoying the liberalization of its telecommunications market since 1991 and in this year 2000 it has swung open the doors for competition in basic telephony services. It has adopted its new Organic Telecommunications Law this year, which has strong features favoring investment and competition.
I do not know if it is a bias of my Latin blood but this is a place with great comparative advantages for investment. I say this after having personally worked projects in Africa, India, Europe, Asia, and the Commonwealth of Independent States (formerly Russia). The demographics, the people, the geographical location, the new transparency being demonstrated in telecommunications regulations, all this makes Venezuela a great starting point to be the bridge between the Caribbean, Central, North and South America. This is a perfect spot to bridge and link, and I believe it has tremendous potential to become a staging ground for the development of a large global trading block. This is already taking place and it is developing to be more of that, particularly as telecommunications infrastructures and services advance in the region.
We are excited about contributing, embellishing and developing the talent in this region. We have a lot to contribute. We have been very successful so far in convincing people of that, because we have been able to offer a lot of experience in different parts of the world. It is essential to have an international perspective, and learn from past experiences of other countries. We have seen and participated in telecommunications liberalizations, regulation development, technology standards, businesses and commercial development in other parts of the world. We feel we have a tremendous amount of expertise that can assist and contribute to investment and development in this region. We believe that Latin America and the Caribbean needs this, wants this and is ready for it. The region wants to join the information age, obtain economic and social progress, have access and become more of a world player. Telecommunication infrastructure development is a means to this advancement in communications, services, education, health, investment opportunities and a growth that could be tremendous. With the privatization wave beginning in the late 1980s, South America has increasingly generally been going down a liberalization path. The Caribbean is slowly opening its market with liberalization on a fast track now in Jamaica, Barbados and initiatives being seriously considered by the Organization of Eastern Caribbean States, Trinidad and Tobago. Now with this huge advance in technology, we are hoping that the region will start to take off. When it does, we want people to know that we are already here, know how to do business here with those already here, and all those wanting to enter the region.
There is a huge concern in the Caribbean and Latin America about the so called "digital divide" that is, lack information technology transfer, because there are so still many people in the region who are very far from having the political and economic access to infrastructure, equipment, services (basic services, not to mention Internet, broadband, e-commerce, etc.). Now Latin Americans and Caribs are seeking more complex structures and trading opportunities. The Caribbean and Latin America is positioned to confront its issues of "digital divide" and new paradigms are being discussed and implemented now. There is a lot going on in the region. It is a very exciting place for the industry to be right now. It is a very different "feel" being "in region" and "on the ground" as opposed to being in a place like Miami. We know how to advise clients to make it here now when the region is in the throws of its changes. We are here, and we are contributing to this market development. There are a lot of foreign investors, North Americans, regional players, Europeans, and Asians that are looking to find a way to get into this industry and avoiding past mistakes. You need to have worked in the region and know the region to give this kind of specialized advice, and lend this type of experience as well as know your local and international client standards, needs and preferences. There are huge savings to be gained from this type of international, specialized "in region" counseling. I cannot emphasize enough that the companies coming in from the United States and Europe want to make sure that their standards are understood. We provide that bridge into this market place, and offer the regional and international expertise, as well the perspective of other industrialized nations. We are here, because we believe in the region and are committed to it. We think we can convince people to come in and do great telecom business here. We can help them do it.
I would like to know what is your customers’ profile, and who are the customers that you are targeting right now?
The representation of our client base is principally telecommunications, information technology and national and international commercial transactions. The private entities, governments and associations we have represented here are very diversified. In Venezuela alone, we represent the largest telecommunications company in the country, as well as cable companies in the region that are expanding into web TV hyper-linking, regional broadband networking companies, regional satellite, wireless technology and services companies, Televisions and broadcast investors, ISPs, VSAT, equipment manufacturers, internet technology support companies, industry associations, as well as various private network and value added concerns. We also represent companies looking to participate in the new wireless in broadband services, as well as future third generation wireless possibilities in the region. We represent international companies that are here and in other parts of the region, a lot of them being large wireless companies, local exchange carriers and small entrepreneurs wanting to explore and carve a niche as ISP’s or provide cutting edge technology for e-commerce solutions. There are Caribbean investors seeking to establish alternative networks into the Andean and South American market. We have also and currently represent Caribbean and Latin American country governments in their privatization efforts, drafting country regulations, advising on new services development, spectrum issues, etc. and have assisted consultants, who wanted expertise in neighboring countries in trying to find ways to enter particular closed markets, that are currently being held shut by long terms agreements.
In terms of targeting new clients, we have a lot of clients from Europe that we are trying to entice into the region. In fact, recently one of my partners from the Frankfurt office, Richard Leitermann, and Leon Knauer from the Washington, DC office, recently traveled with me to several countries in the region for business meetings as well as to investigate numerous investment opportunities on behalf of clients, one such opportunity being the feasibility of installing call centers in Central America. So as you can see, we work closely as an international team and this synergy has enhanced our clients’ abilities to expand their businesses and investment opportunities, as well as consider joint ventures by facilitating the introductions of regional opportunities among our clients. We also have clients that are based here in Venezuela with offices in Miami, which we are able to fully represent here, in Miami and other parts of the US, and especially before the Federal Communications Commission (FCC) in Washington. We are also assisting other regional clients in this way, giving them full representation by being "on the ground" in the region, in Washington, DC, and in Europe. Additionally, many regional clients have been interested in investing in the US and Europe. We have been facilitating and supporting their efforts from here and abroad.
Another cutting edge area for which we have also been involved is that of electricity companies. We have found that the electricity companies in the Caribbean and in Latin America are in a very interesting position right now. They have advantages to enter quickly into the provision of communications services through various broadband technologies being developed to which they are uniquely suited.
In fact telecommunications is the fastest growing area of the economy here in Venezuela over the last three years and so for obvious reasons you are involved in Internet communications and other developing communications and technology services, do you expect to expand your firm expertise to other areas?
We have seen the industry growth require all kinds of diversified business and legal support, which is exactly what we have always been serving, but specialized in the telecommunications and information technology industry. We have always been well prepared to support our clients diversified commercial and regulatory needs in this industry. Ours is a telecommunications, information technology and transactions practice. For example, the Venezuelan telecommunications market has required significant competitive business planning which includes the strategic and complex negotiations of significant IT outsourcing agreements, and new technology interfacing opportunities, just to name two. We have supported our clients’ needs in this area because this is exactly the type of industry expertise that is required. Right now means of interconnection, regulatory interpretation and counsel, networking, systems planning and integration of services and competitive business structures to attack the market are some of the main areas of our clients focus. Our counsel has always included complex commercial and corporate transactions, including joint ventures, financings, mergers and acquisitions, complex IT outsourcing agreements, as well as intellectual property, local tax, and structuring strategic business alliances and projects. For example, when we represent a client who is trying to enter a new technology service sector, we counsel them from the beginning to be structured for corporate flexibility, strategic and quick internal decision-making, and to be aware of investment and tax laws, expropriation risks, repatriation mechanisms, and take advantage of all existing government investment protections, if available. We counsel on new and continuing business transactions, investment opportunities, and legal regulatory frameworks. Once we incorporate or organize the client company, we guide them through the regulatory terrain, advise and we prepare their service mark and branding protections, domain name and other intellectual property registrations, negotiate their commercial transactions with respect to technology licensing, distribution systems, mining and other protections, equipment procurement, general manager agreements, key employee contracts or other services acquisitions. This broad yet specialized support substantially serves our client needs in the industry. We are uniquely qualified to support our clients’ interests to be successful in the industry in the region in ways that local and other firms cannot. We strive to assist them in reaching their regulatory, investment and business goals. So, if you are asking me whether we are going to expand into other growing industries, the answer is we are open to serving other growing industries such as oil and electricity. However, we plan to stay uniquely specialized, provide excellent and high quality service and attention to our clients, and for that, we expect to stay focused on what we do best.
The truth is that among our interviewees, those involved in telecommunications have been the most optimistic. What is your assessment on the legal framework that has been passed in this country applying to telecommunications and do you expect that starting November we will see a liberalization of the sector? Is the Venezuelan government going to abide by its regulations?
Going back to the first question, the law. Venezuela had an antiquated law dating back to 1940. The country now has a new Organic Telecommunications Act which was enacted earlier this year which is much more modern and open to the public interest. Is it a perfect law? Absolutely not. Is it great for Venezuela? Absolutely. Does it guarantee automatic liberalization on November 27th? Absolutely not, and it was not intended to. This country has been competitive in various forms of its communications services, since 1991 when the then government telecommunications monopoly was privatized. There has been market competition in cellular, private network, and value-added services since 1991.
The exclusivity rights granted to Compañia Anonima Nacional de Telefonos (CANTV) for basic telephony as part of the privatization agreements and process expire on November 27 of this year. What has been seen over the last ten-years is substantial infrastructure investment and service expansion in the country by the incumbent basic telephony provider as well as a healthy transition to market competition for cellular, value added, private network and other associated services. Of course, while the government was preparing for its full market competition, call back operators, unauthorized voice over IP operators had already ubiquitously entered the market place. Beginning early next year, I think this country is going to o see a lot more competition entering to provide broadband services. But like all things new, time will be necessary for orderly interconnection facilities and transitions. The new Organic Telecommunications Act has numerous provisions highlighting consumer rights to exploit and receive services. Other provisions restrict the incumbent, CANTV, from competing in certain new services and spectrum auctions with the intention of encouraging new entrants in the market. Procompetencia, which is the Venezuelan anti-trust agency, is designated in the law to take an active role in watching mergers and acquisitions of industry players to ensure competition.
Comision Nacional de Telecomunicaciones (CONATEL) is expected to issue three sets of regulations shortly, those for basic telephony, interconnection, and licensing. There is also a draft resolution issued by CONATEL setting forth procedures for public comments to its forthcoming draft regulations. Given its resources, I think CONATEL has done a respectable job compared to other countries in trying to develop a working regulatory framework with transparency and industry input. My personal experience with CONATEL management and personnel to date has been very positive. The development of the new telecommunications law and regulatory framework has been a long time in coming. I still remember a draft I received back in 1991 independently sponsored and produced by a congressional committee. Ten years later we have the promise of a more independent regulatory body, and a framework promising transparent regulations for operators and consumers. The biggest question from our clients has been whether this new legal framework will be enforced? And will the independent regulatory agency truly have more autonomy? The new law provides structural changes to CONATEL that ensures oversight and public information disclosure. The various funds sponsored by the law appear to have a responsible set of checks and balances to ensure funds end up where they are supposed to go. The law contains provisions to funnel collected funds back into means to provide universal service, infrastructure and technology development, and training. Most of these funds will now be supervised with independent Boards subject to recording and disclosure requirements. If these operating frameworks are implemented as prescribed, the public and industry should mutually benefit and receive far more representation than they have ever had to date.
Imagine the following being implemented here recently: 1) CONATEL inviting public comment before issuing a policy or regulation, 2) supervisory boards set up for universal service and research funds with operator-contributor representatives elected by their competitive peers to sit on the fund boards, and 3) a CONATEL website for the public to access disclosing its activities, policies and regulations. This country has not experienced this type of government candor with respect to this industry that has been enjoyed by most of the industrialized world for decades. These are all encouraging signs that the Venezuelan government is interested in providing an environment for technology investment, growth and development, fostering an exchange of ideas, and implementing fair and open licensing procedures.
Recently, I attended the OAS CITEL Meetings on behalf of a client. This particular meeting was hosted by CONATEL in Isla Magarita here in Venezuela. I was so proud of how organized and progressive the topics and presentations presented by CONATEL’s leadership. I have always appreciated Jesse Chacon’s (CONATEL’s Secretary General ("Secretario General")) "open door" policy to meet and discuss client concerns and his openness to resolve issues and seek solutions. In all of my meetings with Mr. Chacon to date, he has always impressed me as being extremely capable, and genuinely concerned and interested in my client’s issues and generally advancing the development of the telecommunications sector here. Again, this is a positive sign for the industry and its investors.
The Venezuelan government also has been an active participant in the development of the telecommunications sector in the Andean Pact Countries region. Regional telecommunications guidelines and spectrum allocation cooperation has enhanced the opportunities to ease transnational telecommunications in the Andean region. Venezuela has also supported and contributed to the development of the Simon Bolivar Satellite System which footprint is currently planned to cover the five Andean countries as well as Portugal, Spain and parts of France. We are excited at the prospect of the continued development of this system which shall provide alternative communications links for the region and for the world into the region. Venezuela is participating in a meaningful way to the development of the industry here and in the region. The government has also pronounced a policy to implement
E-government and Internet access programs to the country’s rural and remote communities. This evidences Venezuela’s commitment to find ways to reach its populations with advanced technological means that requires it to stay its ardent path to mobilize competition and investment in the telecommunications sector in the country.
I am sure you are familiar with the situation of telecommunications in Mexico, where the leading company has been accused of monopolistic practices by its competitors, but this company defended itself by saying they had invested a huge amount of money in infrastructure while the competition had not, do you think we will see something similar happening in Venezuela or will it take a totally different direction?
I think that is a debate that every country sees when they go through this transition process and it is not an easy thing to balance. With the breakup of AT & T in the United States, before cellular systems were licensed and installed in the US, there was a hold on this technology entering the market for close to t ten years, because the government and the private sector could not figure out what they were going to do with this new technology, which might possibly make obsolete a national infrastructure. This new technology posed the potential for complete bypass of fixed basic telephony services and would affect billions of dollars in investment across country. What does a government do? How do they make the right decision balancing the public interest and private investment? They struggled and whether the government’s decision on the process was right or wrong is hindsight, history bears out that competition and opening the marketplace has encouraged the development of innovative and advanced technologies to be enjoyed by consumers. Every country must follow their unique course to balance these issues. In this country, and many others in the region, the original investors took risks at that time when no other parties where interested in entering or investing in the same way in the region. These operators were required to invest heavily to develop infrastructure, improve service quality and expand service throughout the country as part of its operating concession. What is interesting about the history of this country’s telecommunications sector evolution is that under the former 1940 Venezuelan telecommunications law, communications services were categorized as a public service owned by the State. Under the new law here, citizens have an inherent right to exploit communications services. It puts a whole new face on how telecommunications policy will be developed here and how the rights of the incumbent will be fairly balanced. I think that the parties here are going to try to negotiate as much as they can. Of course, the incumbent as a public company must be very sensitive to the fact that they have invested billions of dollars in infrastructure in this country. CANTV has already interconnected with numerous new entrants under bi-lateral agreements. Incumbents generally realize that its pays to interconnect, to give access, and provide competitive resale opportunities. Competitive wireless networks, of which there are three in Venezuela, are also in the throws of interconnection discussions. Access charges and co-location issues are just two of the myriad of issues that CONATEL and the industry will be resolving in the coming months. These are healthy problems to have. The best that can be hoped for is that there is a fair balance achieved between the parties to serve the public interest, thereby encouraging continued investment by incumbents and investment by new entrants.
It seems like there are major regional players that have been left out of the game, lets say Telefonica España for example.
That is a very interesting comment, because I do not think that this company has been left out of anything, anywhere. They are present here in Venezuela as a current investor in CANTV, part of the VENWORLD Consortium, which managed CANTV for the last ten years. Additionally, its investment through Terra.com is not only present in Venezuela but also several other countries in the region. This company has also made public its intention to join forces with other companies to make wireless investments in the region. So, Telefonica is very present. The Europeans are looking. The North Americans are looking. There are a lot of opportunities.
It seems that Venezuela’s private initiative has been non-existent unless the government backed it, or a government owned company such as PDVSA. Do you think this happens because the oil industry here builds up a security culture in Venezuela? Do you see things changing? Do you see more private initiative developing in this country? If you look at the past you will notice that many private companies and foreign investors did not take bold decisions. It appeared they really did not take risks because they were looking to be backed by the government.
I can give you examples in India, Russia, Central Asia, Turkey, the former eastern bloc countries where the former PTT monopolies had the reigns of power and control. Smart investors entering these riskier foreign markets with huge investments have always tried to diminish their risks by having the governments guarantee that they will honor their contracts, not change the operating rules in mid stream, not nationalize or otherwise expropriate their investments, or not drastically change laws which would adversely impact the business or investment. Of course, government guarantees may only be honored as long as the particular government making it remains in power.
Venezuela has had its share of economic and political crises. This would make any investor cautious. Clearly the culture here has impressed me to have a more patriarchal history. There are still fairly onerous labor laws that do not make it easy to do a competitive business here. The work ethic is distinctive and it appears sometimes that the common person here would rather be "taken care of" then be forced to re-enter the marketplace with newly acquired skills to compete in the world marketplace. This attitude will definitely hurt Venezuela’s future. I believe a country’s people are its greatest asset. If this asset is not trained, developed, or given opportunities to grow, they and the country will stay behind. Sometimes these opportunities mean being forced to re-group and re-train, learn modern skills to compete so that meaningful contributions can be made to the country’s marketplace. This is not something "given" it is an opportunity which the individual creates for him or herself and must be "taken" by them. Of course governments and private industry can encourage education and entrepreneurship, but ultimately it is the individual who chooses to be responsible for their own destiny and opportunities.
If foreign investors have a problem coming here today, it is because they are still waiting to see how this new government is going to enforce its new legislation. The jury is still out. If additional evidence and comfort is given that there is going to be respect for the enforcement of law and private contracts, that will go a long way to encourage more investment here as will keep investors looking here and in this region as opposed to neighboring countries or regions.
With respect to Venezuela’s new Organic Telecommunications Law, it is backed by the country’s recently enacted new constitution. Comfort can be derived from the fact that the new constitution guarantees rights under the Telecommunications law. The new constitution is touted as being much more democratic and open than the former one. Its value and credibility will be measured by its enforcement.
For reasons that we all know, Venezuela has a sort of colored image in the United States. Your firm has invested here despite this image. How is this?
The advantage of being in the region is knowing better what is really going on in a country and a region and having a closer "feel" about things and business. Business is proceeding. There are new and existing legal infrastructures which support business and there is the promise of development and opportunities. In the telecommunications sector, there is a new entrepreneurial spirit developing. Things are by no means perfect here, not even close. I would like to see more liberalized labor laws. Every industry is having problems with these laws. Additionally, enforcing existing laws and ensuring that a competent and impartial judicial system exists would also go a long way in demonstrating stability and predictability.
How do you see your firm in about five years?
We will be the premiere Telecommunications, Information Technology and Transactions law firm in the Latin America and Caribbean region serving our clients here with the same quality, care and expertise as we currently do in Washington, DC and in Europe. Premiere.
NOTE: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions.
VENEZUELA
