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The national utilities company (ICE) enjoys a legally-mandated monopoly for the provision of telecommunications services. Only a constitutional amendment can dissolve this monopoly.

In Costa Rica, constitutional amendments require a two-thirds majority vote in the Legislative Assembly. They must also pass a second vote in the Legislative Assembly during a later session, which means that the process of amending the Constitution is lengthy, particularly because before a bill reaches the floor of the Assembly, it must go through a review process similar to the U.S. Congress’s committee process.

In the case of the telecommunications reform legislation, the Committee on Government and Administration has already reviewed proposed amendment legislation. Its own sub-committee that handles legislation pertaining to telecommunications and energy reform first agreed to a version of the bill and then sent it to the full committee. The full committee recently came up with another version of the bill that will soon be debated on the Assembly floor.

Considering Costa Rica’s history of fierce debate over telecommunications issues, the final version of the telecommunications bill may look significantly different from the version that begins the floor debate. Accordingly, a comprehensive lobbying effort should be Telegobe’s top priority.

Costa Rica’s constitution and campaign finance laws have created a virtual two-party system with a strong Legislative Assembly and a relatively weak executive. The state contributes funds to the electoral campaigns of parties that win five percent or more of the vote, which makes it difficult for candidates from third parties to break into the system. This makes for a wide range of views within a single party and reduces the influence that parties have over the voting habits of their deputies. Furthermore, votes on the floor of the Assembly are rarely recorded or publicized, and there is little repercussion for crossing party lines. All of this gives deputies significant latitude in their voting habits and makes them prime targets for lobbying activities.

President Rodriguez’s previous failure to pass privatization legislation is evidence of the relatively diminished role of the president in Costa Rican politics. He is able to introduce legislation, but cannot necessarily muster a two-thirds majority vote through his efforts or influence alone. Rodriguez has used the power of the executive to determine the agenda of the current extraordinary legislative sessions in order to focus attention on the issue of telecommunications reform, but even this will not bully opposition leaders into making large concessions.

The key to achieving the required two-thirds majority is to form a multi-party consensus. In order to build such a consensus, voters and local Costa Rican interest groups need to be pulled into the campaign for telecommunications reform. Indeed, any steps toward de-politicizing the issue will undoubtedly speed up the process, which has been held back more by political interests than by problems related to substantive issues.¹ Both major political parties support telecommunications reform, but they differ on minor technical issues of how that reform should be carried out. Taking the issue to voters and interest groups will put pressure on politicians to drop their political grandstanding and begin serious work on a viable piece of compromise legislation.

Deputies that currently hold office will certainly feel some degree of pressure from interest groups and an informed public, although they cannot be re-elected immediately and are therefore somewhat insulated from this pressure. Accordingly, attention should be focused on the candidates in the current electoral races.

A compromise text of the telecommunications legislation has finally emerged from committee and is ready to be discussed on the floor of the Legislative Assembly. The proposed legislation is titled The Law for the Improvement of the Public Services of Electricity and Telecommunications and the Participation of the State. It sets forth a process for liberalizing the energy and telecommunications sectors and describes the role the state will play in these markets.

For GlobalCom, two aspects of the reform legislation are crucial. The legislation must:

1. permit the entry of foreign companies into the telecommunications market, and

2. ensure that the market will be truly competitive and free of favoritism.

To date, the debate over telecommunications reform has focused on the pace of liberalization and the nature of the state’s involvement in a liberalized market. Very little has been made of the issue of a level playing field other than to say that the telecommunications market should be truly competitive.²

President Rodriguez is a member of the Social Christian Unity Party (PUSC) and has supported telecommunications reform since the beginning of his presidency. The opposition party, the National Liberation Party (PLN), has blocked all of his attempts at reform, although the parties almost reached agreement on several occasions.

To try to break the deadlock between the parties, President Rodriguez initiated a process of national consensus building in which interest groups from various business sectors and society were invited to provide input into the telecommunications reform process. A formalized process for considering this input produced a piece of legislation, which was essentially a compromise between Rodriguez’s attempts to fully privatize the telecommunications industry and conservatives’ efforts to maintain the national utilities company as a state-owned monopoly. The law did not make it through the committee process intact, but it did bring the Rodriguez administration and the opposition much closer together, and it established a cooperative process for the first time. Subsequently, the Sub-Committee on Utilities Reform came out with its own compromise bill, which brought the issue closer to resolution than perhaps ever before.

Specifically, the compromise legislation takes into account concerns over profit utilization and the gradual opening of the market. The bill, which will soon to be debated on the Assembly floor, calls for:

• A three-stage process of liberalization that is subject to review by an oversight entity;

• ICE to become a quasi-private entity;

• ICE to use 100 percent of its profits in order to develop its business for up to five years (after which deputies will revisit the issue of profit utilization);

• The executive to develop a National Plan for the Development of Telecommunications; and

• Creation of a quasi-governmental regulatory agency that will sell radio frequencies concessions and monitor for (and respond to) anti-competitive behavior.

The bill states that one of its objectives is to "increase the participation of businesses in the market of telecommunications through the promotion of effective competition in the provision of domestic and international telecommunications."³ In Article 126, it discusses the promotion of competition with regard to telecommunications:

The sustainable development of public telecommunications services and their efficient provision will proceed through the gradual liberalization and promotion of effective competition.

It is understood that effective competition does not exist when an operator or group of them displays a market power that gives them the ability to significantly influence the price or rate of the public telecommunications services, harming the rights of its users and obstructing the entry and encouraging the exit of new operators or users of the services, in conformity with that established in articles 195, 196, and 197 of this law.⁴

Opposition leaders are already planning to attack the legislation, and members of the sub-committee that approved the proposed bill have even said they will not give it their full support on the Assembly floor. To effectively counter this opposition, GlobalCom should immediately begin a comprehensive lobbying effort. Keeping in mind the two priorities for GlobalCom—market opening and fair competition—the company should push for the introduction of stronger language that would protect open and fair competition and limit the state’s involvement in supporting ICE.⁵ Indeed, the bill needs to go further than it currently does to ensure that there will be a level playing field among all competitors both foreign and domestic. It must specifically outlaw government bailouts or subsidization of ICE, and it must specifically allow for the failure of ICE. That is to say, each participant in the market, including the state-owned provider, must operate under the same levels of risk and uncertainty.

GlobalCom should take steps to convince legislators that the telecommunication bill’s current language on anti-competitive practices and its provisions for the establishment of a quasi-governmental regulatory body are not enough to ensure a level playing field for all competitors in the telecommunications market. GlobalCom should also stress the benefits of liberalization, making sure that they understand that deputies understand that the sooner liberalization begins, the sooner it will pay off for Costa Ricans.

GlobalCom’s lobbying expenditures will need to be balanced against the profits that can be expected in Costa Rica’s relatively small market. The need to comply with Costa Rican lobbying regulations will also constrain GlobalCom’s activities. Nonetheless, GlobalCom should launch a comprehensive attempt to see that the legislation passes during the current Assembly session. If it doesn’t pass during the current session, resources will only be wasted and business opportunities will be forestalled if not lost.

GlobalCom’s strategy should focus on three major objectives:

1. Ensuring the passage of a telecommunications reform amendment that opens the Costa Rican market to foreign competition.

2. Inserting language into the bill that would ensure a level playing field among all telecommunications providers, including ICE.

3. Convincing the Costa Rican leadership to sign onto the WTO Basic Telecommunications agreement and thereby solidify the reforms brought about in the first two objectives (this objective should be considered secondary to the other two).

In Costa Rica, campaign finance laws have weakened party influence and have given individual deputies high levels of autonomy to make their own choices over whether or not to vote for a particular bill—particularly because votes are rarely recorded or publicized, and there are few repercussions for crossing party lines. Accordingly, GlobalCom should focus its lobbying efforts on the Legislative Assembly’s 57 deputies.

Specifically, GlobalCom should send a representative to the office of every single deputy in the Assembly. It is critical to note that any representative who visits a member of the Assembly must be a direct representative of GlobalCom, not a paid lobbyist. Costa Rican law dictates that all lobbying on behalf of an interest group or stakeholder must be done by a member of that organization.

GlobalCom should instruct its San José representative to schedule visits with deputies as soon as possible. During each visit, the representative should clearly make the case for the law and emphasize the benefits of liberalization for the Costa Rican economy and public. Secondly, he should make the case for specific language that guarantees a level playing field for foreign and domestic telecommunications service providers—including safeguards against anti-competitive practices that ICE might employ due to its quasi-governmental status. Finally, the notion of joining the WTO Basic Agreement on Telecommunications may be broached, depending on how the deputy responds to the preceding discussion.⁶

In terms of adding language to the legislation, deputies must be convinced that such language is in Costa Rica’s best interests. It will be important to emphasize that the benefits of competition will be maximized only if a large number of companies choose to offer services in Costa Rica and that multinational companies will be discouraged from entering the market if they believe that ICE is maintaining an unfair advantage over its competitors. Only the strictest language that guarantees a level playing field will assuage these concerns.⁷

The issue of the WTO Basic Telecommunications Agreement may be handled in a similar manner. By signing onto this internationally recognized treaty, Costa Rica will demonstrate to foreign investors that it is serious about reform and that their investments in telecommunications cannot be wiped out by a rapid change in government policy.

Of course, the legislative campaign is more likely to be effective if it can be shown that a large number of groups rather than just one foreign company are interested in the same outcome. Within Costa Rica there are many organizations that have long supported privatization and reform of the telecommunications sector. Enlisting their support can only enhance the chances of passing desirable legislation. GlobalCom should tap this pool of interested parties in order to strengthen its lobbying activities and increase the impact of its public awareness campaign.

The most active supporters of telecommunications liberalization are businesses that will benefit from the lower costs and higher quality services that competition will bring. Costa Rica’s business community is tightly knit and centered in San José.

Two organizations that GlobalCom should approach are the Cost Rican-American Chamber of Commerce and the Union of Private Business Chambers and Associations (UCCAEP). The first of these maintains a permanent committee called the Committee on High Technology that plays host to both Costa Rican and American companies and has taken an active role in promoting telecommunications reform over the past several years. Members of UCCAEP also have a major interest in seeing telecommunications rates drop and service quality rise. These two organizations alone represent literally dozens of individual companies that can help with the lobbying effort and lend credibility and clout to the reform campaign.

GlobalCom should organize a strategy meeting as soon as possible in order to kick-off a unified lobbying and media campaign.

Although lobbying the deputies will be GlobalCom’s single most important activity, a strategy for reaching out to the public will enhance GlobalCom’s chances for successfully influencing the Legislative Assembly’s debate. Polling data show that the public is extremely uninformed when it comes to telecommunications reform, but when people understand the issues they tend to support reform. Furthermore, they tend to blame the Rodríguez administration for failing to disseminate information. All this points to a public relations failure on the part of the PUSC and the Administration; it should have been possible to keep the PLN and other parties from blocking the legislation.

Combating public ignorance on the issue of telecommunications reform will be important in ensuring that the reform legislation can pass the second vote that is required for constitutional amendments. Building public support for reform legislation will also lay the groundwork for getting legislators to agree to sign the WTO Agreement on Basic Telecommunications. Without strong constituent interest in the issue, opposition deputies will feel free to delay and filibuster for political gain.

A media campaign must recognize the cultural significance of ICE as a state-owned institution. As one of the most successful state-run monopolies in the region, ICE has gained a positive reputation and is a symbol of national progress for many Costa Ricans. ICE has done much in the way of fostering economic growth and development, as well as promoting the development of a computer literate society. This is the fiftieth anniversary of ICE. To be perceived as disparaging the institution might undo any positive effects of a media campaign.

Instead, GlobalCom and other parties interested in reform should jointly sponsor a series of newspaper inserts and other forms of advertising that applaud ICE for the service that it has provided for Costa Rica. The campaign should recognize ICE’s outstanding achievements yet also explain the need for a new type of telecommunications market that can lead Costa Rica into the future. By emphasizing the benefits of liberalization for the general public and downplaying any criticism of ICE, the coalition can keep the campaign positive.¹⁰

GlobalCom must launch its strategy immediately since the deadline for passage of this bill is next month. GlobalCom and its partners must prioritize the various objectives of their strategy. It is of the utmost importance that a simple liberalization bill pass during this session. Otherwise the entire process will be delayed for at least two more sessions.

Since the passage of some sort of reform seems fairly likely, GlobalCom should also strongly emphasize the insertion of language that would guarantee a level playing field for foreign competitors. This is a reasonable objective despite the small amount of time left before the close of the legislative session. The necessary language does not diverge significantly from that already included in the bill; instead it simply reinforces and clarifies existing principles.

GlobalCom should be less emphatic, however, concerning the WTO Basic Telecommunications Agreement. Too much emphasis on the Basic Telecommunications Agreement has the potential to derail any progress made with regard to the other two objectives. If Costa Rica were to sign the WTO Basic Telecommunications Agreement, it would first have to specify exactly what sort of commitments it is prepared to take on, which would require consideration of a whole host of technical details that the current legislative session is not ready to debate. Inserting language that even states the intention to sign the agreement might dissuade support from deputies who would otherwise vote for liberalization. At this point, it is advisable to simply mention the agreement as another avenue for showing foreign investors just how committed Costa Rica is to the reform process.

Once this legislative session is over, GlobalCom should focus on building public support for the next vote through an expanded media campaign and by incorporating the issue of telecommunications reform into the pre-electoral political campaigns. When the next legislative session begins, GlobalCom and its partners will be able to draw upon this public support, and hopefully upon election rhetoric as they lobby deputies once again.

The second round of lobbying should mirror the first. It should emphasize the importance of passing telecommunications liberalization legislation that guarantees a level playing field for telecommunications service providers (both foreign and domestic). After the legislation has passed the first of the two needed votes, the issue of the WTO Basic Agreement on Telecommunications should also be broached. It should be stressed that the WTO Agreement does not lock Costa Rica into anything that it is not including in its own law. Costa Rica could simply come up with a schedule of commitments that repeats the language of its own law. Signing the WTO agreement will help attract foreign telecommunications investment by showing foreign service providers that they can expect the Costa Rican market to remain stable.¹¹

GlobalCom should seek a Costa Rican co-sponsor for the media campaign to ensure that Costa Ricans don’t think it is only foreign companies that will benefit from telecommunications reform. The company should also sponsor its own commercial advertising campaign so when liberalization legislation is passed GlobalCom’s name will already be synonymous with high-quality telecommunications services. A commercial media campaign, however, should not be launched until the legislation is actually passed.

Once competition is introduced into Costa Rica’s telecommunications market, Costa Rican telecommunications customers will enjoy lower prices, higher quality services, a wider array of service choices, and state-of-the-art technology. A more efficient telecommunications sector will improve the efficiency of numerous business endeavors, thereby boosting the whole country’s economy. An improved telecommunications infrastructure will also help attract increased levels of foreign direct investment.

As a state-run and state-supported entity, ICE lacks a commercial incentive to provide the best possible services at the lowest possible cost. It also lacks the financial ability to invest in the acquisition or development of new infrastructure. As a state-run institution, it is subject to fiscal restraints that slow the introduction of new technology, which is particularly problematic since the cost of maintaining a state-of-the-art telecommunications network is skyrocketing. Satellite, cellular, and information technologies are changing at breakneck speed. The longer that Costa Rica under-invests in its telecommunications sector, the farther behind it will slip.

Opening up the telecommunications sector to private telecom service providers would have several positive effects on the Costa Rican economy. First and foremost, the unsatisfied demand for telecommunications services would rapidly shrink as providers soak up those tens of thousands of customers who have been awaiting service for weeks or even years.

Then, once unsatisfied demand for telecom services is soaked up, free-market competition will begin to change the face of Costa Rica’s telecom industry. Whether or not ICE participates as a private or quasi-private entity in the telecom market, service providers will begin attempts to expand their customer bases by lowering rates and improving their services. They will also want to try to expand their overall customer base, which will require investment in physical infrastructure.

Private companies also have an economic incentive to provide service to those who were previously not served by ICE due to geographic or other restrictions. Numerous communities in Costa Rica still do not have adequate (or in some cases any) telecommunication services, and these could be tapped for customers by any company with the resources to make the initial capital investments. Therefore, the process of liberalization will likely increase teledensity and provide a larger number of Costa Ricans with the opportunity to obtain telecommunications services.

Costa Rican businesses will also benefit from liberalization. As the telecommunications infrastructure becomes more efficient, teledensity increases, prices drop, and service quality improves, Costa Rican businesses will find themselves wasting less time and money in dealing with an inefficient telecommunications system. They will also find that it is easier and cheaper to communicate with customers and business partners—particularly those who are located in foreign countries.¹³

What may be the most significant result of telecommunications liberalization is an increase in foreign direct investment. Indeed, attracting foreign investment has been a major goal of the Rodriguez administration, and a principle objective in Costa Rica’s economic development strategy for some time. But while the country boasts a well-educated and low-cost work force, foreign companies may be turned off by the inefficient communications services that ICE currently provides. Foreign investors may instead choose to invest in any number of other countries within or beyond the Central American region that have more efficient communications and comparable work forces.

Once the telecommunications sector is liberalized, and service quality, prices, and reliability improve, Costa Rica will be far more attractive to foreign companies wishing to establish themselves in Central America. Concerns over the declining quality of telecommunications (due to insufficient investment by the Costa Rican government) will transform into a recognition that open competition in the telecommunications sector will continue to provide high quality service at a reasonable price. Foreign investors will appreciate the stability that comes with a competitive market.

Of course, liberalizing the telecommunications sector will also attract telecommunications service providers who will need to hire a wide assortment of workers in order to operate in Costa Rica. Workers at ICE who are concerned about losing their jobs may be able to find work at a foreign telecom provider once liberalization occurs. In fact, scholars have found that telecommunications liberalization tends to have a positive effect on employment.¹⁴

Footnotes:

¹Herbert Rodriguez, President of Ticopager S.A., and the Costa Rican-American Chamber of Commerce Committee on High Technology, has placed all of the blame for the pace of reform on party politics, he may be consulted as a resource if politics become an issue during this campaign. His actual statement is quoted in Appendix K.

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