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Cablegate: Spain: Telecom and Information Technology

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 MADRID 002133

SIPDIS

STATE FOR EB/CIP
USDOC FOR NTIA AND ITA
FCC FOR INTERNATIONAL

E.O. 12958: N/A
TAGS: ECPS EINV EINT ETRD SP
SUBJECT: SPAIN: TELECOM AND INFORMATION TECHNOLOGY
DEVELOPMENTS

REF: A. MADRID 1673

B. MADRID 1562

1. This cable summarizes selected developments in the
Spain's telecommunications and information technology
sectors. In this issue:

-- New Ministry of Industry, Tourism and Commerce
responsible for telecom issues (para 2)
-- Spain,s public television under review (para 3)
-- New government office to defend telecom users (para 4)
-- Telefonica Moviles and Vodafone Espana launch 3G (UMTS)
services (para 5)
-- Spain,s ADSL subscriber base up; Telefonica proposes
doubling its ADSL connection speed (para 6)
-- Telefonica Moviles continuing Telefonica's increasing
influence in Latin America (para 7)

2. NEW MINISTRY OF INDUSTRY, TOURISM AND COMMERCE
RESPONSIBLE FOR TELECOM ISSUES
Telecommunications issues are now primarily the
responsibility of Spain's newly formed Ministry of Industry,
Commerce and Tourism (Ministry of Industry), headed by
Minister Jose Montilla Aguilera, a Catalan who has a
reputation for being serious and disciplined. He also
remains the secretary general of the Catalan Socialist Party,
and has shown that his loyalties to Catalonia (which includes
Barcelona) are steadfast (see ref A). In a recent interview
Montilla said the GOS is studying the possible consequences
of liberalization of telephone rates which the former
government had planned for 2005. Montilla demurred to a
question about financing of universal service, which industry
has been expected to shoulder in the past, by stating that
the ministry must first study and define what services should
be provided to all of Spain before determining how to fund
universal service.

3. SPAIN'S PUBLIC TELEVISION STATIONS UNDER REVIEW
With a huge deficit (currently at around 8 billion euros or
9.79 billion dollars) and a reputation as the government
propaganda mouthpiece since the 1970s, the possible reform of
Spain's publicly-owned television company (RTVE) has been a
perennial source of campaign promises during national
elections. During his campaign, President Zapatero vowed to
create a committee of experts to study the problem. He has
already made good on this commitment, establishing a group to
come up with recommendations by early 2005. He also has
replaced the head of RTVE with Carmen Caffarel, who has been
described as an "independent academic." Some of the
challenges facing Caffarel and the committee of experts are
how to shrink the company's deficit, work with the unions
that will fight moves to shrink its 8,000-strong workforce,
define the role of public television in Spain, and free RTVE
of political influence. State Secretary for Finance Miguel
Angel Fernandez Ordonez, who is committed to fiscal restraint
(see ref B), recently mentioned that privatization of RTVE
was being considered in order to improve the company's
finances. Caffarel opposes the privatization but says she
intends to make RTVE an independent entity.

4. NEW OFFICE TO DEFEND TELECOM USERS
A new Defender of Information and Communication Technologies
Users has been established by the Ministry of Industry. This
official will have responsibility for addressing citizen
complaints regarding Internet connections and mobile
telephone contract terms. Complaints for telephone service
and Internet connection deficiencies have increased
exponentially in the last few years.

5. TELEFONICA MOVILES AND VODAFONE ESPANA LAUNCH 3G (UMTS)
SERVICES
Both Telefonica Moviles and Vodafone Espana launched 3G
(UMTS) services in Spain during the last week of May.
Telefonica Moviles, a subsidiary of Group Telefonica, will
initially provide UMTS services in Madrid, Barcelona, and
other large cities in Spain. Javier Aguilera, CEO of
Telefonica Moviles, expects mass usage of UMTS facilities to
be a reality by the end of 2005. Between 2003 and 2006,
Telefonica Moviles plans to invest 1 billion euros (1.22
billion dollars) to develop its UMTS service. Vodafone
Espana launched its services one day after Telefonica
Moviles. While offering services initially to 22 Spanish
cities representing 23 percent of the population, Vodafone
Espana plans to extend the service to all of the country's
provincial capitals by the end of the year. Meanwhile, the
GOS is reviewing UMTS licensing agreements to ensure that all
four of Spain's UMTS license holders (also Amena and Xfera)
establish services and comply with their agreements.

6. SPAIN'S ADSL SUBSCRIBER BASE UP; TELEFONICA PROPOSES
DOUBLING ITS CONNECTION SPEED
As of April, Spain had 1.9 million ADSL subscribers. At the
current rate, Spain will have 3 million ADSL lines by the end
of 2005, according to Spain's Association of Internauts
(Internet users). Telefonica's 1.2 million ADSL subscribers
may soon benefit from doubling of connection speed at no
extra charge if CMT, Spain's telecom regulatory body,
authorizes the proposed plans. This will involve an
investment by Telefonica of as much as 100 million euros
(1.22 billion dollars). COMMENT: An intriguing aspect of
the proposed promotion is how it challenges Telefonica's
competitors: Telefonica owns virtually all of the fixed-line
infrastructure in Spain and is required to provide its
competitors access to its network. Regulations prohibit
Telefonica from differentiating its competitor-clients from
its other clients when upgrading this type of service. So
the added speed will be passed on to Terra, Wanadoo, Tiscali,
Ya.Com, etc. for no extra charge. However, these competitors
would need to incur some unanticipated investment costs to
pass the increased speed on to their retail clients.
Although not required by regulation to benefit their clients
with the doubled speed, Telefonica's competitors risk losing
significant client base to Telefonica if they don't. End
Comment.

7. TELEFONICA MOVILES CONTINUING TELEFONICA'S INCREASING
INFLUENCE IN LATIN AMERICA
Telefonica Moviles will fully acquire Telefonica Movil Chile
from Compania de Telecomunicaciones de Chile (CMT) for a
little over 1 billion euros (1.22 billion dollars). Under
management by Telefonica Moviles since 2000, with parent
company Telefonica already holding a 43.6 percent share of
CMT, analysts say that although the deal appears overpriced,
consolidation makes "strategic sense."
ARGYROS

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