Background
Operator's Demands
Decision
Outlook


Background

On January 2 2003 the Constitutional Court issued an important decision with respect to the equal treatment which regulators must apply to the bidding processes of the telecommunications market.

This resolution (784-2002-RA) resolved a constitutional dispute raised by the established operators, Porta and Bellsouth(1), concessionaries of the mobile telephony service which has operated in Ecuador since 1993, against the President of the National Council of Telecommunications (CONATEL), for the unconstitutional terms and conditions of the bid for the advanced mobile service (SMA).

Operator's Demands

The incumbent operators were excluded from bidding for the new mobile licences, and sought protection through the equal treatment guarantees in the constitution. They demanded that:

  • the price paid by the new operator for the advanced mobile service (SMA) should not be less than that paid by them to provide the cellular mobile telephony service;

  • they should be exempt from paying for coverage extensions, as the new operator has been allowed national coverage (presently they must pay for every new coverage extension);

  • access to frequencies with a similar bandwidth (1900 megahertz (mH)) to that licensed to the new SMA operator, thus removing the new operator's monopoly in the SMA frequency; and

  • nullification of the exclusivity granted to the new operator for the SMA 1,900 mH frequency.

The operators demanded suspension of the bidding process, which has reached envelope opening stage of economic offers.

Decision

The Constitutional Court did not suspend the auction process. However, it established the following:

  • The three-year exclusivity term for the new SMA operator is contrary to the regulation issued by CONATEL, which established that the incumbent operators may offer the SMA service jointly with the new operator;

  • The incumbent mobile operators are entitled to the equal treatment anticipated in their concession contracts, and therefore any advantages granted to third parties are implicitly incorporated into their concession contracts;

  • By virtue of of their right to equal treatment, the incumbent operators must have access to the SMA, which was anticipated in their concession contracts and the SMA regulation; and

  • A decision regarding the price for the SMA is not yet possible, as its value will be determined at the opening of the envelope which contains the offer. From that moment the incumbent operators shall be able to exercise their equal treatment rights.

The CONATEL has decided to continue with the auction. January 14 2003 will see the open of the envelope that contains the economic offer of the only bidder, Andinatel.

Outlook

The Constitutional Court's decision did not call for suspension of the auction and Andinatel's monopoly will be re-established if it is granted the SMA licence, despite arguments that opening the market was necessary to attract foreign investment.

Alternatively, the SMA will now have three operators, thereby increasing inter-industry competition.

Finally, if Andinatel offers an inferior amount for the SMA to that paid for the cellular mobile telephony service, CONATEL is obliged to repay the excess amount paid by Porta and Bellsouth.


For further information on this topic please contact Carlos R Ch├ívez at Pareja & Asociados Abogados by telephone (+5934 2 68 7100) or by fax (+5934 2 68 7104) or by email ([email protected]).


Endnotes

(1) In September 2002 the cellular mobile telephony penetration level was about seven out of every 100 inhabitants, compared to fixed telephony at about 11 out every 100 inhabitants. Of 18,920 lines existing in 1994, at present they have 1,340,709 clients.