Costa Rica Communication Profile 2012

Sea change in Costa Rica’s telecom market

Costa Rica’s telecom industry is on the brink of a sea change as it struggles to implement liberalisation of its Internet, VoIP, and mobile telephony markets. The transformation is not an easy one. Of all Latin American countries, Costa Rica has possibly been the most resistant to either the privatisation or liberalisation of its telecom sector. The new regulator, Sutel, faces a challenging task.

State-owned ICE and its subsidiary Racsa have been the monopoly providers of virtually all telecom services in Costa Rica except for pay TV. ICE provides fixed and mobile telephony, ADSL access, and corporate solutions. Racsa offers broadband via cable modem and WiMAX, Internet dial-up, WiFi, prepaid Internet cards, and corporate services including Internet via satellite. Though ICE has achieved better fixed-line coverage than any other operator in Latin America, it has proved itself inefficient in the mobile telephony business, with month-long waiting lists for mobile services.

ICE has displayed the typical reluctance of any private incumbent towards competition, submitting objections against the issuing of authorisations, stalling interconnection negotiations, and criticising most of Sutel’s policies. In this, it has had the support of political forces averse to foreign enterprise. As a result, the liberalisation process in Costa Rica has been marked by a conspicuous lack of cooperation and dialogue among parties.

Sutel began to issue authorisations in July 2009 to new companies interested in providing Internet, VoIP, and corporate telecom service. It took a whole year, however, for ICE to sign interconnection contracts, and then only after Sutel’s intervention. The first alternative operators were finally interfaced in July 2010. By then, Sutel had awarded 86 telecom authorisations.

Mobile telephony is expected to grow strongly as soon as the market is opened to competition. ICE has made an effort to corner the market before other companies can entice potential subscribers away, but mobile penetration is still low in Costa Rica compared with other Latin American countries.

A public auction was to be completed in May 2010 for three new operators to enter the mobile market. But the process has been postponed. In common with telecom liberalisations elsewhere in Latin America, Costa Rica’s first mobile spectrum auction has been subject to bureaucratic wrangling and legalistic delay.

In early August 2010, the Constitutional Court granted the government a maximum of three months to complete the competitive public tender. Three licences are to be awarded for spectrum blocks in the 850MHz, 1800MHz, and 2100MHz bands. Digicel, América Móvil, Millicom International Cellular, and Cable & Wireless have all confirmed their interest in bidding.

Costa Rica’s broadband market is the most advanced in Central America, with the highest broadband penetration for this sub-region. Geographical distribution however is unequal, with a much higher digital gap than in the case of telephone services. Compared with the whole of Latin America, Costa Rica’s broadband penetration lags behind Chile, Argentina, Uruguay, and some Caribbean islands.

Market highlights:

• In February 2010, Sutel implemented a price cap system for all services, including mobile and fixed-line telephony, text messaging, Internet, and IP telephony. ICE’s existing rates were adopted as price caps. At the time, some of these tariffs were very low by Latin American standards.
• In March 2010, Sutel adopted the Long Run Incremental Costs (LRIC) model to calculate access and interconnection rates between operators. All network operators in Costa Rica must grant interconnection to other network operators on a non-discriminatory and transparent basis.
• The first companies to reach access/interconnection agreements with ICE, in July 2010, were cable TV company Amnet, public telephone operator BBG Global AG, and three VoIP providers: Ticom, CallMyWay, and Intertel Worldwide. Amnet was finally able to launch its own cable modem service, becoming the operator to offer Internet access in competition with the incumbent.
• After a seven-year wait, ICE launched prepaid services in April 2010. With a long pre-launch waiting list, the lines were snapped up in no time. ICE recycled the accounts of GSM customers that migrated to 3G, but even so, GSM lines dried up and customers were again left waiting.

Costa Rica – key telecom parameters – 2009 - 2010

(Source: BuddeComm)

Note1: Estimates for 2009.

With its long-awaited liberalisation, Costa Rica is an attractive market for telecom investors

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