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The telecommunications sector grew 15.8% during the first trimester in 2006 and has not stopped its pace. It is one of the most dynamic areas of the country that is kept in expansion due to the low price of the service, the competition and the massive use. For example, there are 53.6 cellular phones for each 100 Panamanians. In the first semester of 2006, the telecommunications sector generates to the gross internal product a total of US$427.6 millions. Panama is in the vanguard in Latin America in the matter of telecommunications. The country is well equipped with an infrastructure made up of technical advances, being one of the first to introduce the GSM technology and displace a GSM network of 850 MHZ, as well as launch the Blackberry. These are adequate conditions for the establishment of new multinationals that want to invest in the sector. Beginning in 2008, up to two new operators may opt for licenses in the area of cellular phones in Panama, as a consequence the bid process of the two frequency bands Personal Communications Services (PCS) that are within the segment included within the 1850 megahertz (mgH) to 1910 mgH and 1930 mgH to 1960 mgH. According to Resolution JD-080 of 11 April 1997, the two operators will pay 36 million 305 thousand dollars, each, for this concession. It is the eminent opening of the cellular telephone market. The National Authority of Public Services (“Autoridad Nacional de los Servicios Públicos”) (Asep) began the propaganda for the bid of these two banks of cellular telephone for 2008. There are two companies that have shown their interest in participating in this bid: Digicel, a Jamaican company that operates a network of cellular telephones in the Caribbean markets. The other is América Móvil that operates presently in 15 countries of the continent. If you are interested in participating in this bid, please contact the BusinessPanama Group. PANAMA COMPETITIVE ADVANTAGE
QUALITY OF LIFE
MARKET OVERVIEW Panama's population is estimated at 3.1 million. Approximately 12% of Panamanian households have a telephone line. Local calls represent 73 % of total traffic, and the mobile market is growing very fast with more than 1,000,000 customers. The telecommunications sectors have great potential to contribute to the economic development of Panama via direct investment in technology and infrastructure. Other sectors with growth potential are depending in technology as tourism and transportation, through the multi-modal transpont infrastructure including the Panama Canal, ports, highways, railroad and telecommunication. The telecommunication market was open since January 2003, and a legion of companies with and without experience, received a license from the Ente Regulador de los Servicios Publicos, the local FCC that has granted more than 1,422 licenses to 182 operators. The primary objective for most of the new players is international long distance and the use of services such as VOIP (voice over Internet) and VON (voice over the net). During 2003, the price of international call gets down to less US$0.10 a minute and will go down to 0.05 when new operators start operations, especially using VOIP. In 2003, the Regulatory Authority has ruled that in order to provide these services a license needs to be obtained. In an apparent attempt to stem telephone company revenue losses due to internet telephony, the new operators Telecarrier, Clarocom and Cable & Wireless who use the VOIP technology for reducing their cost of operation but try to block the access to the free world asked the government of Panama to block 46 UDP ports to all internet service providers. The ports include ones that are commonly used for voice over IP as well as some that are used for other purposes, apparently with the idea that these, too, could be used to circumvent the POTS (plain old telephone system, a term of art) in making telephone calls. According to the largest local telephone company, the amount of traffic generated by VON or VOIP represents a market of approximately US$30 million. VOIP future is still unclear because the Regulatory Authority must rule on the use of VOlP. On January 16, 2004, the National Assembly approved Law No 98 to eliminate a $1.00 tax on every International Call and replace it by a 12% tax on all International Calls using any Technology: Telecom, Internet, call back, prepaid card, This step is the first intent of the government to reduce the lost of around US$30 million that the traditional carrier are leaving to the Informal carrier as Net2Phone, Internet Telecom, Dow Network and more 100 internet café selling Internet calls. According to information from the National Authority of Public Services (“Autoridad Nacional de los Servicios Públicos”) (ANSEP), there are 9 operators of the basic local service of telecommunications. Cable & Wireless, the main telephone company of Panama, has in the market some additional 500 thousand cellular telephone numbers, in comparison with the year 2005, a figure that is equal to one fourth of the users that exist in all the country. In the year 2005, Telefónica acquired the 10 operations of the company BellSouth in Latin America in a transaction which surpassed US$600 million. Regarding cellular telephones, Cable & Wireless and Movistar (Telefonica) are the two operators. In 6 years, the Panamanian market went from having 410 clients to 2 million approximately. CALL CENTERS 21 licenses have been issued for Call Centers since the government of Panama agreed to eliminate a US$1 tax on international calls in order to make call centers competitive with the rest of the world. The principal participant are DELL, Health Link Networks, Language Line, Sitel, Spherion , and 5,900 jobs have been already created. The activity of call centers is regulated by Law 54 of 2001. One of the greatest tax benefits is that there exists no tax over the calls abroad. Also, according to the law, call centers have the benefits and incentives of Law 25 of 1992 for call centers engaged in international calls only. The most important benefits are:
Law 25 of 1992 and Law 3 of 1997 also grant call centers enjoy certain special incentives in the employment field, making more flexible some of the provisions of the Labor Code:
Foreign companies that invest more than US$250,000 in the establishment of a call center may apply for the permanent resident visa as an investor. Expats hired as key employees, executives, and experts and/or technological of call centers have the right to request a temporary resident visa, which will be valid for the term of his contract. Foreigners that make investments in call centres established or in process of establishment, may request a visa under the condition as resident businessman, which is valid for one year. When obtaining this type of visas, it is included the permit for exit and re-entry, multiple, valid for the term of the visa. These will be extensive in the same conditions to the spouse and dependent children of the main petitioner. ONLINE GAMBLING Panama has passed its fully regulated Internet Gaming laws. This makes it the only regulated jurisdiction in the world issuing licenses now to those operators wishing to stay on the good side of US law. Panama's laws are of the same high standards as the Isle of Man, large casino-resorts' place of choice for iGaming. Until now a very few companies have applied for the license, mainly due to the huge paper work and the cost of the license. Costa Rica is still the success story with more 6,000 casinos online and gambling sites. The expectation is of a large exodus of companies from other Central American like countries Costa Rica and several Caribbean islands were the situation is unregulated, unclear and the price of bandwidth is astronomical compare to Panama. It has not been a success yet, Panama must review the business model and the cost of the license in order to actively particípate in this market. MOBILE COMMUNICATIONS Telefonica has taken over Bell South Panama, so the two authorized operators Cable & Wireless and Telefonica will fight each other to gain customer, and we hope Telefonica will reduce the price to get market share. Total cellular phone users reached 900,000 in June 2004 with good chances for continued growth in the future, especially pre-paid services. Approximately 85% of the estimated total market for wireless services (US$163 million) comes from Pre-Paid Services. The remaining 15% comes from Post Paid services, oriented primarily to corporate and personal high consumption users. Cable & Wireless, the largest cellular operator, accounts for 65 % of the market. The other 35% is controlled by BellSouth who is loosing market share, Telefonica is planning the replacement of the Bellsouth infrastructure with GSM to compete again with C&W and eliminate the current TDMA platform. VOICE SERVICES Voice Services include local, domestic, international long distance and public pay phones. Since the privatization of the government-owned operator (INTEL), Cable & Wireless has been offering basic services on a five year exclusive concession. This market condition granted by law ended on January 2, 2003, when the market was opened to competition. With 380,224 lines installed (around 12.2 lines for each 100 inhabitants), and 365,000 customers on a digital platform installed by ALCATEL and Ericsson, Panama offers first class service compared to most of the Latin American countries. The total voice market in Panama is estimated at US$424 million. Local services, including domestic long distance, represent about 80% of the total. LOCAL SERVICES In of June, 2004 over 21 new operators have applied for Basic Service concessions. Operators such as Cable & Wireless, Bellsouth, Telecarrier, Cable Onda, ClaroCom, One World Communication, VOIP and Advanced Communications are already in operation and their price war helps the customers to get a choice a services and price. Most of those concessions are only targeting the most populated zones of the country, mainly Panama City and Colon, leaving the rest of the country to be served by Cable & Wireless. This situation is largely due to the investment required not only to provide the service but to comply with the service standards set by the local telecommunications authority. The local player with the best position will be cable Onda who is already offering cable TV and Internet and begin offering Local, Long Distance and International telecommunication services. DOMESTIC LONG DISTANCE SERVICES 29 licenses have been issued to operators that are going to provide Domestic Long Distance. Most of the operators currently own network infrastructure being used to transport data and to provide Internet services and last mille with Cable & Wireless, the price for a National long distance call was reduce from US$0.15 to 0,06 by Telecarrier, ClaroCom and Cable Onda. INTERNATIONAL LONG DISTANCE (ILD) Executive Decree No. 17 of 20 February 2004, regulates Law 6 of 21 January 2004 that creates a burden ad valorem over the long distance international calls of public use, invoiced in Panama. 58 licenses have been issued to new operators of ILD. This use to be the most profitable market segment, requiring lower infrastructure investment. Most of the new players are relying on third party network infrastructure as Altec Carrier Hotel and Telco Virtual and local loop provider to transport voice traffíc. Interconnection agreements, service level agreements and local loop availability are the most important issues being faced by new entrants in this segment, and the dominant operator is still trying very hard to block the entry of new carriers who will be waiting on line for the next two years. On June 16, the Regulatory Authority took a serious look of the situation and organize a public hearing session to find out more information regarding the difficulties to negotiate agreements with Cable & Wireless who was the center of the attack, almost all the companies complained for the delay and the unfair condition of the interconnection practice and a total monopoly of the network and pay phone. PAY PHONES 18 operators have obtained (licenses to offer services representing a $50 million market mostly in the largest cities, leaving the largest part of the country without telecommunication services due to the high cost of installation and operation, Cable & Wireless already asking a fair treatment from the Regulatory Authority for universal access. Very few operators have installed Pay Phones and Cable & Wireless do not authorize prepaid cards from other operators. PRIVATE VOICE CIRCUITS 13 operators have been granted licenses to offer private voice circuits since January 2003. DATA SERVICES At least 47 companies have licenses to offer data transmission services using dedicated access solutions the widespread use of wireless technologies such as Spread Spectrum and LMDS solutions, fiber optic and ADSL targeted to corporate and private users has been evolving since 2002. The main player is Cable & Wireless, Tele Carrier and another incumbent player is Optynex Telecom who uses existing fiber optic cable from UFINET, ACP and Global Crossing. Other smaller players are GBnet, Sky On Line( Diveo & Teleglobe) and Commnet. Data services, account for a market size of US$75 million, with approximately 9500 point-to-point private circuits in operation. INTERNET SERVICES 84 companies are fighting each other for 70,000 users, 55,000 in dialup mode and 15,000 users in ADSL, Cable Modem or dedicated circuit. The leader is Telecarrier who take over several companies including Alianza Viva, TeleData, net2net and Fuzion telecommunication and still trying very hard to resolve technical issue caused by a wide range of disparate equipment from several manufactures. Public kiosk has been installed around the country by SENACYT a govemment sponsored institute. The number of internet dial-up connections kept growing in 2004 with the introduction of new prepaid services and charges per minute of connection and ClaroCom give free access to the clients of the company. Cable & Wireless launched an aggressive campaign to penetrate the Internet market with ADSL technology. The Kilobyte price for dedicated Internet access dropped significantly, as the main providers such as Cable & Wireless, Telecarrier and Cable Onda lowered their rates. The new pricing structure benefited both residential and corporate markets, reaching a level of $39 per month for a dedicated 128K connection. Internet access, hosting and first tier IP services represented approximated a US$27 million market, showing an increase of 18 % over the prior year. INTERNET DATA CENTER AND CARRIER HOTEL Panama has already 3 world class internet data centers, the first one is Altec1, the only neutral organization and the other two are from Cable & Wireless and TeleCarrier; every one provide basically the same quality of services including redundant access to several submarine fiber optic network, security, fire detection and fire suppression system, access control, CCTV, Electrical generator and UPS. collocation space. rack, cabinet and private suite, scalability, reliability and convenience for companies looking to reduce their IT cost in a 24 x 7 secure facilities. Many foreign companies are already taking advantage of Panama completive advantage, including the US dollar economy, access to 5 submarines Fiber Optics Networks, availability of bilingual certified engineers, ecommerce and gaming laws, lower wages and lower operation costs. PANAMA MARKET SIZE BUSINESS OPPORTUNITIES
The telecommunications sector offers excellent growth opportunities for the immediate future with very low investment using the existing infrastructure provided by Cable & Wireless and other incumbent companies. THE BEST OPPORTUNITIES ARE: IDC (Internet Data Center) and carrier Hotel, disaster recovery center, Collocation, Hosting, Data transmission and data switching, Internet access, intemet Kiosk, value added mobile services and HUB for International call. The City of Knowledge TecnoPark is the first choice for companies interested in doing business in Panama; the large FT Clayton former US military base has a lot of advantages including a tax free environment. Today several companies are already processing credit card clearing center, ecommerce, ASP and telecommunications activities. The most growth potential is Voice over IP (VOIP) Recently VOIP has been considered an (almost) legal activity by the telecommunications regulatory office, more than 40 company are doing the paperwork required to get a license paying the 12% value added tax, the market leader is NET2PHONE who have more than 6000 customers and 90% of the Colon Free zone customer who use to be the largest international long distance customer segment On the positive side, VOIP is a reality and the new law may facilitate the use of the internet to make cheap phone calls, several official carrier are using the VOIP Technology. In Panama, it is very easy and inexpensive to apply for a license from the Regulatory Entity (Ente Regulador) at this date more than 1,474 licenses as been issued and is no limit of the quantity of new operators. However, the market tends to be highly concentrated, as 8 operators are active controlling 80% of the market and the red tape impose by cable & Wireless cause already several casualties within the new Carriers. The remainder are small companies operating long distance switch, trunking radio services, paging, Internet services, data transmission, fax store & forward, teletex, and many" paper company" without money or real intention to participate actively, are just trying to make money selling the licenses to new investors. Telecom Hub for
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