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America Movil: No Ecuador Network Problems; Wants New Contract

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QUITO (Dow Jones) There are no legal or technical grounds to end the contract of Mexican wireless provider America Movil in Ecuador, the company said Tuesday.

"There never were service cuts - pre-paid services failed, but the company lost, not the customers," Daniel Bernal, the company's legal counsel, told Dow Jones Newswires Tuesday. "It's baseless to say the company acted with negligence, what we see is a strong desire to damage the company."

Telecommunications regulators in Ecuador have given Concecel, America Movil's unit in Ecuador, 30 days to fix problems with its network or face the cancellation of its license. Concecel does business under the Porta Celular brand.

Paul Rojas, Ecuador's telecommunications superintendent, has said some Porta Celular users, mainly subscribers of pre-paid plans, were left without service for hours on Sept. 25.

Bernal said only the pre-paid service platform failed, and the customers were not billed for their calls or text messages that day.

"Services were never suspended, this is very easy to show," he said. "The company was affected, because all the calls and messages pre-paid customers made that day were free."

Because of the platform problems, call volumes doubled and text message traffic tripled, which led to congestion in some areas, mainly affecting post-pay customers. But these subscribers received an extra day on their plans as credit, Bernal said.

Under the current contract between the government and Concecel, service cuts have to last more than 30 days to be reason for termination, he said.

America Movil started doing business in Ecuador in 2000, and since then has invested $1.4 billion, Bernal said. The company has already spent about 80% of its 2007 investment budget of $200 million. The money has paid for maintenance and renovations, he said, but he declined to be more specific.

America Movil Still Interested In Extending Contract

Despite the rough times with regulators, America Movil is still interested in renewing its contract in Ecuador, Bernal said.

"We have worked to extend service areas and serve areas with small numbers of residents," he said. But he confirmed the government has not initiated contract renewal negotiations. The contract expires in August 2008, and the company hopes to start negotiations this month, Bernal said.

According to Ecuador's tax office, between 2003 and 2006, Concecel's revenue reached $1.95 billion, and it had expenditures of $1.73 billion. It paid $4 million in taxes.

Meanwhile, competitor Otecel, a unit of Spain's Telefonica doing business as Movistar, had $1.32 billion in revenue, $1.19 billion in expenses and $25 million in taxes in the same period.

To account for the discrepancy between the two company's tax bills, Bernal said Concecel had losses earlier, and the losses' amortization, done over five years, resulted in less taxes. But in 2000 the company was responsible for 0.24% of Ecuador's total tax revenues, and last year its share had increased to 3.5% of the country's total revenues, he said.

The tax office is auditing Concecel's taxes and, according to the office's director, Carlos Marx Carrasco, the company "will have to pay a significant amount, nothing like the $4 million it paid in four years." Each $1 million paid will likely be multiplied by a two-digit number, Carrasco said, without giving further details.

The audit is expected to be completed next month.

-By Mercedes Alvaro, Dow Jones Newswires; 5939-9728-653; mercedes.alvaro@dowjones.com

(END) Dow Jones Newswires­

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