World Hangs Up on Venezuela as Phone Companies Can’t Pay

  • Telecom providers struggle to pay in dollars for connections
  • Maduro blocks price increases, squeezing phone carriers

Already facing shortages of food and medicine, Venezuelans are at growing risk of being cut off from the rest of the world as the inability to get ahold of foreign currencies threatens access to phone calls and even websites abroad.

Wireless operators Telefonica SA and Corp. Digitel CA have already suspended roaming services and international calls out of Venezuela after failing to extend payment terms with foreign phone companies. Prices have been rising for internet service, and even consumers who can pay often struggle to get working connections because of fraying infrastructure and outdated equipment.

“There are operators that simply stop offering services because they can’t access dollars, and inflation is so rampant they just don’t know how to price it,” said Tina Lu, senior consultant at Counterpoint Technology Market Research in Buenos Aires. “The sad reality is that if the service is there, prices are now unaffordable for any Venezuelan with a median salary.”

Last week, President Nicolas Maduro blocked telecommunications operators from raising rates, which could further hurt their ability to pay for connections. Telecom companies had increased prices as much as 10-fold to help pay their own interconnection bills abroad, making phone, internet and wireless services beyond reach for many Venezuelans.

The situation could get worse if internet carriers can’t afford to connect to the outside world, since many Venezuelans rely on web-based services like WhatsApp to communicate with family abroad. In many countries, including Venezuela, internet providers have to compensate their foreign counterparts or an intermediary for data transmitted into their networks. If currency woes force the carriers to stop paying, Venezuelans could be blocked from accessing internet data hosted outside the country, said Jose Otero, director of Latin America and the Caribbean for trade group 5G Americas.

“If their lack of dollars continues, Venezuela could enter periods of many restrictions to access the internet, including an inability to access content hosted externally,” Otero said in an interview. “If there is no internet, there is no communication; this goes beyond being an issue for the sector because there is potential for incredible censorship.”

If the telecom companies can’t fix the problems they should sell them to the state, Maduro said on state television Monday night.

“I say it like that to the telecommunications operators: if you say you can’t, sell them to us, because we’ll know how to manage them very well,” Maduro said. “It’s easy, and we’ll look for the way to do the transaction in a correct way and the fatherland will win. Nobody is going to set prices just like that. No.”

Venezuelans have long used social media and foreign websites for news in absence of information from the government or state-controlled television outlets. There are about 16.7 million internet users in Venezuela, or about 63 percent of the population, according to the regulator’s latest data.

“Venezuela is already isolated in physical terms, with more and more airlines canceling their services there,” said Pablo Bello, secretary general of the Inter-American Association of Telecommunications, based in Uruguay. “Now, operators cannot access foreign currencies and we see a new kind of isolation, one that could involve communication and connection, and one that worries us greatly.”

The country is facing the worst recession in decades and the world’s fastest inflation. Price are estimated to increase close to 500 percent this year, affecting so many parts of Venezuela’s economy that it’s getting difficult for the average consumer to afford basic goods and services.

Telefonica more than doubled the price of its Movistar Full 1.2 mobile internet plan recently, charging 1,045 bolivars for about 280 megabytes of data -- a week’s worth for a typical user. That rate is about 12 percent of an average weekly wage, but inflation is so warped that the plan is still less expensive than a pack of cigarettes.

Totalcom, a corporate internet provider that offers dedicated connections, sent a letter to customers in June informing them that billing would be switched from the official foreign exchange rate to the one set on the alternative currency market known as Simadi. That caused a bill for internet service of as much as 5 megabits a second to more than quintuple to 401,000 bolivars a month.

Venezuelans who can pay for internet access are offered the lowest speeds in the world, at an average of about 1.9 megabits a second -- slower than Bolivia or Egypt, according to a study by Akamai Technologies Inc. Netflix recommends at least a 5 megabits a second to stream high-definition movies.

Some Venezuelans who can afford it have turned to small businesses that offer Wimax-based internet connections, using antennas placed on roofs, so they don’t have to rely on decaying cable and telecom network equipment.

To read a QuickTake about Venezuela’s political and economic crisis, click here.

Telefonica and satellite-TV provider DirecTV wrote down almost the entire value of their Venezuela assets last year after switching to a lower exchange rate. DirecTV owner AT&T Inc. declined to comment. Telefonica had no immediate comment.
Telecommunications regulator Conatel announced Maduro’s price freeze after Cia. Anonima Nacional Telefonos de Venezuela, the phone company nationalized in 2007 and known as CanTV, disclosed price increases July 20, accompanied by competitors Inter and NetUno. Telefonica and Digitel followed last week for offers that were set to start this month.

The pricing moves came after telecommunications services providers were switched over to the Dicom dollar exchange in March, one that currently stands at 640 bolivars per dollar.

The price increases included mobile data plans, affecting messaging services like Facebook Inc.’s WhatsApp that have provided a lifeline for Venezuelans with family in other countries. Morella Erminy, a 74-year-old who lives in the suburbs of Caracas, said the sudden increase in mobile-phone services and the inability to make international calls has kept her from keeping in touch with her son, sister and friends in the U.S. and Europe. She now uses the calling feature of WhatsApp, which has seen an uptick in use in Venezuela since operators eliminated international roaming services gradually between December and April.

“I used to make frequent international calls; now I’ve switched to WhatsApp because it’s just cheaper,” said Erminy, who had to rely on her phone to seek help when her house was robbed. “I use my cellphone for everything.”

— With assistance by Noris Soto, and Rodrigo Orihuela

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