Movistar Venezuela hit by currency problems
27 September 2010
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Extract from Telefonicawatch, report #49. Click through for: the Executive Brief from this month’s report; the Report Snapshot; or to contact us for more information about the full 48-page report, this industry standard monthly report service, and ongoing subscription access.
Movistar Venezuela hit by currency problems
Movistar Venezuela saw services disrupted as a result of the ongoing issues surrounding the Venezuelan currency, and the telco’s struggles to repatriate funds generated in the country.
Roaming services for Movistar mobile customers are being restricted as payment to overseas network operators is not possible because the operating company cannot obtain the required foreign currency. Some operators have ceased providing services to the Venezuelan operator already, while further carriers have notified the Telefónica unit that they plan to do so.
The local Movistar unit has widely publicised the problems it is facing, issuing press releases to announce the restrictions in service, commenting in local media, and reporting on meetings with government officials on the subject.
“ Given the difficulties Telefónica Venezuela is having in meeting its commitments to international operators, due to the lack of availability of required foreign currency, we have found it necessary to temporarily suspend the International Roaming service with some operators in various locations. ”
– Telefónica statement.
Telefónica is said to be continuing negotiations with operators to enable it to maintain services, and it appears to be making progress.
At a meeting with government officials, Telefónica executives reportedly outlined the difficulties in operating internationally when foreign currency was not easily available. Subsequently, Telefónica claimed the government had committed to reviewing procedures that companies have to follow in order to obtain foreign currency, and once that commitment is in place, the telco said it is planning to re enter negotiations with partners on the resumption of roaming.
Repatriation still on the agenda
The repatriation of funds is also a long running thorny issue for Telefónica in Venezuela, and the financial performance of the operating company had already been heavily impacted through the decision of Hugo Chavez’s government to devalue the currency, which was taken at the beginning of 2010 (Telefónicawatch, 2010.01).
Telefónica highlighted that it had been unable to repatriate a sum of $1.8bn (EUR1.4bn) since 2006 — an amount that would have been even higher if not for the 2010 devaluation of the Venezuelan currency. While the telco has previously been bullish on long term prospects for repatriating funds from Venezuela, Santiago Fernandez Valbuena, Group Chief Financial Officer, has become more pessimistic about this of late, claiming recently that the likelihood has lessened since the beginning of the year.
Antonio Abellán, Chairman of Telefónica in Venezuela, has said he hopes the government will recognise the telco’s efforts to build business in the country, and that enabling it to repatriate funds would send a message encouraging foreign investment in Venezuela. However, the very public Telefónica decision to restrict services and complain of the difficulty in working with foreign vendors to deliver services to the local population can be viewed as an attempt to embarrass the government with quite the opposite message.
Venezuela currently has a two tier currency, and money earned by Movistar is not tradable on foreign exchanges, and can only be exchanged through government authorities. In addition, the government is said to be experiencing a shortage of US dollars due to its ongoing economic difficulties.
The problems for the unit are not limited to paying roaming partners; Movistar Venezuela has attempted to source more equipment internally, for example by partnering with Bess Mobile for new handsets to be made in Caracas, but this project has stalled over the past year due to the inability to import materials due to high duties (see separate report). Further restrictions in the ability to pay suppliers would only exacerbate the issue.
[Further reference: La falta de dólares traba el negocio de Telefónica en Venezuela -- Cinco Dias, 20 August 2010; Notificación sobre el servicio de Roaming Internacional -- Telefónica, 26 August 2010; Autoridades nacionales se reúnen con Telefónica Venezuela -- Telefónica, 27 August 2010; Telefónica lleva dos años sin repatriar fondo alguno desde Venezuela -- Cinco Días, 27 August 2010.]
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Report: #49
Covering: August/September
Published: September 2010
Next report: October 2010
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