Archive for January 23rd, 2007

CANTV reminiscences

January 23, 2007

CANTV was first privatized in 1992. As a first step, the Government sold 40% of the company to a GTE-led consortium (GTE was later bought by Verizon) at an implied price for the whole company of US$ 4.2 billion. GTE was given a monopoly in fixed lines until 2,000 and CANTV did not have a cellular concession at the time and slightly less than 2.0 million fixed lines.

In 1996, the Caldera Government decided to float some of the remaining shares of CANTV in the local stock market and listing it in the NYSE. A bit more than 40% of the company was sold at an implied total price of US$ 3.8 billion.

Today at the close the total value of CANTV stood at US$ 1.3 billion, thus disproving Chavez’ statement that it was sold “cheap”. In fact, investment by CANTV alone is worth three four times that. On the contrary, if the Government took it over near this price it would be the Government that would be making a great deal by selling high and buying it back cheap. On top of that CANTV, in its Movilnet subsidiary, has about 6 million cellular subscribers, something that did not exist in 1992.

As a Government company, CANTV was simply terrible. You could only get through in one out of every three phone calls, it would take years to get a telephone and the company lost money. Here is a description by a reporter from the US who lived here then.

Why was this the case? Easy, politics, corruption and Government regulation. First, being President of CANTV was a juicy political position to which many incompetent people were named. (There were some good ones too!). Two, the company was badly run, there was corruption, too many employees, equipment diversity and decision-making was simply too slow. The company not only lost money, but it did not invest sufficiently to keep the service technically up to the required levels.

Of course, the Government argues that it will run it well. Hard to believe and if you are skeptical, remember three years ago Chavez created a telecom company to compete with CANTV called CVG Telecom. After 270 million dollars and four or five Presidents CVG Telecom is not close to even begin competing with CANTV. What can make anyone think that CANTV will be run efficiently and without politics. Being its President or on its Board will become one of the most desired by politicians.

Everyone has his/her horror story about the Government owned CANTV. I have many too, but just as an anecdote, on February 4th. 1992, the night Chavez staged his first coup, my first instinct on hraring the news was to connect by modem to the then nascent Internet. There was a network of Venezuelans called Atarraya (hosted at MIT) and I connected and started telling people what was happening, what was being said and the many rumors that were reaching me. I started at about 1 AM and because I was not sure if I would be able to connect again, I stayed connected all night essentially providing a “live” text broadcast of the news. This was not a cheap proposition, more so given that I did not live in Caracas and the call was considered a national long distance call. In the morning, Chavez surrendered, news died down and I decided it was time to go to sleep at about 8 AM and finally disconnected the call. Ten minutes later someone called me to tell me something that I deemed important enough to tell the people in Atarraya, I tried to connect for half an hour and between the bad CANTV network and all the gossipy Venezuelans on the phone it was impossible, I gave up after an hour.

Maybe somehow my blog was born that day, even if it started ten years later…and I certainly don’t want service to get that bad ever again…

Tax Superintendent calls for calm and coherence. Who was he adressing?

January 23, 2007

Strange statements today by the Superintendent of Taxes Jose Gregorio Vielma Mora.

He told people to “stay calm in the face of the uncertainty caused by the changes announced by the President” among them a possible tax to luxury, and he advanced that any increase in gasoline would be exonerated of the VAT.

He added that

 “Seniat next week is going to actively participate in the public debates of the Enabling Law, and we mean to generate much confidence, much tranquility, to eliminate the uncertainty”

He explained that “the tax on luxury is an idea with has as it bases the year 1992 “that is not an idea of this Government and the Seniat (Tax Office)”

On the tax on luxury he said “I want to be coherent with my words, we are reviewing the laws, is not settled what rate we will charge, it is no the creation of a new tax”

At the end, he closed: “I believe one has to handle to this with a more coherent language, so as not to create greater uncertainty, that stimulates inflation, also to look for a mechanism of connection and coordination with the productive sectors of the country because we want that an endogenous development with the participation of all the citizens, where the private sector grows, the small and medium industry, the cooperatives, the co-managed companies, where we can make a country with a high yield and where the State can unload for job creation to the private sector”.

My take:

Does this guy talk to the Big Boss who is the one that creates the uncertainty? Where was he on Sunday? Where was he the other days that Chavez made the announcements that created the unrest and rattled the country? Chavez said the luxury tax was his idea, was he lying? Was he adressing Chavez or the public?

Yes, we certainly need coherence and it should start at the top. As for certainty, forget it, when laws are ignored and/or bypassed and the same Government makes contradictory decisions, there can be no certainty.