As we continue our tour around the world exploring the regulatory climate for CoolCo, our next stop is Latin America. I have to again say that this is not a comprehensive review and I am not offering legal advice. And as far as Latin America goes, I am going to focus on the following countries - Argentina, Brazil, Chile, Mexico, Panama, Peru, and Venezuela. These are the countries in which Global Crossing operates and with which I am therefore most familiar. Additionally, these countries also represent (along with Columbia) the major markets in the region. What is interesting about Latin America is that it is a study in contrasts. Out of the historical "rich and poor" divide has emerged the political tensions between market-oriented business leaders advocating greater privatization of the economy and agricultural-based populists who pursue greater state control of the economy. Telecommunications in Latin America has its own contrasts as well that are generally an expression of the prevailing political climate. So you have countries such as Argentina, Brazil and Chile that are changing their telecommunications laws in an effort to foster a growing telecommunications market and adapt to industry technology and market trends. Then you have countries like Mexico, Panama, Peru and Venezuela that continue to maintain a high degree of involvement in the carrier-to-customer relationship by requiring tariffs, approval of contract language, and price regulation. So let's look now at our six areas of regulation and how they impact CoolCo's operations. The six areas are (1) licensing requirements, (2) license fees and other fees (3) foreign ownership restrictions, (4) tariff, contract, and pricing rules, (5) interconnection rights and obligations, (6) and the efficiency and effectiveness of the regulatory process. Again, I welcome readers to contribute to the deeper understanding of regulations in these areas and any others they feel are important to consider. Licensing requirements Argentina, Brazil, and Chile have rapidly changed the regulatory climate to support competitive investment in their telecommunications infrastructure. Part and parcel of this is simplifying the licensing process, eliminating the requirement to obtain a separate license for each discreet service - local voice, international voice, video, data, private lines, etc. Argentina, Brazil, and Chile have moved in this direction. I should mention that Peru has very recently streamlined its licensing process as well. With regards to CoolCo, this means that they can obtain a single license that authorizes their Internet access service, VoIP service, and their value-added services. Conversely, Mexico, Panama, and Venezuela still require discreet licenses or concessions for each service offered. Thus, CoolCo would have to obtain separate licenses for their Internet access product and their VoIP product. Indeed, VoIP is regulated the same as public telephony in these countries and therefore falls under a rigid regulatory regime that was ill-suited for the old circuit-switched network let alone modern IP networks and services. Mexico and Venezuela also require an inordinate amount of information during the license process, including detailed business cases and technical information. License fees and other fees Generally, license fees in Latin America are calculated as a percentage of revenue and range from one-half of one percent (0.5%) to three percent (3%). In addition to license fees, there are universal service fund fees and other telecommunications taxes, but again these stay within the 0.5% to 3% range. Foreign ownership restrictions With the exception of Mexico, none of our Latin American countries have foreign ownership restrictions. Thus, CoolCo can offer its services (except in Mexico) without the need to form a joint venture with an in-country partner. In Mexico, CoolCo would have to find a joint venture partner. Tariff, contract and pricing rules As I mentioned before, Mexico, Peru, and Venezuela are terribly involved in the carrier-customer relationship and tightly regulate prices, tariffs, and the form of contract with customers. This means that CoolCo has to convince the regulators that its prices are cost justified. In addition, CoolCo would have to submit its standard customer contracts for approval by the regulator and in most instances cannot deviate from the terms and conditions. And of course, the prices charged by CoolCo in the rapidly changing VoIP and Internet market would have to be approved by the regulator through regular tariff filings. This of course has generated a cottage industry in "side letters". Since technically, carriers are only supposed to use the form of contract approved by the regulator some execute side letters with their customers which are not filed with the regulator but which change the terms of the contract. Personally, I think this is a foolish practice because the legal effect (on both parties) of side letters is questionable at best. Interconnection rights and obligations The interconnection regime in Latin America has not yet matured. Most countries require interconnection, but few have a rigorous regime for implementing and enforcing interconnection rights and obligations. Mexico requires carriers to file tariffs for interconnection, but several complaints have been filed against the incumbent (Telmex) for frustrating the implementation of interconnection. Consequently, CoolCo can expect to have a great deal of difficulty pursuing its growth strategy through local loop unbundling. Efficiency and effectiveness of the regulatory process Here pretty much all of Latin America suffers from the historical and cultural dynamics of the overall legal and political systems. The regulatory process tends to follow the ruling government and decisions are often influenced by the effect on the incumbent (who is, after all, typically the largest employer in the country). A greater degree of independence and transparency of the decision-making process would facilitate matters. While many statutes and rules place time limits on action by regulators, the fact is these limits are routinely ignored and carriers find themselves in a legal limbo waiting for action by the regulator even though the statutory deadline has passed. This situation can last several months or even years in some extreme instances. As we can see from this cursory review, CoolCo faces many challenges in establishing operations in Latin America. I have not touched on the currency restrictions or tax situation in the region which complicate matters further. Nonetheless, Argentina, Brazil and Chile appear promising for CoolCo because their entry requirements have been minimized, their regulation is not unduly burdensome, and the regulatory process is maturing. On the other hand, Mexico and Venezuela retain burdensome entry requirements, and would require CoolCo to invest a significant amount of resources into their legal/regulatory support apparatus. Next week we will visit Asia to see how they are doing before examining the U.S. framework.