Colombian Cablers, Regulators Face the Music

Cartagena, Colombia -- It's do-or-die time for
Colombia's cable television industry.

There was a flurry of activity in Bogotá last week, as
cable operators scrambled to file their applications for franchise licenses -- a process
that is expected to completely reorder the business. For the operators, gaining a license
is the difference between life and death -- or between profitability and continued losses.

What's more, at stake is the survival of the Colombian
National Television Commission (CNTV), the government body that regulates cable.

"The current licensing process is an opportunity for
the CNTV to determine [its effectiveness]," said Colombian minister of communications
Claudia de Francisco, who oversees the CNTV. de Francisco had previously proposed a
radical reform, or complete elimination, of the CNTV.

The commission has received considerable criticism in the
past as an inefficient regulatory body that does not understand the industry and has been
guilty of political favoritism.

de Francisco will be among those closely monitoring how
well the CNTV manages the license-granting process.

Although licenses will be awarded on the local level, the
real prize lies in the licenses that will be awarded for three large sections of the
country. All told, 11 licenses will be granted for the three larger regions. Of those
three, the central area is the real gold mine.

"It's the biggest and most important zone in the
country because of the population and the presence of Bogotá," said Henry Reyes,
vice president of Cable Centro, a systems operator in Bogotá and other cities without a
license. "It represents 50 percent of the whole market."

Centro is teamed with four other "informal"
operators for a central-zone license.

"We have a joke that unless we get a license from the
CNTV, we're dead," he said. But there's more than a little truth to that,
because those who apply for a regional license cannot apply for local licenses. If he and
his partners lose the bidding war, they'll have lost their chance to legalize their
existing systems.

Cable Centro is one of some 1,000 operators in Colombia
that have been operating without an official license because of the government's long
delays in opening up the licensing process. There are only eight "legal" systems
in the country.

That state of affairs -- along with the guerilla warfare
occurring in Colombia -- has scared away overseas investors. Those who win licenses will
seek those investors. Reyes says his group will invest some $100 million to build out the
central zone, if it wins a license. They expect the license itself to cost about $1

But it's not just a matter of survival for the
informal operators. The fate of the licensed operators also hangs in the balance.

Take the situation of Salim Sefair López, who has a system
with some 2,000 customers in the city of Ibagué. He competes with informal systems
companies that have accumulated some 30,000 customers because they can charge lower rates.
Sefair López noted that with the current licensing process, much of the overbuild
activity will disappear, and informals that are legalized will need to increase their
subscriber fees to pay for their government licenses and the upgrades needed to meet
regulatory standards.

The mad rush in Bogotá undermined the country's
annual cable trade show, Andina Link, held in this coastal city.

Attendance was noticeably lower than last year, with
observers estimating some 200 attendees. However, the suppliers exhibiting at the show
were sanguine.

"There's probably only 270,000 subscribers served
by legal operators in Colombia now, and 1.7 million served by illegal operators,"
said Eric Denis, director of affiliate sales for the Cisneros Television Group. He
believes that the customers served by the presently illegal systems will dwindle to about
700,000 after the licensing process. But because some of CTG's channels don't
sell to the unlicensed operators, that's more than half a million new customers he
can try to reach.

That kind of potential growth is significant in Latin
America right now, because the region's overall subscriber base is stagnant. Denis
ranks Colombia as Latin America's third-most-important market for growth, behind
Brazil and Mexico. One source who requested anonymity estimated that the market was
capable of generating some 5 million to 7 million subscribers when it matures, although
others set lower estimates.