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Venezuelan Pay Television Faces Taxing Time

Caracas, Venezuela -- The country's long-awaited
telecommunications bill hit a stumbling block when legislators demanded that pay TV
operators accept a 200 percent tax hike.

The latest wrangling between the industry and the National
Telecommunications Commission (Conatel) is over the planned tax rise, from 1.5 percent to
4.5 percent, on gross revenues earned by cable systems, as well as direct-to-home
platforms.

Venezuelan Chamber of Subscription Television (Cavetsu)
president Alberto Arapé urged Conatel to reconsider this increase, which comes at a time
when the government is actually lowering taxes on most services.

In fact, one article of the bill calls for an 18.8 percent
tax cut for "providers of value-added services," including those offering basic
telephony.

Conatel officials have argued in the past that cable
companies have been taxed at a very low rate compared with other service companies. The
government's plan would see pay TV operators pay a tax rate roughly equal to that
paid by other service providers, such as telephone companies, which may see their tax
rates lowered.

This scenario doesn't sit well with some of the
country's leading MSOs such as Grupo Veninfotel's Cabletel. Managing director
Alberto Scharffenorth said MSOs operate on much lower profit margins than services like
telephony, so any kind of tax hike would have a much more devastating impact.

However, Conatel secretary general Jesse Chacón noted that
MSOs will soon be able to boost their margins when they are permitted to become
full-fledged telecommunications companies. Venezuela's telephone monopoly ends in
November, and cable companies will eventually be able to offer a full range of services,
including basic telephony.

Conatel is also arguing that if cable companies convert to
telecommunications companies, they will face no restrictions on foreign investment.

That development, at least, has been welcomed by MSOs.
Mario Seijas, director at cable operator Intercable, described this as "great news
that many foreign investors have been waiting for." Overseas investors can currently
only own up to 20 percent of Venezuelan MSOs.

Additional revenue from new services, as well as potential
foreign investment, may turn out to be enough to persuade MSOs to agree to the 4.5 percent
tax.

In the end, Venezuela's three big cable companies --
Intercable, Cabletel and SuperCable -- will probably strike a deal with Conatel, according
to Scharffenorth and Seijas.

Meanwhile, Chacón said, the new taxes will not be applied
until January 2001, giving pay TV companies time to adjust their budgets to the new
reality.

The response from Venezuela's sole DTH provider has
been particularly guarded. Galaxy Latin America's DirecTV said it does not feel that
it should be saddled with the tax hike. It cannot provide telephony services, so it would
not be able to tap that new revenue stream.