Venezuelan Pay TV Industry Hurt by Floods

Caracas, Venezuela -- Floods that ravaged the country lastmonth are taking their toll on its pay television industry, and the effects could weigh onoperators over the long term.

MSOs are suffering from lost equipment, while overalldamage from the flooding has put expansion plans on hold. At the same time, the disastercould hamper future growth by making investment capital more difficult to attract.

Grupo Veninfotel's Cabletel, one of Venezuela'sleading MSOs, may have suffered a direct hit from raging floods that destroyed towns andclaimed at least 20,000 lives, according to managing director Alberto Scharffenorth.

The company had a great deal of network-constructionmaterials in customs at Venezuela's principal port of La Guaira, in the state ofVargas, where warehouses, shipping yards and offices were severely damaged. The MSO has nooperations in the area.

Huge numbers of shipping containers were swept away, whileothers fell prey to looters. The port is now closed to shipping, with vessels beingrerouted to other points of entry along the coast.

"Our cable and electronics materials there may nolonger exist," Scharffenorth said, indicating that it would take time to determinethe extent of losses since the government has put a priority on rescue and relief efforts.

Overall, operators said, they'll suffer most from alack of investment, as they need to expand their businesses. According to Scharffenorth,Venezuelan operators have yet to reach at least 40 percent of the population that isconsidered able to afford pay TV.

"Money for project development will be hard to comeby," said Ahmad Lee Khamsi, president of SuperCable, another leading MSO. Investorswho were nervous about Venezuela's political situation even before the flooding arenow more doubtful, he added.

As the government competes with the private sector forfunds, interest rates are likely to rise, and the devaluation of Venezuela's currencyshould accelerate. That's particularly harmful for a capital-intensive industry likepay TV.

The government estimates that an initial $10 billion to $15billion will be needed for Vargas' recovery alone. This means that the pay TVindustry will almost surely see slower growth.

Early last year, Venezuelan Chamber of Subscription TV(Cavetesu) president Alberto Arape predicted that cable penetration would increase to 35percent from 12 percent over two years. Now, that target isn't likely to be met.

And while it's impossible to forecast how the industrywill evolve, "We must find ways to minimize the risk," Khamsi said.