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Tax Hike May Dampen Argentine Cable

10/01/2000 8:00 PM Eastern

Buenos Aires, Argentina-A planned pay TV tax hike in Argentina could put at risk the cable industry's future subscriber growth and boost competition between hardwire and direct-to-home satellite TV.

That was the response from industry players after the Finance Ministry recently recommended increasing taxes on pay TV in its proposed 2001 budget, which was just submitted to Congress for approval. If passed, Argentina's second pay TV tax hike in as many years would become effective in January.

Under the plan, the value-added tax will rise to 13 percent from 10.5 percent. Although this increase is less than originally expected, cable executives said they intend to pass the full amount of the hike on to subscribers. This means the country's two leading MSOs-CableVisión S.A. and Multicanal S.A.-would add a mere 86 cents to the US $38 monthly price of basic cable.

However, even a hike this small could handicap the MSOs' aggressive efforts to roll out new services like Internet-over-cable and tiered programming, said Walter Burzaco, president of the Argentine Cable Television Association (ATVC).

"It's like we're beginning the race with a broken leg," added Burzaco, who is also corporate development manager at CableVisión.

Ironically, the tax hike could inject a new competitive spirit into Argentina's pay TV market. The local unit of panregional DTH platform DirecTV Inc. might absorb the levy as a means to close the price gap between its service and cable, said DirecTV Argentina general manager Roberto Hernández.

Pricing for DirecTV Argentina's basic package starts at US $48. The service claims 210,000 subscribers.

Cable operators worry that the latest hike could stall industry efforts to regain some of territory lost over the past two years, due to Argentina's nagging recession. Cable has also suffered from the government's decision to slap a 10.5 percent sales tax on pay TV in January 1999.

Also that month, HBO Latin America Group's popular movie networks were removed from basic cable, angering subscribers. Those services have since been relaunched as premium channels.

Burzaco estimated that the number of cable subscribers has dropped 4 percent from a high of 5.3 million in late 1998. As bad as things may seem, Burzaco said, the situation could have been worse.

When news of the cable-tax hike first leaked earlier this month, the industry had braced for a steeper 21 percent increase-the standard rate on consumer items here.

Such a steep tax would have caused a 10 percent drop in subscriber levels, Burzaco said.

Because the government has found it difficult to narrow a huge budget deficit, Burzaco added, the latest increase may set a precedent for future hikes.

"It's hard to implement a business plan when the tax code is always being changed," he said.

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