Legislation Could Aid Venezuelan Investment

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Caracas, Venezuela -- Recently proposed legislation in
Venezuela could make the country's cable and telecommunications market much more
attractive to both overseas investors and established local players.

If approved, the legislation would eliminate the
country's current 20 percent limit on foreign ownership of pay TV companies and
drastically cut the tax burden of multiple MSOs. The bill, a proposed update of
Venezuela's 1940 Telecommunications Law, has passed its first reading in Congress.

Pay TV operators and the business community in general see
the bill as an indication of a more business- and investment-friendly attitude from a
Congress dominated by the Polo Patriótico political coalition, known for its populist
rhetoric. That's the party of recently elected Venezuelan President Hugo Chavez
Frias.

According to the 1940 law, telecommunications companies
must pay a special tax of 5 percent to 10 percent on gross revenues, plus another 0.5
percent tax on gross sales.

Under the proposed legislation, the tax rate would plunge
to just 1 percent for all commercial telecom services, including cable, direct-to-home
(DTH) satellite TV and MMDS, also known as wireless cable. Broadcast and radio companies
will pay a 0.5 percent to 3 percent tax on annual gross sales.

Not surprisingly, the proposed legislation has been warmly
welcomed by industry organizations, including the Venezuelan Chamber of Subscription TV
(Cavetesu). "It will boost industry growth and development," Cavetesu president
Alberto Arape said.

Mario Seijas, vice president of institutional relations for
Corporación Telemic C.A., which owns leading Venezuelan MSO Intercable, said the
legislation would cut per-subscriber costs and help keep subscription rates down. He added
that it also enable operators to offer improved and expanded service.

The lifting of the foreign-investment cap could also
brighten that picture. While overseas investors back MSOs in Venezuela, the 20 percent
limit has been viewed as a stumbling block for decades. Seijas noted that Dallas-based
private investment firm Hicks, Muse, Tate & Furst Inc. owns about 20 percent of
Intercable. Attracting larger investments by such companies is seen as a potential boon.

The bill is emerging just before the government deregulates
the telephony business, which has been state-controlled. That liberalization is slated to
occur by November 2000, and will pave the way for the introduction of cable telephony
convergence. The government has said it sees telecommunications principally as a privately
owned, commercial business operating under free-market conditions.

This philosophy was driven home by National
Telecommunications Commission general secretary Jesse Chacon, who said: "We are in
favor of competition, because we are in favor of giving the public more and better
services."

Such a comment from the government -- on top of the
proposed telecommunications legislation -- are music to the ears of many domestic and
foreign investors, who have been worried about President Chavez's past political and
economic radicalism.

Under the Venezuelan Constitution, organizations and
individuals have the right to make comments on and propose changes to the bill before its
second reading in Congress. Then, it has to make its way to the Senate for final approval.
Criticism has already been voiced from various quarters, including the Venezuelan Chamber
of Broadcasting Industries. Its president, Alejandro Fuenmayor, said the proposed bill
would still overtax Venezuela's radio and TV broadcasters.

However, given support from both government and the private
sector, many believe that it could become law before the end of the year.

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