President Luiz Inácio Lula da Silva met Wednesday, June 4, with representatives of the three incumbent local exchange carriers (ILECs) for talks on the abolition of tariff indexation from 2004 on. The presidential chief of staff and the communications and finance ministers also attended the meeting. According to Congressman Walter Pinheiro (PT, Bahia), the ILECs agreed to a new model without the link to past inflation built into the tariff review scheme currently in place.
The new model will involve tariff review negotiations between ILECs and the Government, taking account of capital expenditure and productivity. This year?s tariff reset will be indexed to inflation in the past 12 months, as usual (and as allowed by contract), but from 2004 there will be no use of inflation indices to adjust tariffs, the congressman said.
This doesn?t quite match the Communications Ministry?s demand for a scheme to track long-term incremental costs but the agreement includes the idea of a simulation exercise advocated by the ministry to establish parameters that show whether productivity has genuinely increased. Differently from the original proposal, however, the ?simulated telephone company? won?t extrapolate trends out into the long term to determine incremental costs.
Congressman Walter Pinheiro didn?t explicitly state that the ILECs have agreed to implement the new approach in 2004 but hinted that they will. Given the successful negotiation of new terms, he said, there?s no reason to wait until 2006, when new licenses come into effect. In other words, the Government is pressuring the ILECs to abolish indexation next year.
Dissatisfied
Sources close to the people who took part in the meeting say the talks weren?t easy and the ILECs came away dissatisfied with some of the terms discussed, although they did make concessions. In practice they felt progress was satisfactory only insofar as they succeeded in ruling out a model based on long-term incremental costs. On the other hand, they lost the ability to predict the tariff reset well in advance.
The ILECs were represented at the meeting by Sérgio Andrade and Carlos Jereissati for Telemar; Carla Cico and Luiz Octávio da Mota Veiga for Brasil Telecom; and Fernando Xavier for Telefonica. They refused to talk to reporters.
The question now is how new entrants will react, since they supported the model based on long-term incremental costs. There?s also a possibility of opposition in Congress when the decree is issued.
