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Argentina: Is It Anti-Spanish Or Being Driven By Economic Necessity?

|Includes: NTL, REPYY, Telefonica S.A. (TEF), TEO, TI, YPF

First we saw the expropriation of YPF SA (NYSE:YPF) from its Spanish owner Repsol (OTCQX:REPYY) by the Argentine Government. Now the government has fined Spanish telecommunications giant Telefonica $43 million for a service outage in Argentina on April 2nd 2012.

The outage occurred in Telefonica's wireless unit Movistar, which has operations offering wireless voice and data services across South America. During this outage 18 million clients of Movistar were without phone and data services for several hours on April 2 due to technical problems.

After the outage, the company had moved to compensate customers but the Argentine government decreed that the compensation wasn't sufficient. The fine translates into $2.25 for each customer affected and $1.4 million for the government.

Interestingly, as this article in MercoPress points out, the Argentine Planning Minister has also asked telecommunications companies to increase their investment in fixed infrastructure in Argentina. He was also quoted as stating:

Cell-phone service quality has declined in recent months, . . We need to have full service, not service that gets worse when you walk a few meters one way or another.

All of which I believe indicates that the government is using the regulatory stick to pressure telecommunications companies to increase investment in infrastructure in Argentina. Especially as any investment will improve government popularity, as it seen to create jobs in a country with high unemployment. It also alleviates the government's inability to raise the necessary funds to invest in critical and much needed internal communications infrastructure, because they can't tap international credit markets for those funds.

Even more cynically, I would think that the fine is nothing more than a much needed capital injection, as the government faces renewed balance of payments pressure and attempts to raise funds for investment in newly nationalized YPF. Telefonica has around 40% share of the Argentine wireless communications market so it is unlikely the company will depart the country as a result of the fine.

Interestingly Argentina's biggest communications company Telecom Argentina (NYSE:TEO), which is majority owned by Nortel Invesora (NYSE:NTL) a company that is majority controlled by Telecom Italia (NYSE:TI) paid a dividend to investors earlier this year. This was in defiance of government demands for companies to retain capital and re-invest it in Argentina in preference to the payment of dividends, particularly to foreign investors. Could the telecommunications industry be the next target for expropriation, in particular Telecom Argentina?