Telecommunications

Telecommunications industry leaders warn that Senate Bill 1333 (S.B. 1333) to create the Puerto Rico Municipal Code could radically increase operational costs and future investments in advanced technology, as well as potentially increasing user fees.

S.B. 1333, introduced by Senate President Thomas Rivera Schatz and former Sen. Nolasco Santiago in August 2019, would, among other things, would tax telecommunications companies based on how many clients they have rather than how many properties they own.

Jorge Martel, vice president and general manager at T-Mobile Puerto Rico—which completed its merger with Sprint earlier this year—, told THE WEEKLY JOURNAL that this new formula “has a dire impact on the entire industry. It raises our costs drastically, not just to companies like T-Mobile, but smaller businesses as well. If you talk with all small businesses that provide internet, fibers, etc., it affects them drastically.”

Naji Khoury, president and CEO of Liberty Puerto Rico, remarked that this new tax could represent an increase of anywhere between 200 percent to 1,000 percent, depending on the company. In the case of T-Mobile, Martel said that the approval of this legislation would entail a 1,000 percent increase in operational costs.

Although neither T-Mobile nor Liberty—which is acquiring AT&T’s assets in Puerto Rico—have determined to raise clients’ tariffs yet, they haven’t completely discarded the possibility of doing so to offset the considerably higher spending. Moreover, companies would be more reluctant to further invest in evolving technology on the island or have difficulty accessing capital from their parent companies.

“This proposed tax will create a truly damaging ripple effect that will thwart investment on the island at a time when it needs it the most. It will mean that customers will not be able to get advanced telecom products and services or upgraded telecom infrastructure. It can also mean fewer direct and indirect jobs, no investment in construction, employee education, or community programs,” Khoury warned.

The Liberty CEO denounced that the industry “should not be held responsible” for the $40 million gap that municipalities are trying to fill, affirming that the company is against the measure as written.

“An increase of $40 million in taxes among a handful of companies is going to have a big impact not just on jobs, investment, and innovation in our industry, but ultimately, it will also have a negative effect on the central government’s revenues,” he said.

THE WEEKLY JOURNAL asked if the Legislature had consulted these industry leaders or offered to have an audience. Khoury stated that the Senate passed the bill without allowing Liberty to provide suggestions or concerns during a public hearing. Meanwhile, Martel indicated that T-Mobile spokespersons will have a meeting with the House of Representatives, where S.B. 1333 is pending approval.

“At this time in the midst of COVID-19, we have created 80 new jobs in customer service. And then in these moments [the central company] asks why they look at communications this way here. Telecommunications sometimes worry that here in Puerto Rico we aren’t acknowledging telecommunications with the importance they have for economic development,” Martel said. 

Small- and midsize businesses (PyMES by its Spanish acronym) in this industry protested in front of the Capitol on June 8 against the bill’s impact on consumers. There are roughly 100 PyMES that provide internet to an estimated 300,000 clients, most of whom live in rural parts of the island.

Government Support for S.B. 1333

The legislation has nonetheless garnered support from the public sector. Javier Carrasquillo, mayor of Cidra and president of the Municipal Revenue Collections Center (CRIM) by its Spanish acronym), stated that this tax had actually been established by law since 1995. “This is a redefinition of taxes to telecommunications [companies]. There used to be companies that were not included in the definition and now they are,” he said.

Carlos Molina, mayor of Arecibo and president of the Mayors Federation, elaborated, saying that, to date, the only company that pays the tax is Claro Puerto Rico, which still maintains the fixed structure that belonged to the Puerto Rico Telephone Company.

“They (Claro) are in the courts right now and are the ones who raised concerns by claiming that they were the only ones who paid that tax while other companies did not. In addition, the [Financial Oversight and Management Board] asked the municipalities to create new collection methods. We urgently need to collect funds to be able to provide essential services to people,” Molina explained.

For his part, Rivera Schatz affirmed that the creation of this Municipal Code would establish advanced mechanisms to address municipalities needs concordant to modern times.

“There are people who don’t understand that without a public instrumentality like municipalities working at full capacity—with full capacity meaning to have all the powers to function and serve—governability is severely wounded,” the Senate president said.

Senate Minority Leader Eduardo Bhatia also expressed his support for the bill, saying, “this is an important exercise because we are encompassing in one single Code what should be the sequence of what Rafael Hernández Colón began in 1989 when all the amendments to the Autonomous Municipalities Act began to be worked on.”

Claro Puerto Rico could not be reached for commentary.

The Weekly Journal reporter Fernando Pereira contributed to this story.

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