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Nortel Implicated in Disastrous Liquidation of Colombia’s Telecom

By Asad Ismi

Nortel Networks, Canada’s largest high-tech corporation, has helped bring about the liquidation of TELECOM, Colombia’s biggest telecommunications company, and the likely privatization of its successor.

Brampton-based Nortel has assets of U.S.$15.8 billion, 37,000 employees and a presence in 150 countries. Plummeting global demand for telecommunications equipment and poor management have devastated Nortel during the past two years cutting its assets by more than half and the number of its employees by 60%. Nortel’s share price has fallen by 90%; the company is burdened with a $4.8 billion debt and had its credit rating cut to junk. In March 2004, Nortel suspended both its chief financial officer and controller after warning that it would “likely” have to restate its financial results for the second time in six months. In reaction, the company’s shares fell by 23%. The U.S. government’s Securities and Exchange Commission is investigating Nortel.

Colombia is one of Nortel’s fastest growing markets in Latin America and its sales and service here are carried out by Nortel Networks de Colombia (NNC) established in 1993. Based in the capital Bogota, NNC has 185 employees. According to Nortel, it has “become a leader in the implementation of shared risk agreements in Colombia.”

Since 1997, Nortel has contracted for the construction of close to 800,000 telephone lines and has built more than 550,000 lines in 17 different regions of Colombia under four association agreements with Colombia’s Empresa Nacional de Telecomunicaciones (TELECOM). TELECOM has signed more association agreements with Nortel than with any other supplier.


In its Colombian venture, Nortel has received considerable financial assistance from the Canadian government. During 2002-04, Export Development Canada (EDC), a Crown corporation, gave $130 million in total financing for nine different sales by Nortel of telecommunications equipment to Sercotel S.A. de C.V. in Colombia. Sercotel is owned by Mexico-based America Movil, the largest cell phone company in Latin America which has operations in ten countries. In 1996, EDC gave $65 million to support Nortel’s sale of telecommunications equipment to the Colombia Telecommunications Funding Corporation. EDC has also financed about U.S.$90 million of Nortel’s cellular business including $17.3 million for its supply of equipment to OCCEL in 1995.

EDC support (and thus that of the Canadian taxpayer) is crucial to Nortel’s ability to generate international sales. As one observer put it “Nortel Networks Corp. and Bombardier did not become multi-billion dollar global leaders just by making cuttingedge products; they also helped many of their biggest customers to buy them using big loans from Export Development Canada.” Almost half of EDC’s $21 billion loan portfolio is to Nortel and Bombardier clients. EDC financing for Nortel sales is particularly important given the weak state of the telecom industry worldwide highlighted by the fact that Nortel’s foreign buyers have not repaid $4.1 billion of its loans to them (Nortel lent this money between 1997 and 2000 to finance its sales). Cash-strapped foreign telecom companies are unlikely to buy Nortel products without EDC financing.

Nortel and The Liquidation/Privatization of Colombia’s TELECOM

As noted above, Nortel calls itself “a leader in the implementation of shared risk agreements in Colombia.” Through the enforcement of such agreements, Nortel has played a significant role in bringing about the liquidation of TELECOM, Colombia’s largest telecommunications company, and the likely privatization of its replacement, Telecom Colombia Telecomunicaciones S.A ESP, (TCT), the new state-owned company. The liquidation which was carried out by the Colombian government in June 2003 means the layoff of 8,000 workers and the sale of TELECOM’s assets to TCT which was created to assure transnational corporations, (including Nortel) that there would be payment on shared risk contracts. According to Jorge Lerma, President of the Communication Workers Union (USTC), Multinational companies want to take over the powerful state enterprise telecommunications infrastructure and are using pressure on the shared risk contracts to do so. “I see the government selling this company off in the short-term, maybe to some foreign company,” said Lerma.

Nortel has a very positive view of privatization and associates it with the expansion of markets for its products. As Gary Donahee, president, Service Provider Solutions for Nortel Networks, Americas, said “Privatization and deregulation that has swept through the region has resulted in a greater number of people with access to some of the most advanced telecommunications services available anywhere. This makes Latin America one of the fastest growing markets for the Internet.” According to Nortel, “After the privatization of Telefonos de Mexico (Telmex), the state-owned telephone company, Mexico has embarked on a rapid expansion of the country’s telecommunications capabilities. Nortel Networks has been an active participant in this expansion, supplying major carriers with switching equipment, wireless and broadband network solutions, and businesses with enterprise network solutions.” The privatization of TELECOM in Colombia can be expected to yield similar benefits for Nortel.

Between 1993 and 1998, TELECOM signed contracts with Nortel, Alcatel (France), Siemens (Germany), Ericsson (Sweden), NEC and Itochu (both Japan) to install 1.6 million fixed telephone lines. 1.3 million of these lines were sold. The agreements included shared risk clauses stipulating that TELECOM would pay the total value of the projected lines, and not just those that were being billed; paying out the difference between the profit levels it guaranteed the companies and realized profits. It is hard to see why such a clause is labelled “shared risk” since all the risk is on TELECOM’s side. Semana, Colombia’s business magazine, called this agreement “possibly the worst deal in history” because TELECOM enormously inflated the profits it expected to get from the lines. The foreign companies claimed that they had invested $2.8 billion but earned only $1 billion in revenues. Under the terms of TELECOM’s deal with Nortel, the latter was to install 200,000 fixed telephone lines for which it was guaranteed profits of $143 million by 1999. This magnified level of profits was never achieved and the same was true for the other companies, all of whom then sued TELECOM for a total of $1.8 billion in damages. Nortel claimed that TELECOM owed it $73 million. An arbitration panel ruled in Nortel’s favour in early 2001.

TELECOM responded that the contracts were illegal and called for their renegotiation. The company also maintained that the joint venture contracts were badly negotiated and left it with most of the risk. Due to a lawsuit filed by the Association of Telecommunications Workers (ATT – now the USTC), the Attorney-General of Colombia launched an investigation into “suspected irregularities” involving three former TELECOM presidents in a contract with Nortel. The executives are Clara Elsa Villalba,(who first signed the contract with Nortel in 1993), Jose Blackburn and Julio Molano (both of whom later altered the agreement in 1996 and 1997). Another four former TELECOM employees are also being investigated. An arbitrator is presently reviewing the matter and is supposed to make a decision by October 2004.

The Pastrana government offered the six companies $600 million (which it had to borrow) but they rejected this and Nortel put political pressure on the Colombian government to force full payment. In April 2002, William Lash, U.S. Assistant Secretary of Commerce for Market Access and Compliance, stated on a visit to Colombia that the U.S. government could block Colombia’s benefits under the Andean Trade Preferences Act, (ATPA), unless progress was made toward paying TELECOM’s $73 million debt to Nortel. “Close to one tenth of our Congress in both parties have sent me letters stressing that they are very concerned about ATPA benefits being sent to Colombia, that they have not honored arbitral awards and haven’t met criteria,” Lash said. ATPA and its renewal by the U.S. Congress (which was pending at the time) are crucial to Colombia’s flower, leather and textile industries. The Act allows these goods dutyfree access to the U.S. market. Passed in 1991, ATPA has been presented by the U.S. government as complimenting its regional anti-cocaine program; the Act is supposed to encourage legal industries in Colombia, Bolivia, Ecuador and Peru.

Thus, the Nortel-TELECOM dispute had now “become an increasingly tough problem in U.S.Colombian relations” which showed the extent of Nortel’s political influence in Washington. By this time a Colombian court had ruled that TELECOM had to pay Nortel the $73 million. TELECOM appealed this decision and Colombia’s highest appellate court ruled in June 2002 that the Colombian company had to pay Nortel $64 million in compensation. At this point, The U.S. Department of Commerce’s International Trade Administration (ITA) set up a “NortelColombia Group” made up of its officials, to resolve the dispute. As the ITA describes it: “The Nortel Colombia group, combining elements of five ITA units, solved a key commercial dispute involving nonpayment of a $54 million arbitral award owed to Nortel. Demonstrating dedication, judgement and teamwork, the group succeeded where other interagency efforts had failed, resulting in payment of one of the largest amounts ever achieved by ITA.” On August 2, 2002, TELECOM announced that it had paid Nortel $56.7 million in compensation. This did not end Nortel’s legal pursuit of monetary claims against TELECOM; several such claims remain in arbitration.

Nortel’s political influence in the U.S. then is powerful enough to not only make its dispute with TELECOM a foreign policy issue but also to ensure that Washington gets the company’s claimed debt repaid.

Estimating that it may have to pay $800 million to the multinationals, TELECOM appealed for official aid to avoid collapse. This was refused by the Pastrana government and that of Alvaro Uribe (who replaced Pastrana in 2002). Samuel Velasquez, Pastrana’s deputy communications minister made it clear that the government would not help TELECOM even if the debt burden destroyed the firm. “Telecom is an autonomous entity, which does not have its loans guaranteed by the government,” Velasquez said, ” The government doesn’t have any reason to pay these debts. The government is not going to give loans to TELECOM because it doesn’t have it (the money).” Uribe, who has been linked to death squads by Human Rights Watch, has an extensive privatization agenda stemming from IMF demands to halve the fiscal deficit. He moved to liquidate TELECOM less than a year after taking office.

Union Resistance

The Colombian government has been trying to privatize TELECOM and the associated municipal telephone companies (known as Teleasociados or Tele-Associates) for thirteen years without success due to fierce resistance from the company’s union and unionized workers in general. The ATT and the TELECOM Workers’ Union (SITTELECOM), both today part of the USTC, as well as the Central Union of Workers (CUT) and its sister federation, the General Confederation of Democratic Workers (CGTD), have launched strikes, held demonstrations and carried out work stoppages and occupations to block privatization. The response has been the murder and arrest of unionists. In October 1998, 800,000 state employees went on strike partly to protest the attempted privatization of TELECOM. Seven union leaders were killed during the strike including Jorge Luis Ortega Garcia, Vice-President of the CUT. Union representatives and Colombian human rights groups held the state responsible for the deaths. In a legal dispute in 1993, 13 members of the ATT were tried on terrorism charges and arbitrarily detained for almost a year after they called a strike in 1992 to oppose privatization.

In the same spirit, the Colombian unions have vigorously opposed the joint venture contracts TELECOM signed with the six foreign companies. The CUT, CGTD and the USTC called the deals “a pact of corruption between six transnational companies and the Colombian state.” They pointed out that the financial demands of the multinationals were driving TELECOM into bankruptcy and that the firms had already received three times the sum of money they would have got if they had sold the telephone lines at market prices and not imposed surcharges on TELECOM. The unions called for the cancellation of the contracts and the investigation of those responsible for perpetrating the “fraud…and embezzlement.”

The USTC objected when the Pastrana government took out the $600 million loan to pay the multinationals. In February 2002, the union presented formal demands and denounced the one-sided joint venture contracts. “The union argued that the loan should be blocked, and that the equipment installed by the multinationals be taken over. The union was very concerned that conceding to the multinationals’ demand would mean a defacto privatization, with dire consequences for workers rights as well as for services to the community.” The government ignored the USTC’s demands and the union was not able to gain anything through negotiations. As a result, the USTC launched “a wave of occupations” across Colombia on May 14 confronting security forces. On May 17, the Colombian army threatened to use force to end the workers’ occupation in Buenaventura. The workers contacted the Colombia Solidarity Campaign in England which immediately put out an international alert to protect them from a massacre. The police broke up the Bucaramanga occupation by force on May 20, throwing out the workers and arresting 85 of them.

In reaction to the liquidation of TELECOM, the CUT called a one-day general strike on June 19, 2003 in which 600,000 state sector workers marched through Bogota. The workers were also protesting the privatization of ECOPETROL, the national oil company, and health and security agencies. Altogether, the privatizations mean the imminent loss of 40,000 jobs. There were four marches in Bogota, watched by 4,000 armed police. Nine days before the strike, riot police attacked TELECOM workers in Bogota who were protesting the dismissal of 12 of the company’s workers in Bucaramanga. The police beat some of the protestors severely while others were injured by tear gas and pepper spray. Four workers were arrested after being badly hurt. On the same day, the police assaulted Jorge Lerma, president of the Communications Workers Union (USTC), in front of the TELECOM building. They also pepper sprayed him in the eyes before dragging him, almost unconscious, into the building’s basement.

Subsidizing Destruction

The liquidation and impending privatization of TELECOM are a national disaster for Colombia and a clear violation of workers’ rights. The likely ownership of this precious national resource by foreigners will mean that the wealth generated by it will leave the country; it will also mean that Colombians will not be able to use TELECOM to further national development by generating employment and stimulating local industry. The loss of 8,000 well-paid jobs is a devastating blow to workers in a country already suffering from massive unemployment, enormous poverty and a 40-year old civil war. The layoffs considerably worsen the social polarization that is the main cause of the civil war. The government had the responsibility to negotiate any changes it wanted in TELECOM with the workers who were willing to engage in a dialogue. Nortel has contributed significantly to causing this national disaster through its intransigent attitude and coercive actions. Nortel’s collection of $56 million from TELECOM when the latter was on the verge of collapse clearly drove the Colombian company towards liquidation. The manner in which Nortel obtained this money could be construed as blackmail and extortion.

Using the enormous economic power of the United States against a poor, vulnerable country is reprehensible. Obviously, a corporation that does such social damage does not meet the ethical guidelines of the EDC and should not be heavily subsidized by the Canadian taxpayer. According to the Crown corporation’s due diligence statement, “EDC views social and human rights issues as key variables in determining the level of political risk to projects… EDC has decided not to support certain projects for reasons purely related to human rights and other social impacts. EDC is concerned about the violations of human rights in Colombia. EDC values human rights and promotes the protection of internationally recognized human rights, consistent with the policies of the Government of Canada.” In the TELECOM case, the workers’ social and human rights were both violated as they were dismissed without negotiation by the government and attacked by the police. Therefore, EDC needs to examine the role of Nortel in bringing about this crisis and take steps to ensure that the company does not have the Canadian public’s financial backing for its detrimental conduct. Canada should be helping to alleviate the incredible suffering of the Colombian people instead of adding to their oppression.

Nortel’s behaviour also contradicts its own code of conduct contained in the company’s “Guide to Ethical Business Practices.” This guide emphasizes that “integrity is our foundation” and that “Nortel Networks long-term interests, and the interests of everyone who has a stake in the company, depend on our total commitment to doing business with integrity.” Nortel explains”When we say we value integrity, we mean “We compete vigorously and fairly in the marketplace. We treat others with dignity and respect… We strive to do the right thing for individuals, organizations and society in general.”


Published in the Canadian Centre for Policy Alternatives Monitor, October 2004

Asad Ismi is the CCPA Monitor‘s international affairs correspondent and author of the report Nortel in Colombia (2003) commissioned by the Canadian Autoworkers (CAW) and the Communications, Energy and Paperworkers Union (CEP), and the report Profiting from Repression: Canadian Investment in and Trade with Colombia (2000) .