Fixed line operator Telefónica de Argentina has told a World Bank tribunal that it will withdraw its legal action against the Argentine government over a 2002 state-enforced tariff freeze. In January this year Telefónica renewed an appeal for USD2.8 billion in compensation from the government for forcing it to charge in pesos rather than dollars following the country’s economic crash of 2001. The appeal, first launched in mid-2003, was intended to keep the pressure on the government to negotiate new public service contracts with higher price ceilings, which it has promised to do before the end of 2005.
In January 2002 the government passed an emergency law freezing telecoms tariffs, and as a result public service contracts were converted from dollar equivalents to Argentine pesos, leaving public service providers – including Telefónica and rival Telecom Argentina – with a significant mismatch between revenues (earned in devalued pesos) and debts (largely in US dollars). The public service contracts of both Telecom and Telefónica de Argentina were due to be renegotiated by 31 December 2004, to allow the telcos to adjust their rates to reflect the current value of the peso, but the state passed a further bill to extend the deadline by a year.