VSAT Systems was thrilled when Costa Rica signed onto the Central America Free Trade Agreement.
The Akron-based satellite company, which provides data services throughout North America, the Caribbean and Central America, saw a great opportunity to expand its reach into a new market — and perhaps nearly double its number of employees.
That was more than three years ago.
Today, the company still has no government-issued license to operate in the country and is accusing Costa Rica of intentionally violating the trade agreement because it doesn’t want competition for its government-owned satellite provider, Instituto Costarricense de Electricidad (ICE).
Costa Rica has created hurdle after hurdle designed to prevent a foreign telecommunications company from moving into the country, company President Mike Kister said. And during the delays, ICE has inked long-term contracts with banana plantations, banks, groceries and other high-profile clients that use satellite services, he added.
Meanwhile, Kister estimated the Akron company of 35 employees has spent more than $300,000 on legal fees and for startup costs, such as renting a warehouse in Costa Rica and shipping an installation truck to the country and then back to the United States as the licensing process has dragged on.
“CAFTA was supposed to provide opportunities for U.S. businesses to do business in Costa Rica,” Kister said. “That’s the idea. And for their businesses to do business here and reduce the barriers to trade. We still don’t have a license to do business there. We’ve spent a tremendous amount of money trying to get a license that should have been granted to us routinely.”
The Costa Rican government did not respond to requests for comment. Laura Dachner, deputy chief of mission and minister counselor for economic and trade affairs at the Costa Rican embassy in Washington, D.C., said by telephone that she was aware of the issue and requested that questions be emailed to her to be forwarded to the proper authorities for a response. After more than a week, she had not responded.
The United States signed onto the trade agreement — it covers Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic — with much fanfare in 2004, saying it would create jobs and bring economic growth. Costa Rica received approval to delay opening its country for Internet and telecommunications services until Jan. 1, 2009.
VSAT Systems, owned by one-time Akron pager king Don Jacobs, was eager to enter the country. The move was expected to add 25 workers at the high-tech headquarters, located in an unassuming building near the intersection of South Arlington Street and Waterloo Road in southeast Akron. A satellite farm with giant satellites is tucked out of view from the road.
The company formed a subsidiary called Datzap to serve the new market.
Datzap, which provides data services as opposed to residential television services, inked a long-term deal with a satellite carrier to cover Central America, including Costa Rica. That $44,000-a-month deal runs through 2024.
Jacobs also bought property in Costa Rica, applied for residency and hired local counsel to help with the licensing process, Kister said.
But Datzap has been frustrated at every turn.
When the company showed up before the telecommunications agency SUTEL to apply for a license, it was told the country hadn’t set up the application process, Kister said.
Then, when the company finally was able to apply to SUTEL, it was told it needed to submit its application to the Ministry of Environment, Energy and Telecommunications (MINEAT).
SUTEL couldn’t transfer the application because it had no record of receiving one, Kister said. Eventually, Datzap was told by MINEAT that it had to apply with the original regulatory body after all.
That hasn’t been the only holdup. Other problems included Costa Rica initially writing its own telecommunications rules instead of adopting the worldwide International Telecommunications Union standards, the government continually seeking additional information and one agency rejecting financial information because it wasn’t considered an accepted Spanish translation of the document.
“I can only imagine what the next thing that they are going to create is going to be,” Kister said. “For three years, the issuance of the license has been imminent. It’s right around the corner. We need you to finish this one thing. Give us this one certification. Provide us this additional document. Show us your financials. Just one thing after another.
“The people of Costa Rica aren’t yet probably comfortable with the idea of foreign competition,” he added. “They’ve had a government-owned telecom monopoly since the first telephones were installed and have always gotten all telecom-related services from this government-owned monopoly. So I don’t think it would be difficult for a bureaucrat within the regulatory bodies down there to think they were doing the right thing by keeping these foreigners out.”
Kister also expressed disappointment with U.S. officials, whom he says aren’t pushing hard enough on the issue.
“No one can help in a meaningful way,” he said.
The Office of the U.S. Trade Representative and a spokeswoman for U.S. Sen. Rob Portman, R-Ohio, who was the trade representative when CAFTA was signed, said they have been trying to help the company.
“We have been working on this issue with the company, members of Congress and the government of Costa Rica at high levels, and to support the company through the regulatory process to get the authorization it needs to provide satellite Internet service in Costa Rica,” Trade Representative spokeswoman Nkenge Harmon said in an email.
Andrew Thomas, an assistant professor of marketing and international business at the University of Akron who has written about trade agreements, wasn’t surprised to hear about the trouble Datzap has encountered.
U.S. companies often discover barriers to doing business in foreign countries, especially in China and Latin America, even when there are trade agreements, he said.
“These regional trade agreements, in theory, are wonderful and fair. But nations are like individuals. They have interests,” Thomas said. “The interests of this particular Akron company ran into the interests of the government, and there’s push back. It’s not uncommon. It happens all the time.”
The problem for U.S. companies is that it’s nearly impossible to find a solution, and business practices that work here don’t necessarily work in other countries, he said.
“There comes a moment when they have to throw in the towel,” Thomas said.
There are few apparent options for Datzap. One is taking the Costa Rican government to Investor-State Arbitration, an international arbitration process — the first step in an international lawsuit. But, Kister said, that would cost more than $1 million.
Datzap has asked the Office of the U.S. Trade Representative to file suit on the company’s behalf, but the agency has declined.
The company has been left “to twist in the wind,” Kister said.
When asked why Datzap hasn’t given up, he cited principle. Even with the Costa Rican government signing long-term deals with clients, he believes the company could somehow make money there.
“We are supposed to be allowed to go down there,” he said. “Our government signed a treaty to allow us to go there. Their government is getting benefits from the treaty. Our government should get benefits from the treaty.
“If we open that market, we’re going to need more engineers and support folks and we’re going to create the jobs here in Northeast Ohio that all the politicians told us would happen if we signed on to CAFTA.”
Rick Armon can be reached at 330-996-3569 or email@example.com.