In the 1980s and early 1990s, Costa Rica was a paragon of development with a clear head start on cellular telephony, at least compared with its Central American neighbors mired in civil unrest. But now, after years of under-investment in telecommunications, Costa Rica lags behind its local peers.

"The service is incredibly bad, dreadful," says cellular phone user Ricardo Villegas, who depends on his telephone to coordinate his textile import and export business.

Today cell phone penetration in El Salvador, although still low at 15 percent, outstrips Costa Rica's own 12 percent figure, according to a report by the EMC wireless industry research firm, based in England.

In Nicaragua, where only 6 percent of the population carries a cellular phone, handsets are a third of the price of phones in Costa Rica, where a basic phone costs $150.

Until just a few weeks ago, when new lines were activated, Costa Ricans faced a waiting list of up to a year before they could have a working cellular phone, compared to less than a day in Guatemala, for instance.

And even then, state-owned I.C.E concedes its cellular phones will only work in 40 percent of the tiny nation's territory.

Ironically, the I.C.E is a source of great pride for Costa Ricans, and that has stymied sporadic government efforts to privatize the company or to make it more efficient.

"NO" TO PRIVATIZATION

Attempts by former President Miguel Angel Rodriguez to privatize I.C.E, which also provides the country's energy, sparked a 22-day nationwide street protest in May 2000.

"I.C.E's privatization is still not something we talk about," Central Bank President Francisco de Paula Gutierrez says. "The issue is not up for discussion."

I.C.E, formed in 1949 after the end of the Costa Rican civil war, is seen as a symbol of progress by many because it brought electricity and telephones to a poor, urbanizing nation.

As a way of strengthening the power of a new, democratic state, telecoms and energy were put in government hands to direct power away from the coffee exporting oligarchy.

"It is the conundrum of Costa Rica," Christian Jimenez, a San Jose-based lawyer, says. "My cellular phone connection is pitiful, but I feel great affection for the company that provides it."

For the government of President Abel Pacheco, which took power in May 2002, I.C.E not only provides a poor service, but is also a drain on public finances.

The Finance Ministry says the company must reduce spending this year or risk pushing up the country's fiscal deficit, which is running at 5.4 percent of gross domestic product.

A high budget deficit can create instability in an economy because the government must spend more money paying interest on its debt and less on infrastructure and health and education.

According to Deputy Finance Minister Carlos Gonzalez, the I.C.E planned to increase its telecoms spending in 2003 by 100 percent from 2002, when expenditure grew 75 percent.

"The plans were unsustainable. We've agreed on a 40 percent expenditure increase for this year," Gonzalez says.

I.C.E, which generates 6 percent of Costa Rica's gross domestic product, is running its own budget deficit of around $40 million, according to Finance Ministry data.

MORE LINES, BETTER SERVICE

Despite the pressure to cut expenditure and phone users' complaints, I.C.E's head of telecommunications, Alvaro Rentana, says he is turning I.C.E's cellular phone business around.

"Things are changing. We've agreed with lenders to invest this year and make our payments in 2004," Rentana said, adding that new lines mean anyone can now connect to the network within two working days, a point confirmed by several of San Jose's major cell phone outlets.

As part of Rentana's master plan, I.C.E expects to have 400,000 new lines in operation by Dec. 31, after awarding French company Alcatel (CGEP.PA) a $152 million contract to increase the capacity for cellular connections this year.

I.C.E is looking to award either Motorola Inc of the United States or Ericsson (ERICb.ST) of Sweden a $130 million contract to raise the capacity by a further 600,000 lines in 2004, Rentana says.

"By 2006, we aim to have 50 percent of all Costa Ricans using cellular phones. Considering the size of our economy, that will take us to saturation point," Rentana said.

Many cell phone users remain unconvinced by I.C.E's ambitious plans, saying that while they are against privatizing the I.C.E., it should be forced to improve by opening Costa Rica to cellular telephone competition.

"At up to $450 a handset, cell phones are very expensive," said university student Mauricio Ramirez. "With competition, we'll get the phone for half price or free."