Response to S. 615

July 14, 2025.

Hon. Jennifer González Colón

Governor of Puerto Rico

La Fortaleza

San Juan, Puerto Rico

Dear Governor,

With great respect the Puerto Rico 5G Zone Inc., a Non-Profit Consortium of 200+ digital technology research entities dedicated to expanding advanced communication-based technology research, infrastructure, and applications for the benefit of economic development in Puerto Rico, hereby submits for your consideration our comments on S. 615.  We ask you to veto this statute and open additional evaluation and analysis on the topic.  We believe this statute will negatively impact current efforts in Economic Growth, attraction of Research and Development activities, Energy Management improvements, and ‘ease of doing business’ from a Policy perspective.

The title of the project in question provides as follows:

"To amend Law 107-2020, as amended, known as the "Municipal Code of Puerto Rico" in its Articles 1,020; 1.022; 1.037 (a) and (b); Article 1.053; 2.002; 2.006; 2.014; 2.018 (a)(10); 2.019; 2.035 ; 2.036 (i) and add a subparagraph (o); 2.038; 2.040 (e)(1); 2.050; 2.055; 2.059; 2.061; 3.023 and subsection (c); 3.026 (f)(8); add to subparagraph (f) a subparagraph (9), and subparagraphs (i), (j), (l) and (m); 3.042 (36); 4,010 (e); 4.012A and subsection (g); 6.007; 6.016; 7.199; and 8,001 to amend and incorporate new terms in the definitions, renumbering the current ones; to add technical and substantive amendments for a more effective execution of municipal duties and functions and the achievement of greater autonomy; and for other related purposes."

While we acknowledge that the measure may contain important provisions to address several positive aspects within the Municipal Code, we believe it contains a specific change, in terms of definitions, which prevents us from endorsing the measure, as it has been approved. We proceed to explain.

In this legislation, it is proposed to amend, among others, subsection 39 of Article 8,001 of Act 107-2020, as amended, known as, "Municipal Code of Puerto Rico", so that it reads as follows:

"Article 8.001 — Definitions

The terms used in this Code shall have the meanings set forth below, except where the context clearly indicates otherwise; The singular terms include the plural, and the masculine meaning includes the feminine:

39. Voice Channel: means the various technological means of telecommunications, such as telephone lines, access codes, mobile networks, trunks, data connection technology in any

format, genre and applications, including voice transmission, analog, digital or facsimile data; analogous or similar lines in the field of telecommunications, which allow calls to be made and the transmission of voice, audio and data between two or more persons, devices or systems; it also includes the elements of poles and related accessories (downspouts, anchors); cables in their different environments (aerial, buried, buried) together with their associated structures (messenger wire, terminals, conduit runs and registers); antennas and their related structures, interconnection cabinets; coils and repeaters; torque gain equipment terminals; among others."

Our analysis, based upon numerous studies and globally recognized subject matter experts, highlights the detrimental impact of high data transfer costs, which the broad nature of the definitions includes, on economic development and the growth of research and development (R&D) based sectors. Here's a summary of the findings: 

Hindrance to Economic Growth

Economic growth is contingent on business-friendly policy. The ‘cost of doing business’ in a region is dependent greatly on the basic expense comparatives like labor, permitting, cost of goods, and utilities.  Puerto Rico as an Island has inherent challenges in cost of goods related to transportation, and in energy utility cost and resiliency.  This has been counteracted by favorable labor rates and favorable data transfer capabilities and rates. With recent improvements in permitting processes this has made Puerto Rico a desirable business destination despite the afore-mentioned challenges.   The proposed S.615 threatens to diminish this improved position and conversely to greatly disadvantage business development efforts on the Island.  Several factors for this are included below.

Increased operating costs: High data transfer costs directly increase the operating expenses for businesses, especially those heavily reliant on data-driven technology for their operations. This can impact profitability, hinder investments, and make companies less competitive. Industries that are heavily reliant on data transfer as defined in the ‘voice channels’ definition of this law are Pharmaceutical, Medical Device, Aerospace, and Financial Sectors.  In effect, the verbiage presented makes Puerto Rico an unattractive destination for any technology-based business. 

Barriers to innovation and entrepreneurship: High data costs, particularly those arising from data localization measures, can stifle innovation by raising the cost of hosting data (estimated at 30-60%) and hindering the ability of businesses, particularly startups and small and medium-sized enterprises, to leverage cloud computing and seamless global internet access. This limits their ability to scale and expand into new markets, says the Information Technology Industry Council (ITI).

Reduced trade and productivity: Economic modeling estimates that a one-unit increase in a country's data restrictiveness index can lead to a 7% decrease in gross output traded, a 1.5% increase in prices of goods and services, and a 2.9% decrease in economy-wide productivity over a five-year period.

Impact on the digital divide: High costs of internet and digital technologies exacerbate the digital divide, limiting access for individuals and businesses in developing countries and rural areas. This leads to missed economic opportunities, widening income inequality, and hindering overall economic growth.

Negative Effects on Research and Development

In an era of Artificial Intelligence (AI) and Large Language Models (Chat GPT) research and development activities are increasingly dependent on complex data management and data-transfer capabilities.  This issue is of such significant National Security interest that the recent ‘Big Beautiful Bill’ included verbiage prohibiting states from enacting regulatory constraints on these data intensive technologies until the Federal Government could provide general guidance on consistent policy.  The reason for this concern is the recognition that policy that inhibits free data management and data transfer poses a threat to national innovation and competitiveness goals. 

Limited collaboration: High communication costs can restrict collaboration among researchers and institutions, particularly for data-intensive projects. While companies on the Island are currently working to democratize research data to increase innovation and commercialization rates, increased costs for data sharing infrastructure would reverse this trend, disproportionately affecting institutions with fewer resources like Puerto Rico, according to the National Bureau of Economic Research | NBER.

Slower progress in data-driven fields: R&D in areas like artificial intelligence, which relies on the rapid and efficient transfer of massive datasets, can be significantly hampered by increased costs for data transfer.

Increased costs and inefficiencies: Expensive data transfer makes it more costly to conduct experiments, process and analyze large datasets, and share findings with the broader research community. This can slow down the pace of scientific discovery and make research less efficient. As a result, Puerto Rico facilities of multi-national corporations would no longer be logical locations for complex global research activities in direct conflict with other economic policies stated by the current administration.

Negative Impact on Energy Management Enhancements

Recently the Department of Energy adjusted guidance to Puerto Rico regarding the deployment of funds to correct the long-standing energy resiliency issues.  The new guidance rescinded initiatives for solar installations and instead identified a focus on efficiency technologies going forward.  These technologies are heavily dependent on connectivity and data transfer, and the definition provided in S. 615 would have significant impacts in achieving effective improvement from the current status. 

Impact on the development of smart grids: Smart grids heavily rely on the flow of data and communication between different components to manage energy distribution and integrate renewable energy sources efficiently. Taxation could impede investment and adoption of these crucial technologies, hindering the transition to a more efficient and sustainable energy system.

Reduced investment in data-driven energy management solutions: Data analytics, powered by data transfer and communication, plays a significant role in optimizing energy usage and identifying opportunities for savings across various industries. Increased taxes could make investing in these solutions less attractive, ultimately limiting their ability to improve energy efficiency.

Dampened innovation in energy efficiency technologies: The development of new energy-efficient technologies, especially in areas like Artificial Intelligence (AI), requires extensive data processing and transfer. A tax on data transfer might disincentivize innovation and research in this field, potentially hindering the development of even more energy-efficient solutions in the future. 

Unintended Policy Implications

Based on multiple studies on best practice for Economic Growth several policy recommendations emerge for regions interested in global competitiveness. 

Prioritize investment in telecommunications infrastructure: Expanding and upgrading telecommunications infrastructure is crucial to reduce data transfer costs which fosters economic development. Policies that increase data transfer costs have an adverse effect.

Promote competition and affordable access: Policies that encourage competition among internet service providers and provide affordable access to broadband and digital technologies are essential to bridge the digital divide and ensure equitable participation in the digital economy. This is particularly critical in ecosystems with highly technology and data dependent industries.

Reconsider data localization policies: Governments should carefully consider the potential negative economic consequences of data localization policies and explore alternative approaches that balance data security with the benefits of seamless global data flows. High cost of data transfer equates to a data localization policy. 

In conclusion, the evidence strongly suggests that high data transfer costs via implemented tax codes impedes economic development, R&D-based sector growth, and efficient energy management efforts leading to decreased productivity, stifled innovation, and widening inequality. Addressing these challenges through strategic investment and policy reforms is essential for fostering a thriving digital economy and maximizing the benefits of technological advancements for all. 

The Puerto Rico 5G Zone Inc, and the undersigned representing membership on behalf of the collective global expertise in communications technology research, deployment, and policy, respectfully submit this request for your veto of this measure and a more thorough evaluation with expert input before any new policy is enacted.

Sincerely,

Gail Nolan CEcD

CEO-PR 5G Zone Inc.

President of the PRMA Technology and Telecommunications Committee

Textbook Author. ‘Tech-Led Economic Development’, 2024, International Economic Development Council