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### Viewing cable 05LIMA2025, CAN PERU IMPROVE COMPETITION IN TELECOMS INDUSTRY?

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05LIMA2025 | 2005-05-03 16:47 | 2011-05-20 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Lima
Appears in these articles: elcomercio.pe

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 02 LIMA 002025

    SIPDIS

    SENSITIVE

    DEPT FOR WHA/AND, WHA/EPSC, EB/CIP
    COMMERCE FOR 4331/MAC/WH/MCAMERON
    USTR FOR KENNETH SCHAGRIN, JONATHAN MCHALE
    FCC INTERNATIONAL BUREAU FOR ETALAGA

    E.O. 12958: N/A
    TAGS: ECPS ECON ETRD EINV PE

    id: 31915
    date: 5/3/2005 16:47
    refid: 05LIMA2025
    origin: Embassy Lima
    classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
    destination: 05Lima984
    header:
    This record is a partial extract of the original cable. The full text of the original cable is not available.

    ----------------- header ends ----------------

    UNCLAS SECTION 01 OF 02 LIMA 002025

    SIPDIS

    SENSITIVE

    DEPT FOR WHA/AND, WHA/EPSC, EB/CIP
    COMMERCE FOR 4331/MAC/WH/MCAMERON
    USTR FOR KENNETH SCHAGRIN, JONATHAN MCHALE
    FCC INTERNATIONAL BUREAU FOR ETALAGA

    E.O. 12958: N/A
    TAGS: ECPS ECON ETRD EINV PE
    SUBJECT: CAN PERU IMPROVE COMPETITION IN TELECOMS INDUSTRY?
    Ref: Lima 984

    This report contains sensitive business information.  Please
    protect accordingly.

    ¶1.  (SBU) Summary.  Two recent developments in the
    telecommunications industry have GOP officials pointing to
    improved competition in the market.  America Movil, a
    Mexican company owned by Carlos Slim, acquired the fourth
    mobile band on March 30 and should begin operations by early
    ¶2006.  The Ministry of Transportation and Communications
    (MTC) formally approved the merger of Telefonica del Peru
    and BellSouth on April 8.  MTC, in return, demanded that
    Telefonica give up one of its two frequency bands (as part
    of the MTC spectrum clean up) and commit to expand mobile
    service to 2,000 communities.  Despite GOP efforts to open
    the market to new mobile participants, competition in the
    telecommunications market is still limited, as Peru's
    excessive mobile termination rates benefit Telefonica vis-a-
    vis other providers.  End Summary.

    Limited Competition But Room For Growth
    ---------------------------------------

    ¶2.  (U) Although Peru is experiencing unprecedented economic
    growth, this is not mirrored in the mobile
    telecommunications sector.  In 2004, there were only four
    million users, a significant increase from 2.9 million users
    in 2003.  Telefonica del Peru, with 67.5 percent of the
    market, dominates Peru's mobile market.  Italy's TIM Mobile
    ranks second, with 26.9 percent, and Nextel is third with
    4.5 percent.  Of note for future competition:  China's
    Huawei recently successfully completed a pilot of low-cost
    mobile phones in the 450-mgH band in Peru.

    America Movil Wins Fourth Band
    ------------------------------

    ¶3.  (SBU) America Movil, a Mexican company owned by
    millionaire Carlos Slim, was awarded Peru's fourth band on
    March 30.  According to the MTC, America Movil only paid
    $21.1 million for the spectrum, considerably more than the
    $180 million TIM paid to enter the market in 2002.  America
    Movil, using GMS/GRPS technology (which is compatible with
    the TIM system), will begin operations in Peru by late
    2005/early 2006.  According to Carlos Slim, Sercotel's (as
    the Peruvian company will be known) entry into the market
    will help drive down Peru's high mobile costs.

    ¶4.  (SBU) America Movil was the sole bidder on Peru's fourth
    band, even though Nextel was expected to submit an offer.
    XXXXXXXXXXXX (protect), Vice President of Legal
    Affairs at Nextel Peru, informed Commercial Counselor in mid-
    March that a Sprint (Nextel's parent company) assessment of
    the project determined that the high termination rates
    (averaging $0.21) and the unwillingness of Osiptel to act
    quickly were limiting factors in Nextel's ability to compete
    in the market.  As a result of these factors, Nextel's Peru
    based finances were deteriorating, making it financially
    unable to bid on the fourth band.  Furthermore, unless
    Osiptel regulates the high mobile rates soon, Nextel will
    face serious financial difficulties in Peru, limiting the
    company's ability to expand service throughout the country.

    BellSouth Merger Approved
    -------------------------

    ¶5. (U) After months of deliberation, the MTC formally
    approved the merger of Telefonica del Peru and BellSouth on
    April 8.  MTC's approval, however, came with a multitude of
    draconian stipulations.  First, Telefonica must give up one
    of its two frequency bands within the next two years, which
    the MTC will open to bidders by the end of 2007.  (Note:
    This is part of the MTC's plan to clean up spectrum, which
    will affect all mobile providers.  End Note.)  Additionally,
    Telefonica must waive the fees for former BellSouth clients
    who wish to cancel service.  (Under Peruvian law, customers
    must pay the entire cost of the service contract if the
    contract is cancelled early.)  Third, Telefonica must expand
    or improve mobile access to a minimum of 2,000 communities
    in the poorest areas of Peru by 2008.  Failure to do so will
    result in a fine of 16,500 soles ($5,077) per community,
    paid to MTC.  Fourth, Telefonica is prohibited from
    including former BellSouth customers on its on-net plan
    until 2007.  Finally, the MTC noted that if OSIPTEL finds
    Telefonica guilty of committing five infractions (cross
    subsidy, predatory pricing) in a two-year period, Telefonica
    would lose its concession.  Furthermore, if Telefonica
    commits two infractions in one year, it will also lose its
    concession of BellSouth.

    Comment: Increased Competition?
    -------------------------------

    ¶6.  (SBU) Peru's telecommunications industry, particularly
    the mobile sector, is underdeveloped.  There is a huge
    potential for growth and the entrance of America Movil, as
    well as the merger of Telefonica and BellSouth, should
    marginally improve competition between mobile providers.
    However, the GOP must grapple with Peru's high mobile
    termination rates, which continue to undermine competition
    in the market.  Telefonica, which controls over two-thirds
    of the market, allegedly continues to use predatory pricing
    and cross subsidies to keep its on-net rates low.  These
    practices should cease when the new mobile rate takes affect
    in June.  If not, Nextel now has a means by which to bring
    its complaints to MTC, which ultimately may cause Telefonica
    to lose its concession of BellSouth.

    STRUBLE

    =======================CABLE ENDS============================

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