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UNCLAS SECTION 01 OF 02 LIMA 004108 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/AND, WHA/EPSC, EB/CIP 
COMMERCE FOR 4331/MAC/WH/MCAMERON AND KFERGUSON 
USTR FOR KSCHAGRIN/JMCHALE 
FCC INTERNATIONAL BUREAU FOR ETALAGA 
 
E.O. 12958: N/A 
TAGS: ECPS ETRD EINV ECON PE
SUBJECT: GOP TO HEAR PUBLIC COMMENTS ON MOBILE TERMINATION 
REGULATION 
 
REF:  A) LIMA 3162  B) LIMA 2509  C) LIMA 2027    D) LIMA 
 
1035 
 
Cable contains business sensitive information.  Not for 
internet distribution.  Please protect accordingly 
 
¶1.  (SBU) Summary.  On July 20, Osiptel, Peru's 
telecommunications regulator, published its model for the 
reduction of mobile termination rates.  After a 40-day 
public comment period, Osiptel will hold a public hearing, 
scheduled for September 26, where companies will have the 
opportunity to react to Osiptel's model.  Nextel 
representatives plan on making its case at the hearing. 
Edwin San Roman, President of Osiptel, acknowledged that he 
received Ambassador Gross' August 29 letter, but noted that 
Osiptel is treating it as a public comment and will not 
likely respond to it directly.  End Summary. 
 
Osiptel to Hold Hearing 
----------------------- 
 
¶2.  (U) After over a year of anticipation and numerous 
reminders from USTR and Embassy Lima, Osiptel, Peru's 
telecommunications regulator, published its new mobile 
termination rate model on July 20 (Ref A).  The new model 
calls for mobile termination rates to be applied 
asymmetrically, based on factors including the value of a 
company's network investment and the spectrum value.  Under 
the new model, it will take 4.5 years to meet the new mobile 
termination rate goal of $.11-.13.  Thus, Osiptel will 
maintain the mobile termination rate at between $0.203 cents 
for the rest of 2005.  Beginning in January 2006, the rates 
will change to between $0.1816-$0.1873, depending on the 
company.  By 2009, Osiptel will lower the termination rate 
to between $0.1107-$0.1333. 
 
--------------------------------------------- -------------- 
                Osiptel's Proposed Cost Model 
                           July 2005 
--------------------------------------------- -------------- 
Company Original Temp Rate  2006     2007    2008    2009 
          Rate    Jun 2005 
--------------------------------------------- -------------- 
Nextel    $.250   $.2053   $.1816   $.1580  $.1343  $.1107 
TdP       $.207   $.2053   $.1834   $.1616  $.1397  $.1179 
TIM       $.250   $.2053   $.1873   $.1693  $.1513  $.1333 
--------------------------------------------- -------------- 
 
¶3.  (U) Per Peruvian law, Osiptel must post the model for 
public comment for a 40-day period.  Edwin San Roman, 
President of Osiptel, informed us on September 16 that 
Osiptel will be holding a public hearing on the proposed 
model on September 26.  According to the agenda, all mobile 
companies, including the recently sold TIM, will have the 
opportunity to react to the model.  Other participants are 
welcome to comment, but must sign up for time by September 
¶23.  Jaime Cardenas, General Manager of Osiptel, noted that 
Osiptel has 30 days to respond to any inquiries and publish 
the final model. 
 
¶4.  (SBU)  During a U.S. Trade and Development Agency 
(USTDA) signing ceremony on September 16, San Roman 
acknowledged that he received Ambassador Gross' August 26 
letter, which registered the United States Government's 
discontent with the published model.  San Roman noted that 
Osiptel is treating the letter as a public comment, and 
would publish it along with all other public comments on 
Osiptel's website.  (Note:  After a thorough search of 
Osiptel's website, Econoff was unable to find any public 
comments posted on Osiptel's website.  End Note.)  Jamie 
Cardenas indicated that Osiptel would not likely respond 
directly to Ambassador Gross' letter. 
 
Nextel's Position 
----------------- 
 
¶5.  (SBU)  We met with Miguel Rivera, Executive President 
and Ernesto Montagne, Regulatory Counsel of Nextel Peru on 
September 16 to hear their views on Osiptel's mobile 
termination rate regulation.  Rivera informed us that Nextel 
representatives met for 20 minutes with the Osiptel Board on 
September 15 to share their analysis of the proposed model. 
Rivera informed us that during the public hearing, Nextel 
will present three arguments explaining how Osiptel's model 
is flawed.  First, Rivera noted, the model is based on the 
assumption that Nextel is not planning any future investment 
in Peru.  Rivera highlighted that Nextel has invested over 
$400 million in Peru to date and plans on investing another 
$13 million to expand its service to Arequipa, Moquegua and 
Tacna (in southern Peru) in the next two years.  Second, 
Nextel will argue that Osiptel's cost model on which the 
draft regulation is based  does not take into account real 
prices paid by Nextel.  Rivera explained that Nextel 
purchased an $18 million switch, but the Osiptel model 
valued it at only $4 million.  Finally, Nextel will 
highlight the need for Osiptel to regulate mobile 
termination rates in the short term, not over a 4.5-year 
period. 
 
¶6.  (SBU) Rivera highlighted that Nextel recently submitted 
a claim to the Osiptel Competition Court (Cuerpo Collegiado) 
regarding Telefonica's predatory pricing scheme.  The 
Osiptel competition court accepted Nextel's claim, 
indicating that 67% of Telefonica's on-net rates may be 
below cost.  The Competition Court also noted that there is 
sufficient evidence that Telefonica may be committing abuse 
of its dominant position (predatory pricing), including off 
net and fixed mobile rates. 
 
 
 
TDA Grants Signed 
----------------- 
 
¶7.  (U)  On September 16, Ambassador Struble, working 
closely with FCS, presented the GOP with two USTDA grants 
for the Peruvian telecommunications sector.  The first 
grant, worth $425,720, provided the Ministry of Transport 
and Communications (MTC) with assistance in developing the 
new National Telecommunications Plan, which will lay the 
foundation for a new telecommunications law.  The second 
grant, worth $425,400, was given to Osiptel to assist with 
its integrated rural broadband project.  The grants form 
part of Post's Trade Capacity Building efforts under the 
umbrella of the U.S.-Andean free trade negotiations. 
 
Comment 
------- 
 
¶8.  (SBU) While Nextel will make clear arguments against 
Osiptel's cost model, we expect that Telefonica and 
AmericaMovil will come out in favor, at least partially, of 
the proposed regulation.  Osiptel faces pressure from not 
only Nextel, but also from Vice Minister of Communications 
Juan Pacheco, who believes that a lower mobile termination 
rate will improve competition in the sector.  Pacheco 
continues to encourage San Roman to reduce regulation time, 
as well as lower the overall termination rate.  We will 
attend the public hearing on September 26 and will report 
any new developments.  We will also encourage San Roman to 
respond directly to Ambassador Gross' letter. 
 
POWERS