VZCZCXYZ0013
PP RUEHWEB

DE RUEHPE #0149/01 0182018
ZNR UUUUU ZZH
P 182018Z JAN 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 3649
INFO RUEAFCC/FCC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS LIMA 000149 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EB/CIP/BA, WHA/EPSC, WHA/AND 
USTR FOR CATHERINE HINCKLEY 
 
E.O. 12958: N/A 
TAGS: ECON ECPS ETRD USTR PE
SUBJECT: PERU SECTION 1377 TELECOM REVIEW 
 
REF: STATE 1035 
 
SUMMARY 
------- 
 
¶1. (U) Per reftel, Econoff provided Peruvian telecom 
regulator OSIPTEL with NII Holdings' (Nextel) public comments 
and informed OSIPTEL of USTR's deadline for voluntary 
replies.  As a follow-up, Econoff met with OSIPTEL's Manager 
for Regulatory Policies and Strategic Planning Jose Gallardo 
and seven other OSIPTEL representatives on January 16 to 
inquire whether the GOP had plans to reevaluate the current 
three-year maximum mobile termination rate (MTR) reduction 
scale, highlighting the concerns laid out by Nextel. 
Gallardo responded that OSIPTEL does not plan to review MTRs 
until 2009, after the current gradual reductions are 
complete.  He explained that other mobile providers opposed 
MTR reductions, that Nextel had recommended a three-year 
approach, and that the mobile telecom sector in Peru was 
growing well.  End Summary. 
 
OSIPTEL'S PERSPECTIVE 
--------------------- 
 
¶3. (SBU) Gallardo explained that in its November 2005 decree, 
OSIPTEL decided upon a gradual maximum MTR reduction scale as 
a balanced way to address industry's diverging business 
models.  According to Gallardo, TIM (now America Movil) 
wanted increased MTRs, Telefonica (the dominant provider) 
wanted to maintain existing rates, and Nextel wanted rates 
cut.  While the advantages of lowering rates was clear, 
OSIPTEL also recognized that higher rates encouraged 
infrastructure investments in under-served geographic areas, 
a key GOP priority.  Therefore, OSIPTEL announced that the 
2005 average MTR of USD 0.2053 would be lowered to 0.1782 in 
January 2006, 0.1511 in January 2007, 0.1240 in January 2008, 
and 0.0969 in January 2009.  If dissatisfied with the decree, 
industry had the option to request "administrative 
reconsideration" as well as to pursue judicial action within 
three months.  According to Gallardo, Nextel did not pursue 
either option.  On the other hand, Telefonica did pursue the 
judicial course in an effort to stop the reductions, but, 
after considering opinions submitted by Nextel and others, 
the court upheld the reductions. 
 
¶4. (SBU) Gallardo also provided Econoff a copy of a letter 
from Nextel to OSIPTEL dated March 2, 2005, through which 
Nextel submitted a report on MTRs done by Analysis Consulting 
to support Nextel's efforts to get OSIPTEL to reduce MTRs. 
In the section entitled "Best-Practice Considerations in 
Reducing MTRs," the report said, "it would be inadvisable to 
implement adjustments to (MTR) costs in their entirety 
immediately or over the very short term... even in markets 
where the discrepancy between cost and current rates is less 
significant than in Peru, regulators proposing cost 
orientation have generally adopted medium-term price controls 
and limited initial reductions in rates... in the UK, for 
example, a three-year glide path was used."  In its 
conclusion, the report recommended that OSIPTEL use a 
three-year glide path for reducing MTRs. 
 
¶5. (U) Finally, Gallardo noted that OSIPTEL's policies seemed 
to be positively affecting the mobile telecom market.  He 
said there were 8.9 million mobile lines in 2006, compared 
with 2.93 million in 2003, 4.09 million in 2004, and 5.58 
million in 2005.  He also noted that new lines had stagnated 
at under 300 million per quarter from the last quarter in 
2003 until the third quarter of 2005, but have skyrocketed 
since then (when OSIPTEL issued the decree), reaching 1.326 
billion new lines in the fourth quarter of 2006.  Gallardo 
was also pleased that the number of geographic districts in 
Peru with mobile coverage has more than doubled from 434 in 
December 2005 to 983 in December 2006. 
 
POST COMMENT 
------------ 
 
¶6. (SBU) The November 2005 decree establishing a three-year 
gradual reduction in MTRs was an important step towards 
improving competition in the mobile telecom market and 
reducing costs for users.  Before the reform, dominant 
provider Telefonica charged the highest MTRs; with the 
reform, competitors Nextel and America Movil can now charge 
higher rates than Telefonica.  OSIPTEL overcame stiff 
challenges from Telefonica in enacting these decreases, and 
selected the three-year approach in part because of 
information provided by Nextel.  There were even media 
accusations of undue USG influence on OSIPTEL, causing them 
to favor Nextel's views over Telefonica's. 
 
¶7. (SBU) That said, there are currently only three mobile 
telecom providers in Peru, and the current average maximum 
MTR in Peru (USD 0.1511 as of January 1, 2007) is still above 
the regional average and above cost.  Post feels that in the 
current environment, it is unlikely that OSIPTEL can be 
convinced to accelerate MTR reductions before January 2009. 
If the pending U.S.-Peru Trade Promotion Agreement (PTPA), 
referred to in NII Holdings' filing, is approved by the U.S. 
Congress, it may be possible to seek additional MTR 
reductions as the agreement calls for "reasonable rates." 
Furthermore, the GOP is in the process of selecting a new 
head of OSIPTEL, which will also likely lead to staffing 
changes throughout the organization.  Nextel might be able to 
convince the new OSIPTEL team to consider further MTR 
reductions. 
POWERS