US embassy cable - 05LIMA2027

UNCLAS SECTION 01 OF 02 LIMA 002027 
 
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: USTR DISCUSSES MOBILE TERMINATION RATES WITH 
MINISTRY, OSIPTEL 
 
Ref: Lima 2205 
 
1.  (SBU) Summary.  During the ninth round of U.S.-Andean 
Free Trade negotiations, USTR lead telecommunications 
negotiator Ken Shagrin met with both the Ministry of 
Communications (MTC) and Osiptel (Peru's telecommunications 
regulator) to discuss the lack of competition in the 
telecommunications sector, as a result of Peru's high mobile 
termination rates.  Both MTC and Osiptel officials 
highlighted that the new provisions established for 
Telefonica's takeover of BellSouth, as well as the expected 
entrance of America Movil by the end of the year, should 
improve sectoral competition.  Osiptel, which is currently 
establishing a new cost model for mobile termination rates, 
indicated that the new rate should be in place by the end of 
June.  End Summary. 
 
Meeting with MTC 
---------------- 
 
2.  (SBU) USTR lead telecommunications negotiator Ken 
Shagrin met with Vice Minister of Communications Juan 
Pacheco on April 18 to discuss the competitiveness of Peru's 
telecommunications sector.  Shagrin noted that Peru's 
abnormally high mobile termination rates, which average $.21 
per call, make the market uncompetitive.  While 
acknowledging that Osiptel is planning to regulate the rate, 
Shagrin expressed concern that Osiptel would not meet its 
deadline.  Vice Minister Pacheco agreed that Osiptel must 
remedy the situation quickly, which would allow for more 
competition and therefore penetration in the mobile market, 
and promised to put pressure on Osiptel. 
 
3. (SBU) Pacheco acknowledged that Telefonica currently has 
an unfair advantage in the market but pointed out that the 
"conditional" fusion of Telefonica and BellSouth seeks to 
limit Telefonica's advantage (see reftel) and improve 
competition in the market.  Pacheco continued, stating that 
Telefonica can lose all of its licenses if it incurs too 
many infractions.  He also cautioned that Nextel must expand 
its services and coverage to become more competitive.  He 
expressed disappointment that Nextel did not bid on the 
fourth band, claiming that it could have improved Nextel's 
position vis-a-vis the other carriers (reftel). 
 
Then on to Osiptel 
------------------ 
 
4.  (SBU) Shagrin, accompanied by Commercial Counselor, then 
met with Edwin San Roman (president) and Jaime Cardenas 
(acting General Manager) of Osiptel.  San Roman began the 
meeting by noting that Osiptel has been working to regulate 
the mobile termination rate since July 2004.  Osiptel has 
received cost data from all companies and, working with 
several consultants (including a former FCC employee), is 
analyzing the data to establish the new cost methodology. 
San Roman expects to publish the new rate and cost 
methodology for public comment by May.  Assuming all goes 
according to plan, the new rate should be in place by the 
end of June. 
 
5.  (SBU) Shagrin noted that while mobile termination rates 
are decreasing around the world, Peru's rates have yet to 
change.  San Roman reiterated that Osiptel does not set the 
rates, but rather companies negotiate the rate among 
themselves.  Despite conventional thought, competition 
between the companies has not driven the rates.  Since 2004, 
Osiptel, worried about the consumers, has requested all 
mobile companies to lower their prices by 30 percent. 
Shagrin, offering the Philippines as a model, argued that 
mobile carriers have to know that the regulators are willing 
to act decisively; otherwise they are not inclined to lower 
rates. 
 
6.  (SBU) San Roman emphasized that Peru is moving toward a 
cost-based rate.  Shagrin then inquired as to what the costs 
actually are.  He noted that during a recent meeting between 
USTR and Telefonica, Telefonica complained that doing 
business in Peru is expensive due to terrain, the high 
percentage of people living under the poverty line (and are 
thus unable to pay for service), and the MTC's build out 
requirements.  San Roman stated that Telefonica was not 
requesting a higher rate, although he declined to pinpoint 
which company was.  He noted that the different technologies 
in Peru keep costs high.  Citing a Chilean study, San Roman 
claimed that if Peru had only one type of mobile technology 
that could be mass-produced, costs would be lower.  San 
Roman also confirmed that although the MTC does not oblige 
companies to build out services, MTC recently required that 
Telefonica expand services to poorer localities.  Any new 
operators that enter the market, however, must meet new MTC 
regulations requiring mobile companies to expand services to 
15 provinces. 
7.  (SBU) But will the new mobile termination rate model 
show whether any of the mobile competitors builds in 
additional costs?  San Roman indicated that the model would 
establish a reasonable mobile termination rate.  Shagrin 
inquired as to whether Osiptel would periodically review 
each company's obligations.  San Roman reiterated that 
Osiptel is independent, but it plans on becoming more 
involved in the regulation of the market.  Osiptel will also 
review each company's technical studies in an effort to link 
them to the future development of the telecommunications 
sector. 
 
Comment 
------- 
 
8.  (SBU) Both the Ministry of Communications as well as 
Osiptel understand their WTO obligations to improve 
competitiveness in the mobile sector.  MTC took the bull by 
the horns when it established competition prerequisites for 
Telefonica's take over of BellSouth.  San Roman appears 
confident that the new rate, which should be in place by the 
end of June, will level the playing field among mobile 
providers. 
 
STRUBLE