US embassy cable - 05LIMA5073

UNCLAS SECTION 01 OF 02 LIMA 005073 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/AND, WHA/CEN, 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: TELECOMS REGULATOR PUBLISHES IMPROVED MOBILE 
TERMINATION RATE 
 
REF:  A) LIMA 4226  B) LIMA 4108   C) LIMA 2509 and previous 
 
1.  (SBU) Summary.  The Peruvian telecommunications 
regulator, OSIPTEL, published its new mobile termination 
rate on November 24.  The new rate is based on cost factors 
including the value of a company's network investment and 
the spectrum value.  Under the new plan, OSIPTEL will lower 
the mobile termination rate by 25 percent over the next 
three years, beginning in January 2006.  By 2009, the new 
mobile termination rate will be set at between $0.1056- 
$0.0922, 54 percent lower than current mobile termination 
rates.  The new rate will be finalized on December 13; until 
then, companies can comment to OSIPTEL on the new rate.  End 
Summary. 
 
New Mobile Termination Rate 
--------------------------- 
 
2.  (U) On November 24, OSIPTEL published its new mobile 
termination rate, incorporating suggestions and public 
comments (Ref A).  The new mobile termination rates are 
asymmetrical, with different rates for each operator. 
According to Edwin San Roman, General Manager of OSIPTEL, 
the new rate is based on costs -- mobile traffic, and number 
of antenna stations -- and, unlike the model published in 
July, does not include externalities or subsidies. 
 
3.  (U) Under the model, the rate for the remainder of 2005 
for all companies will be $0.2053, which was established in 
June as a temporary rate (Ref C).  Beginning on January 1, 
2006, OSIPTEL will implement the new rate, between $0.1804- 
$0.1770, which will decrease by 25 percent annually over a 
three-year period.  By January 1, 2009, the mobile 
termination rates will average $.095 -- a 54 percent 
reduction.  (Note: All costs are in dollars and do not 
include Peru's 19 percent value added tax.  End Note.)  The 
new mobile termination rate applies to mobile-to-mobile 
calls. 
 
--------------------------------------------- -------------- 
Company Original Temp Rate  2006     2007    2008    2009 
          Rate    Jun 2005 
--------------------------------------------- -------------- 
Nextel    $.250   $.2053   $.1772   $.1491  $.1210  $.0929 
TdP       $.207   $.2053   $.1770   $.1487  $.1204  $.0922 
America   $.250   $.2053   $.1804   $.1555  $.1305  $.1056 
 Movil/TIM 
--------------------------------------------- -------------- 
Source: OSIPTEL 
 
6.  (U)  Under Peruvian regulations, the new mobile 
termination rate will not become final until December 13. 
OSIPTEL can entertain comments from companies on the rate 
and make changes. 
 
Positive Development for U.S. Competitor 
---------------------------------------- 
 
7.  (SBU) We spoke to Ernesto Montagne, Regulatory Counsel 
at Nextel Peru, to hear Nextel's views on the new model. 
According to Montagne, Nextel Peru believes that the new 
rate is a positive development from the previous model. 
First, the rate is cost oriented, unlike the July model that 
included externalities and subsidies.  Second, the new rate 
encourages competition in the market by allowing the smaller 
companies to charge a higher mobile termination rate.  In 
the previous model, Telefonica (TdP) was able to charge a 
higher mobile termination rate, enabling it to recover its 
investment costs.  Nextel previously alleged that OSIPTEL 
established a model that benefited the dominant carrier, 
which undermined the idea of regulation (ref B).  OSIPTEL's 
new rate allows Nextel and America Movil, which are smaller 
but expanding companies, to charge a higher fee for mobile 
termination than Telefonica, fostering competition with the 
dominant provider and enabling the smaller companies to earn 
higher profits.  Third, by 2009, Peru will have some of the 
most competitive mobile termination rates in the region. 
 
8.  (SBU) Montagne underscored that Nextel is not 100 
percent happy with the new rate.  While OSIPTEL based the 
new rate on cost analysis, it only reflects 2004 costs; the 
2009 rate will not reflect current costs but rather costs 
from five years earlier.  Because the final rate will not 
incorporate current costs, Nextel argues that OSIPTEL is 
still noncompliant with its own regulations.  Additionally, 
Nextel is still unsure why OSIPTEL needs three years to 
reduce the mobile termination rate instead of implementing a 
cost-based rate immediately. 
 
Comment: Rival Telefonica Livid 
------------------------------- 
9.  (SBU)  The new mobile termination rate is a clear 
departure from OSIPTEL's previous model -- an indication 
that OSIPTEL not only heard the public comments against its 
model but incorporated several public suggestions.  The new 
rate, when finally implemented, will encourage competition 
in the market.  Telefonica, Peru's dominant provider with 
more than 65 percent of the market, has publicly stated its 
opposition to the rate and will no doubt attempt to reverse 
OSIPTEL's decision.  One popular television program over the 
weekend ran a story about how U.S. Embassy presence at the 
September OSIPTEL public hearing and a recent Trade 
Development Agency (TDA) grant placed undue pressure on 
OSIPTEL to favor Nextel.  We remain confident that San Roman 
will not bow to Telefonica's antics and will meet with him 
next week to discuss the new rate. 
 
STRUBLE