GOP TO HEAR PUBLIC COMMENTS ON MOBILE TERMINATION

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