PERU: 1377 TELECOM TRADE AGREEMENTS REVIEW

UNCLAS SECTION 01 OF 02 LIMA 005343

SIPDIS

SENSITIVE

DEPT FOR WHA/AND, WHA/EPSC, EB/CIP
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR KENNETH SCHAGRIN, JONATHAN MCHALE, ARROW AUGEROT
FCC INTERNATIONAL BUREAU FOR ETALAGA

E.O. 12958: N/A
TAGS: ECPS ECON ETRD EINV PE
SUBJECT: PERU: 1377 TELECOM TRADE AGREEMENTS REVIEW

REF: A) State 218756 B) Lima 5073 C) Lima 2509


1. (SBU) Summary. After several years of anticipation and
prolonged prodding by Post, Peru's telecommunications
regulator Osiptel issued resolution No. 70 on November 21,
2005, which establishes a new mobile termination rate for
calls made from pay phones and mobile phones. Under the new
regulation, 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. Nextel Peru, the only
U.S. provider of mobile services in Peru, applauds Osiptel's
recent action to address Peru's high mobile termination
rates but emphasized that Osiptel's regulation is not cost-
oriented and takes too long to regulate prices. End
Summary.


2. (U) In response to reftel A, Post contacted officials
from Nextel to inform them of the 1377 review comment
deadline and inquire about Nextel's position on Osiptel's
recent regulation.

Recent Regulation of Mobile Termination Rates
--------------


3. (SBU) For years, Peru maintained one of the highest off-
net mobile termination rates in South America, at an average
of $0.23 per call. Post, working closely with Nextel, has
repeatedly reminded Osiptel (Peru's telecommunication's
regulator) of both its domestic and WTO obligations to
ensure cost-oriented mobile termination rates. During the
past year, Osiptel has endeavored to reduce the rate,
issuing a temporary rate of $.20 in May (ref C) and
publishing a regulation to lower rates to between $0.1056-
$0.0922 by 2009 in November (ref B).


4. (U) Under the new regulation, Osiptel will retain the
temporary rate of $0.2053 for all companies for the
remainder of 2005. 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.)

-------------- --------------
Company Original Temp Rate 2006 2007 2008 2009
Rate Jun 2005
-------------- --------------
Nextel $.250 $.2053 $.1772 $.1491 $.1210 $.0929
Telefonica$.207 $.2053 $.1770 $.1487 $.1204 $.0922
America $.250 $.2053 $.1804 $.1555 $.1305 $.1056
Movil/TIM
-------------- --------------
Source: OSIPTEL

Nextel Argues Osiptel Still Not
Compliant with WTO Obligations
--------------


5. (SBU) We spoke to Nextel Peru officials on December 19
to obtain Nextel's comments for the 1377 review. Alfonso de
Obregoso, Vice President of Legal Regulatory Issues,
informed us that while Nextel applauds Osiptel's efforts to
reduce the mobile termination rate, Osiptel's new plan has
several flaws. First, he noted that the new rate is not
completely cost-oriented. The regulation establishes 2009
mobile termination rates based on 2004 costs. Because the
final rate will not incorporate current costs, Nextel argues
that OSIPTEL is still noncompliant with both its domestic
and WTO obligations to ensure cost-oriented mobile
termination rates. Second, even though Osiptel acknowledges
that mobile termination rates, based on 2004 costs, should
average $0.95, the new regulation mandates a three-year
phase in for the new rate.


6. (U) According to de Obregoso, Nextel submitted its
comments for the 1377 review to USTR on December 16.

Comment
--------------


7. (SBU) It has taken Osiptel almost five years to regulate
Peru's abnormally high mobile termination rate; the new
regulation, unlike previous versions, is based on cost
analysis. Osiptel made a politically expedient decision
rather than immediately issue a more than 50 percent
reduction in the mobile termination rate. We were, in fact,
surprised when Osiptel issued Regulation No. 70, as it
showed that Edwin San Roman, President of Osiptel, and his
staff had the political will to stand up to politically
savvy and well-connected Telefonica officials (many of whom
are on the Osiptel Board),who argued that there was no need
for regulation. However, by delaying the implementation of
the new rates, Osiptel prolongs unnaturally high rates,
thereby continuing to undermine competition in the mobile
market and ultimately affecting Peru's long-term
competitiveness in terms of access to information and
overall business costs for small and medium enterprises.
While we want Osiptel to implement the rate in a more timely
fashion, we believe that Osiptel has done what it can to
meet its domestic and international obligations without
bowing to political pressure from Telefonica.

STRUBLE