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Telefónica Peru grudgingly accepts government conditions for license renewal

Peru’s unit of Telefónica has accepted the requirements imposed that the Peruvian government for renewing its operating licenses. Telefónica classified the conditions and terms required by the Ministry of Transport and Communications (MTC) as harsh and said that they are unprecedented.

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Telefónica said that to comply with the MTC’s terms and conditions, it will have to make extraordinary investments and management efforts. The telecom operator also highlighted that it has completed its previous obligations, contributing significantly to the “dramatic growth of mobile telephony in Peru with more coverage and increasingly competitive rates.”

“The amount Telefonica had to commit to invest in rural coverage in exchange of the license renewal, around U.S.$1.2 billion, is very high,”  Marceli Passoni, senior analyst for Latin America at Informa Telecoms & Media told RCR Wireless News. “For instance, in Brazil, the regulator raised U.S.$1.3 billion in its LTE auction, when six companies acquired spectrum. However, the Peruvian government was expected to impose some conditions for the license renewal.” 

The government has been evaluating the renewal of three of Telefónica’s four operating licenses since last year. The new agreement will benefit more than 10 million low-income Peruvians, directly and indirectly, since the new requirements focus on providing telecommunication services to the most disadvantaged and low-income populations.

Sebastián Menutti, analyst at Signals Telecom Group, said that it is not the first time that the state has imposed investment and coverage conditions on Telefónica. “It also happened when the company acquired the assets of BellSouth Peru, and the government imposed coverage requirements for nearly 2,000 rural municipalities as a condition of accepting the transaction,” Menutti said.

At that time, in order to receive the green light, Telefónica was required to provide coverage for 2,000 localities that didn’t have any type of telecom services or were under-served.  Telefónica received MTC’s authorization for the merger in April 2005.

Now according to the latest conditions, Telefónica must provide more than 12,000 free Internet broadband connections aimed at improving the performance of essential state services in areas such as education, healthcare and security.

Among the agreement’s positive aspects, Menutti said that mobile services will reach 409 district capitals and 1,848 locations where there was no Telefónica coverage, achieving 100% mobile coverage of the district capitals. “In addition, up to 1 million people will have a reduced rate for mobile services, which will be reflected in increased service adoption. These obligations are in line with the objectives of the National Plan for the Development of Broadband in Peru proposed to minimize the digital divide, ensuring that 100% of the country’s districts have broadband,” he said.

On the negative side, the analyst pointed out that the negotiation delay for the contract renewals resulted in the new district infrastructure deployments beginning at least one year later than they should have, since Telefónica’s licenses expired between May 2011 and February 2012.

Market leader
“Lately, we have seen Latin American regulators increasing pressure against monopolistic practices, and the Peruvian government forced the operator to increase investments in the country, since it dominates the market,” Informa’s Passoni said.

Telefónica, under the brand Movistar, leads the Peruvian telecom market with a 51.5% market share in the third quarter of 2012, according to an Informa Telecoms & Media report. In Peru, the telecom market is divided up among the largest telecom groups that dominate the markets throughout Latin America: the Spanish Telefónica and Mexican América Móvil’s Claro. Claro, in Peru, has 43.2%of the market and Nextel owns 5.3%.

In a statement, Javier Manzanares, chairman of Telefónica in Peru, said that over the nearly 19 years that Telefónica has been working in Peru, the company has invested more than U.S.$6.8 billion in infrastructure. “Our commitment to Peru is long term. We will continue to invest in Peru and will work even faster with authorities and various stakeholders of the company to continue expanding telecommunications as a tool for development, access to modernity and inclusion,” he said.

In any case, Menutti of Signals Telecom Group said that imposing coverage obligations and investment requirements is a common practice of regulatory authorities worldwide, when they are renewing licenses for telecommunications services. “These conditions are usually more thorough when it comes to incumbent operators,” he said. “Moreover, these processes constitute an opportunity for the authorities to ensure service coverage in areas far from the urban centers where operators routinely don’t deploy services because they do not ensure an adequate return on investment.”

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