Overview (August 2000) - International Law Office

Opening the Market
Classification
Agencies
Concessions and Authorizations

Opening the Market

The opening of the Peruvian telecommunications market began in 1991, and has been divided into two phases. The first phase, from 1991 to 1998, was characterized by limited concurrence in the services of long distance and fixed telephony. The second phase, which began on August 1998, has been characterized by unlimited access to the market without any legal restrictions.

First phase
The promotion of private investment began in 1991 with the Law to Promote Private Investment in the Telecommunications Sector, enacted in the context of substantial framework reform for private investment during President Fujimori's first term. At that time, two state owned companies, Compañía Peruana de Teléfonos SA (CPT) and Entel Peru SA (Entel) were the exclusive providers of fixed telephony and long-distance services. Telephone lines barely exceeded 600,000 nationwide.

In May 1994, as a result of an international bidding process, the controlling interests in CPT and Entel were sold for US$2 billion to a consortium led by Telefónica of Spain. A new company, Telefónica del Perú SA (Telefónica), was created as a consequence of the merger between CPT and Entel. Telefónica was guaranteed a monopoly in fixed telephony, and national and international long-distance services.

The monopoly was scheduled to expire in June 1999, provided for in the concession contract. The contract stated the objectives of the five-year monopoly were:

• to achieve a balance of fixed telephony and long-distance rates;
  
  
• to improve the quality of standards; and
  
  
• to comply with the expansion and modernization of the service.

In August 1998 the government and Telefónica agreed to terminate the monopoly one year early, considering that the objectives had been achieved. This then opened fixed telephony and long distance services up to free competition. Those services not covered by the monopoly (eg, cellular, public telephony, specialized mobile radio (SMR), paging, cable television and value-added services) had been the subject of free competition since 1994.

The two most important aspects of the first phase were: (i) the improvement made in telecommunications services, and (ii) the enactment of rules and regulations aimed at preparing a suitable environment for the opening of the market (eg, the new national frequency plan and the Interconnection Regulations).

Second phase
Beginning with the enactment of the policy guidelines for the opening of the market in August 1998, the second phase contemplates the development of a fully competitive telecommunications market without legal restrictions. The policy guidelines set forth a modernization process guaranteeing the following aspects:

• an environment of free and fair competition;
  
  
• the reduction of legal barriers for the new operators; and
  
  
• a regulatory framework allowing cost-recovery and the generation of reasonable profit margins.

The functioning of the market in a free and fair competition environment should allow:

• reasonable tariffs, accurately reflecting the costs of the services;
  
  
• a choice between operators for users;
  
  
• broad geographic coverage; and
  
  
• continued expansion, modernization and innovation.

The objectives of the opening of the market in 2003 include:

• a significant increase in telephonic density (20 lines for every 100 people);
  
  
• access to telephony for 5,000 new communities;
  
  
• a substantial increase in internet access;
  
  
• modernization of services and technologies;
  
  
• full digitalization of the telecommunications network; and
  
  
• honouring 98% of new line applications in urban areas within five days.

Classification

The Telecommunications Law approved by Supreme Decree 013-93-TCC, places telecommunications services into four broad categories.

Carrier services
Carrier services are defined as those services providing the required capacity to carry signals for the provision of final services, broadcasting services and value-added services. Carrier services include local carrier service, and national and international long-distance carrier services.

Final services
Final services are defined as those services providing complete communications capacity between users. Final services include fixed and mobile telephony services, telex, telegraph, SMR and paging.

Broadcasting services
Broadcasting services are defined as those services providing one-way communication, from one broadcasting station to several receiving points. Broadcasting services include radio, television, cable and closed television circuits.

Value-added services
Value-added services are defined as those services supported by carrier services (ie, final or broadcasting services) to which a certain characteristic or advantage is added. Value-added services include facsimile transmissions, videotext, voice mail, teleprocessing, data storage, transmission and the Internet.

The Telecommunications Law also classifies services into:

• public telecommunications services, which are available to the public in general, including carrier and final services;
  
  
• private telecommunications services, which are available to the authorized party only; and
  
  
• private telecommunications services of public interest, whereby the transmission is made in one direction only (eg, television and radio broadcasting).

Agencies

Two governmental agencies act as regulators for telecommunications services: (i) the Ministry of Transportation, Communications, Housing and Construction, and (ii) the Supervisory Entity of Private Investment in the Telecommunications Sector (OSIPTEL). A Special Telecommunications Committee was also created in May 1997 as a part of COPRI (the governmental agency responsible for promoting private investment in works of infrastructure and public utilities in Peru), in order to conduct special public auctions for the granting of concessions.

Ministry
The ministry is responsible for defining and implementing telecommunications policy and guidelines, granting the concessions or authorizations for telecommunications services, and supervising compliance therewith.

There are two specialized offices in the ministry related to telecommunications: (i) the Directorate General of Telecommunications (DGT), and (ii) the Specialized Unit of Telecommunications Concessions (UECT). Both offices report to the vice-minister of communications.

The DGT is in charge of proposing policies regarding spectrum usage and the administration of number plans. It is also able to authorize the operation of private services and issuance of broadcasting licences.

The UECT was created in 1997, with a view to encouraging more competitors into the Peruvian market. This office is able to grant concessions for public telecommunications services, as well as issuing all permits and licences related to the concessions.

OSIPTEL
The Telecommunications Law created a new supervisory entity that replaced the Communications Tariffs Commission. OSIPTEL's board has five members, and is responsible for:

• supervising the commercial operations of the concessionaires, looking at the quality and efficiency of services provided to final users, and compliance by concessionaires under their respective contracts;
  
  
• setting maximum rates for telecommunications services (when competition does not guarantee fairness) and deregulating these rates when effective competition is verified (maximum rates have only been established in connection with the provision of fixed and satellite telephony);
  
  
• guaranteeing a fair environment in the provision of telecommunications services, and thus being empowered to issue regulations and rules relating to the behavior of the operators, based on the principles of non-discrimination, fairness, neutrality, free and fair competition;
  
  
• applying sanctions to those persons who act in violation of the law, either as providers or users of a telecommunication service;
  
  
• resolving disputes between concessionaires, and between concessionaires and users; and
  
  
• resolving claims made by users.

OSIPTEL promotes the entrance of new operators into the market using different means (eg, publications, events, publicity and meeting with interested investors).

Special committee of telecommunications
The Special Committee of Telecommunications (CEPRI Telecom) was created for the purpose of granting concessions to private investors in the telecommunications sector through special public auctions, to be ultimately determined by the Ministry.

Since its creation, CEPRI Telecom has conducted the following special public auctions:

• the assignment of the radio-electric spectrum and concession for cellular services in provinces (granted to BellSouth for US$35 million);
  
  
• the assignment of the radio-electric spectrum and concession for public personal-call services (PCS) nationwide (granted to Italian STET for US$180 million); and
  
  
• the assignment of the radio-electric spectrum and concession for fixed wireless services (granted to Argentinean Millicom and Telefónica for over US$9 million each).

CEPRI Telecom is now preparing a new auction for the granting of fixed wireless bands. The Peruvian government has also established that the radio electricity spectrum required to provide a local multipoint distribution system (LMDS) will soon be auctioned.

Concessions and Authorizations

The provision of public telecommunications services (ie, carrier services and final services) and private telecommunications services of public interest (ie, broadcasting services) require the execution of a contract with the state, known as a concession. The provision of private telecommunications services requires an authorization, defined as permission granted by the state to establish a service not requiring a concession. The provision of value-added services is only subject to registration by the relevant service providers with the ministry.

Concessions are generally granted pursuant to an application by the interested party. The policy regarding granting concessions establishes that they will guarantee access to the market by:

• promoting competition;
  
  
• facilitating the development of new services and technologies;
  
  
• promoting private investment; and
  
  
• maximizing the efficient use of the radio-electric spectrum.

Concessions must be granted through public auctions if there is any restriction related to;

• the availability of frequencies (eg, as is the case for PCS at the national level);
  
  
• technical restrictions that relate to the possible number of concessions (eg, rural telecommunications projects); or
  
  
• requirements of the National Frequencies Plan.

To render public telecommunications services, concessions are granted for a maximum 20-year term, which may be extended for additional periods. A concession may include permission to render more than one service, but separate accounting will be required for each.

Authorizations are usually granted at the request of the interested party. They are granted for a maximum term of 10 years for radio broadcasting services and five years for private final services and private broadcasting services.

Concessions and authorizations set forth certain obligations that the concessionaire is required to fulfil (eg, commitments with respect to loading, technical requirements, quality of the service and fees).

Minimum expansion plan
The concession contract may establish a loading plan, usually referred to as the minimum expansion plan (MEP). The purpose of the MEP is to require concessionaires to progressively increase the number of users of the service within five years after the concession comes into force.

The concessionaire is obliged to submit information annually to the ministry and to OSIPTEL detailing the progress made in complying with the MEP. The MEP may be modified (by a vice-ministerial resolution) at the concessionaire's request, if it feels that it will be impossible to comply, based on an evaluation of market demand at the end of the first and second years. The ministry and Osiptel supervise compliance with the MEP. Non-compliance with the MEP constitutes a gross violation of the concession contract, punishable by the ministry.

Technical project
The concessionaire has an obligation to comply with the technical characteristics specified for the facilities, in accordance (i) with the technical project that forms part of the application, and (ii) the target spectrum use described in the technical project. The technical characteristics cover:

• frequencies;
  
  
• coverage area;
  
  
• timetables;
  
  
• stations;
  
  
• equipment characteristics; and
  
  
• links.

Any modification of the technical project must be approved by the Ministry of Communications. Accordingly, any change to the technical specifications of the equipment without the required authorization constitutes a gross violation of the concession contract, punishable by the ministry.

The equipment and other devices to be used by the concessionaire must be expressly approved by the ministry, through the issuance of a certificate.

Spectrum
The radio-electric spectrum, defined by telecommunications laws and regulation as a limited natural resource, encompasses all frequencies between 3 kilohertz and 300 gigahertz. The Ministry of Communications must assign the frequencies based on the principles of efficiency and fairness.

For the purposes of administering the spectrum, all frequencies are distributed in bands for specific services, and are thereafter assigned to the concessionaires. The National Frequency Plan regulates the assignment of frequencies and contains general technical regulations for the use of the spectrum. The plan was revised in 1997, optimizing the use of the spectrum and incorporating frequency allocation for new services.

Allocation of the radio-electric spectrum usually occurs jointly with the granting of a concession or authorization, regardless of whether the concession was granted pursuant to an application of the interested party or through public auction. This practice may change on the basis of new policies enacted in connection with the opening of the market.

The radio-electric spectrum must be used by the corresponding operator only in connection with the operation of the service contemplated by the concession or authorization. In order to be able to use the spectrum to provide other telecommunication services, the operator must apply for the appropriate concession that covers the services envisaged.

Numbering
Numbering has also been declared a limited resource, and must be efficiently administered. The ministry is the competent authority for granting and administering number codes. Peruvian numbering regulations date from 1974 and have become archaic in many respects, due to technological evolution in the sector over the last few years. Numbering is granted pursuant to an application from the interested party.

The Numbering Plan is being revised to incorporate new services and guarantee free competition in the opening of the telecommunications market. Furthermore, the government has created a committee in charge of studying and preparing a policy for number allocation and administration, as well as developing a policy for number portability.

Interconnection
Peruvian law guarantees the interconnection between concessionaires of public telecommunications services and sees it as a significant element in the effective entrance of new operators. Once all the terms and conditions of the agreement have been agreed between the parties, an executed copy of the contract must be submitted to OSIPTEL for approval. Any party can request an interconnection mandate from OSIPTEL, in the event that negotiations between them fail after 60 days. An interconnection mandate will settle any legal, economic or technical terms and conditions not agreed during the negotiation period. Any party can appeal the interconnection mandate in the courts.

In October 1998 OSIPTEL established a 'by-default' charge for interconnection with the fixed network at an average of US$0.029 per minute. This charge operates as a cap, which may be reduced by negotiation. Concessionaires are required to pay the operator granting interconnection all costs regarding the adaptation of its network.

There are several services that can be negotiated between the parties under an interconnection agreement, the most relevant being transit and transportation of calls.

'Transit' is defined as the service that allows two different networks to be interconnected through another network. For example, two mobile networks that are independently interconnected with the fixed network could be interconnected through a transit service offered by the fixed network, without necessarily having executed an agreement between themselves. This allows a significant reduction in transaction costs for operators. Transit charges have also been regulated by OSIPTEL, establishing a cap rate of US$0.016, which may be reduced by negotiation between the relevant parties.

With respect to transportation, the incumbent must transport long-distance calls of carriers to any place where the operators do not have a presence. OSIPTEL has stated that the incumbent will charge the rate charge to the public, minus 5%.

For further information on this topic please contact Jose Daniel Amado V or Cayetana Aljovin G at Miranda & Amado Abogados by telephone (+51 1 222 4747) or by fax (+51 1 222 7400) or by e-mail (jdamado@mafirma.com.pe or caljovin@mafirma.com.pe).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.