Peru: Online for growth
In an effort to support Peru’s rapid economic development and growing demand for communication technologies, the public and private sectors are working together on several initiatives to increase the country’s low broadband penetration rate.
According to a May 2011 report by Cisco Systems, a global producer of network and communication technologies, Peru’s rate of broadband penetration as of December 2010 was 3.47 per 100 inhabitants. Despite an annual growth rate of 14.1% in 2010, the country’s broadband penetration rate continues to lag behind that of many other South American countries including Venezuela (5.57 per 100 inhabitants), Colombia (5.68), Brazil (7.11), and Chile (10.78).
In a statement, Alvaro Merino-Reyna, the general manager of Cisco Peru, said, "High-speed networks are the foundation of the knowledge economy, as they facilitate growth […] Broadband offers a unique and profitable opportunity to increase Peru's productivity and competitiveness."
The government and private investors are readily taking advantage of this opportunity. In January 2011, the national government signed a concession agreement with Viettel, allowing the state-owned Vietnamese mobile operator to become the fourth mobile phone operator in Peru.
A key element of Viettel’s winning bid was its offer to provide free broadband internet access to 4045 public schools for 10 years at a cost of approximately $1.3m to the company. While free internet access for public schools was a requirement of all bids, Viettel’s offer far exceeded the requested minimum of 1350 schools.
The mobile operator concession agreement signed by Viettel will not be the last of its kind in terms of its emphasis on expanding Peru’s broadband network to new users. By next December, Peru’s Agency for the Promotion of Private Investment (Proinversión) will award a concession agreement for the development and operation of a 4G broadband network.
According to Jesús Guillén, who is in charge of administering the 4G tender for Proinversión, the current proposal is to require bidders to extend broadband coverage to police stations, clinics, and other public institutions in addition to public schools. “The idea is to extend the benefit to all institutions of the Peruvian state,” Guillén told OBG.
The Peruvian government’s drive to expand broadband internet access is in line with the World Bank’s recommendations for supporting economic growth. A recent study by the bank found that in low- and middle-income countries a 10% increase in broadband penetration increased economic growth by 1.38%, a result most likely linked to improved communication between consumers, businesses and government.
However, according to the World Bank report, questions of supply and demand hamper the ability of many developing countries to aggressively grow their broadband networks in the same fashion they have their mobile networks. While the benefits of a mobile phone are universally accessible to both rich and poor, to take advantage of broadband one must have access to costly hardware as well as possess some digital literacy.
Peru’s Ministry of Transportation and Communication (MTC) and Telecommunications Investment Fund (FITEL) have worked to overcome some of these restraints by partnering with Telefónica del Perú to provide broadband access in remote areas through the Broadband for Isolated Areas (BAS) project.
Through BAS, Telefónica not only constructed the necessary broadband infrastructure in more than 3500 isolated communities throughout Peru but the company was also responsible for working with local non-governmental organisations to train at least 15% of the target population in how to use the new technology. BAS is expected to reach completion by the end of this year.
Telefónica is also to be credited with the recent arrival of broadband in Cusco as part of the Fibre Optics for the Andes Programme. The project requires more than 400 km in cables and a total investment of $300m. Telefónica del Peru’s chief executive, Javier Manzanares Gutiérrez, stated, “This project reflects our assessment of expanding broadband internet access in Peru and reaffirms our commitment to the digital inclusion of more and more Peruvians.”
Upon completion, the Fibre Optics for the Andes Programme should include more than 1800 km of cable connecting eight regions and 2.4m Peruvians.
“We believe that the expansion of the broadband network to cover 15% of the population will allow the telecommunications sector to reach up to 4% of GDP,” Guillén told OBG. With the broadband network’s current low penetration rate and high potential for growth, there are likely to be many broadband service providers worldwide eager to play a role in the expansion.