State initiatives to assist Peru's shift towards digitalisation

In 2017 Peru’s ICT sector represented 2.6% of GDP, according to industry consulting firm Ovum. Political instability and an unfavourable regulatory environment are the main factors affecting the country’s competitiveness in terms of ICT adoption, according to the World Economic Forum (WEF). Furthermore, there is plenty of room for improvement regarding the country’s online security measures. However, the government has been working on strategies and rolling out policies to bolster digital transformation, including a national broadband plan that seeks to establish Peru’s backbone infrastructure by 2021.

Broadband

A 2017 study by Ericsson and Imperial College, titled “How important are mobile broadband networks for global economic development?”, examined the impact of mobile broadband usage in 135 countries, including Peru. It concluded that when broadband penetration expands by 10%, GDP increases by an average of two percentage points. The magnitude of the impact depends on the conditions of each individual economy, but in general it oscillates between 0.6% and 2.8%. The proposal by the Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones, MTC) to modify the Law for the Promotion of Broadband and the National Fibre Optical Backbone Network (Red Dorsal Nacional de Fibra Óptica, RDNFO) was approved in August 2017. It seeks to adjust the prices charged to telecoms franchises by electricity and hydrocarbons firms for the use of their infrastructure.

At the end of November 2017 the MTC presented a draft of the national broadband and ICT policy to Congress, which establishes targets to be reached by 2021 for four components of the digital ecosystem: infrastructure, services, applications and user protection. Luis Montes, former executive president of the Telecommunications Investment Fund (Fondo de Inversión en Telecomunicaciones, FITEL), told OBG that for the broadband policy to be implemented, long-term planning with quantifiable goals is necessary. “The state and providers must agree on the application of policies that are profitable for both operators and society,” he said. As of July 2018 Congress was still evaluating the policy.

Additionally, in 2017 the MTC established the minimum speed for broadband, defining three categories for downloading and uploading speeds. Upload speeds of 1 Mbps are classified as basic, 2.5 Mbps as intermediate and 10 Mbps as advanced. Meanwhile, download speeds are divided by increments of 4 Mbps, 10 Mbps and 20 Mbps.

Government Push

The 2017 Digitisation Index by BBVA Research assessed how ICT enhanced a country’s competitiveness and economy. According to this index, Peru is below many of its regional peers – including Mexico, Colombia, Chile and the US – though it was slightly ahead of Paraguay. Peru ranked 118 out of 139 countries in terms of its political and regulatory environment for ICT development.

To boost Peru’s ICT ecosystem, the state has implemented measures to support digital inclusion including the promotion of a connected government; improvement of digital infrastructure; the introduction of the new platform Digital Kit, which aims to support small businesses; and the simplification of administration through digitalisation.

In 2017, under the framework of the National Strategy of Government Open Data 2017-21 and the Government Open Data Model of Peru, the MTC created the sectoral commission MTC Digital, which is tasked with promoting the digital transformation of state services and procedures.

Additionally, several other initiatives have been established through a model of collaboration between financial institutions, the government and telecoms companies. This model has been used to create a digital wallet for online payments, and an improved payment system for electoral processes. These collaborations have also helped engage individuals in the digitalisation movement and the development of digital solutions.

Infrastructure

In its 2017-18 Global Competitiveness Index, the WEF ranked Peru 83rd out of 137 countries in terms of infrastructure for fixed telephone lines and 69th for mobile subscriptions infrastructure. In terms of technological readiness, Peru was placed 85th for internet bandwidth, 66th for mobile broadband subscriptions, 81st for fixed broadband subscriptions and 88th for the percentage of the population who use the internet. Fernando Grados, general manager of computer consulting firm Dominio Consultores, told OBG that mobile internet has advanced significantly. This is reflected in the reduction of the mobile internet rate per MB, which dropped by 92% between 2014 and 2018, according to the Supervising Organisation for Private Investment in Telecommunications (Organismo Supervisor de Inversión Privada en Telecomunicaciones, OSIPTEL).

As of 2017 there were 61,473 km of fibre optics, of which 78% was privately owned, according to the MTC. The remaining 22% was part of the RDNFO, concessioned to Mexican multimedia conglomerate TV Azteca. However, the network has been criticised for its unattractive rates. “Although the RDNFO was completed at the beginning of 2017, it remains underutilised,” Grados told OBG. “There has been very little progress, despite many connections having been made, because the cost of service provided by the government is greater than that offered by private telecoms companies,” he added.

Internet Provision

OSIPTEL estimated that around four out of every five households had access to fixed and/or mobile internet in 2017. Fixed internet penetration rates increased by 9.1% in 2017, primarily due to telecoms provider Telefónica, which accounted for 4.2% of this growth, followed by Entel with 3.5% and Claro with 0.9%. It should be noted that mobile internet traffic has significantly grown from 5m MB in the first quarter of 2014 to 166m MB by the end of 2017. Higher competition and increased mobile internet traffic has resulted in the reduction of rates. In the first quarter of 2014 the average rate was PEN0.065($0.02) per MB, compared to PEN0.017 ($0.01) as of end-2017. Over the same period, the fixed internet service fee has been reduced by 72.6%, dropping from PEN31 ($9.54) to PEN8.5 ($2.62) Mbps.

In terms of internet speed, Peru’s broadband speed registered 16.5 Mbps, according to a report published by research firm OpenSignal in February 2018. By comparison, Singapore had the fastest broadband internet speed with 44.3 Mbps. In Latin America, Chile was the leader in fixed broadband speed with 36.3 Mbps, while Mexico ranked first in 4G mobile internet speed with 23.2 Mbps. Meanwhile, Peru’s fixed broadband speed registered 21.4 Mbps, placing it 7th out of the 15 Latin American countries, dropping three positions compared to the previous year.

Rural Connectivity

In 2018 FITEL plans to launch six new regional projects as part of the Broadband Installation for Integral Connectivity and Social Development plan. Financing is estimated to reach $6.6m over a 10-year operating subsidy. The projects will develop in Ancash, Arequipa, Huánuco, La Libertad, Pasco and San Martín, with the aim of increasing access to telecoms services and connecting provinces through 9881 km of fibre optics. Furthermore, it is expected to benefit 1.2m Peruvians across 2007 rural locations, as well as connect 3316 state entities to the internet. Telephony is another area in the sector slated for investment. In October 2017 Telefónica announced plans to triple its satellite network capacity through Hispasat’s Amazonas 5 satellite. Using the Ka-band, Telefónica intends to connect 20 rural localities and provide over 3m Peruvians with 3G and 4G mobile connections. To implement this new technology, Telefónica has already invested $170m in satellite solutions, and it is estimated that a further $60m of investment will be made by 2021.

Internet Usage

The results of OSIPTEL’s 2016 Residential Telecommunication Services Survey revealed that three out of every four families use more than one telecoms service in Peru, though statistics differ for rural areas. In urban Peru, 54% of the population uses the internet, while in rural areas this falls to 14%. Internet access in rural areas is up, however, from 19.2% in 2013 to 68.7% as of 2016. The study also reported that the use of the internet varies between age groups and levels of education. In 2016, 21% of people over the age of 50 used the internet, compared to 79% for people aged between six and 50 years. In terms of education, those who studied beyond the secondary school level utilised the internet more than those who completed secondary school or lower. In the business sphere, 76% of private firms used the internet in 2017. According to BBVA research, businesses mainly use the internet for communication, gathering product and service information, and electronic banking. However, 14% of private firms made online purchases, while 7% made online sales. There are initiatives pushing for the increased use of ICT in the public sector as well. The Secretariat of Digital Government – the entity responsible for formulating and proposing policies around the government’s use of ICT – reported that the government had developed 59 web services and 87 mobile applications, and that some 213 public entities utilise the state’s interoperability platforms, to which 28 institutions provide information. However, the online services offered by the government and its perceived benefit is below that of other countries in the region, according to the WEF.

Cloud & Data Centres

Investment in IT services makes up nearly half of business spending in the sector, with data centre projects, traditional hosting and private cloud development being the key areas of focus. However, spending on cybersecurity accounts for proportionally less cloud-based expenditure in Peru than in the region overall, suggesting an opportunity to educate users of cloud-based services on the value proposition of data protection.

In Peru, the public sector continues to drive demand for both services and hardware, with growth in public cloud services outpacing that of private sector clouds by a factor of three. In terms of hardware, government contracts represented the only area of growth in the server market in 2017. Conversely, private sector sales fell as businesses concentrated on achieving greater operational efficiency.

Popular Products

According to some industry players, the sector has been affected significantly by macroeconomic factors. “In 2017 there was a decrease in the acquisition of technological devices, mainly due to the slowdown of industry investments and political instability,” Grados told OBG. “This resulted in lower public investment, which has affected the industry,” he added.

The use of personal computers has been declining worldwide; in 2017 there was a 17.7% reduction in their use, according to the International Data Corporation. Reasons behind this global decline include the notable rise in smartphone adoption, and there is a growing market for the brand, Apple. HP and Lenovo remain the best-selling brands in Peru, covering around 70% of the market, and are also the top-two brands consumers recall, scoring 70% and 60%, respectively. Comparatively, Apple scored 32% to rank fifth in terms of brand recall.

In 2017 Peru’s smartphone market grew by 4.7% in terms of units sold, registering a lower growth than in 2015, when the International Data Corporation estimated it to have grown by 27%. Samsung remained the leader in the local market with a share of 21.8% and annual revenue of $40m. Although it made up only 18% of the market, Huawei reported higher revenues valued at $236m. During the same period, smartphone imports fell by 13%. However, the projections for 2018 indicate that Peru has not yet reached market maturity and that there is potential for smartphone sales to increase further.

As for the software market, in 2018 a sector milestone was reached with the establishment of a partnership between Rayen Salud, a Chilean company specialising in health management software, and Emtec Peru, an IT services company. Together they aim to be the primary software provider for Peru’s public health system. The timing is opportune as the state is working on digitalising the sector. By 2021 it is expected that approximately 70% of health records will be made digitally available.

Cybersecurity

In February 2018 Microsoft’s Digital Civics Index – which evaluated 23 countries in terms of online behaviour as well as negative interactions and their consequences – cited Peru as the country second-most vulnerable to online fraud and scams, in front of only South Africa. However, efforts are under way to improve the country’s cybersecurity. In April 2018 Lima hosted the annual Cybersecurity Summit, which is organised by local computer security company Secure Soft. Peruvian companies as well as key industry players from the region gathered to discuss the state of cybersecurity and potential strategies to protect themselves from cyberattacks. The event has been running for five consecutive years, highlighting the country’s interest in boosting its online security for both businesses and citizens.

Outlook

The digitalisation of the government has been identified as a priority, and measures to this end are already under way. The scope of this goal provides a large window of opportunity for private sector involvement, and in some cases, could help ease the workload of the government. Despite its ambition, however, Peru’s digital transformation has not yet reached the levels of other countries in the region. The challenges going forward include demonstrating that digitalisation indeed improves public and private services and processes. Educating players about the potential benefits of these investments in improving efficiencies and even increasing production will be key to this. With the expansion of internet access to rural areas and the renewed focus on strengthening cybersecurity, the Peruvian ICT sector is starting to establish itself as an emerging market in the region.

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The Report: Peru 2018

ICT chapter from The Report: Peru 2018

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