Peru's ICT consumers to benefit from greater market competition

Since the market entry of new operators in 2014, competition, investment and consumption have risen, boosting the dynamism of the telecommunications sector. These positive trends continued into 2017 as the regulatory framework was strengthened, with a particular focus on driving competition, reducing costs and protecting the interests of consumers.

The sector’s economic importance has also grown significantly over the years. In 1994, when the market was liberalised, telecoms represented 1.5% of GDP. By 2017 the sector had expanded to account for 4.9% of GDP, according to the Supervising Organisation for Private Investment in Telecommunications (Organismo Supervisor de Inversión Privada en Telecomunicaciones, OSIPTEL).

COMPETITIVENESS

According to OSIPTEL’s “Evolution of the Telecommunications Industry and Competitive Intensity” report published in May 2018, the sector’s operating income rose from PEN18.2bn ($5.6bn) in 2016 to PEN18.6bn ($5.7bn) in 2017, an increase of 2.2%. However, this was lower than the 3.1% growth recorded in 2016. Rafael Muente Schwarz, president of OSIPTEL, told local press in May 2018 that the contraction in company profits did not represent a slowdown in telecoms activities, but rather demonstrated the increased competition in the sector, with high-quality products and services being delivered at lower prices. Muente also pointed out that investment growth has been consistent with the higher levels of competition. In 2017 investments in the sector amounted to $1.4bn, compared to the $1.1bn worth of investments recorded in 2014. The report showed that average revenue per user (ARPU) was decreasing, which could also be the result of rising competition. Between 2016 and 2017 the monthly ARPU for mobile services fell from PEN20.6 ($6.34) to PEN18.8 ($5.79), while the monthly ARPU for fixed telephone services dropped from PEN21.1 ($6.50) to PEN20.4 ($6.28). Meanwhile, the competition index for unregulated markets such as mobile telephony, fixed internet and pay TV, when comparing variables such as price, quality and concentration of market lines, registered an increase of 20%.

Fixed Lines

In 2017 the fixed telephony market reversed the downward trend of recent years, according to OSIPTEL. Fixed telephony subscriptions recorded a growth rate of 0.3% compared to 0.2% in 2016. This recovery was mainly due to the increase in installed lines by Entel and Movistar. Movistar led the fixed telephony segment in 2017, with a 76.1% market share, or 2.2m installed services, followed by Claro with a share of 19.8%, or 500,000 installed services.

In terms of density, approximately 10 out of every 100 inhabitants had a fixed line in 2017. Total connections reached 2.9m, of which 89.5% were wired and 10.5% wireless. The regions that registered the highest number of fixed telephone subscribers were Lima, Callao and Arequipa. Comparatively, the regions that recorded the lowest density levels in 2017 were Amazonas, Huancavelica and Pasco.

As of March 2018 the region with the highest number of installed fixed lines in 2017 was Lima with 1.8m, although it increased by less than 1% on the previous year. La Libertad recorded the second-highest number of installed lines with 152,421, followed by Arequipa with 145,242 and Callao with 144,766. Conversely, the region that experienced the greatest reductions compared to the previous year was Loreto, with a loss of 17%.

In March 2018 OSIPTEL amended the maximum price for fixed phone calls made with the Movistar network to any mobile line from PEN0.12 ($0.04) per minute to PEN0.06 ($0.02). This is Movistar’s sixth price adjustment since the regulatory mechanism was introduced in 2011, when the rate stood at PEN0.30 ($0.09) per minute. OSIPTEL estimated that the reduction could generate savings of approximately PEN15.7m ($4.8m) per annum for customers.

Mobile

The development of the smartphone market has led to a significant increase in mobile phone penetration. In 2017 there were 130.5 mobile lines per 100 inhabitants, according to OSIPTEL, showing that mobile market penetration grew at a rate higher than the population rate. Accessibility ratios amounted to 97.6% of households in mobile telephony, compared to 27.3% in fixed telephony. Meanwhile, total mobile lines increased by 3.2% from 37.7m in 2016 to 38.9m in 2017. This growth was spearheaded by Entel, which expanded by 31.5%, and Bitel, which grew by 36.9%.

Peru’s four main telecoms providers are Telefónica del Perú’s Movistar, Mexican América Móvil’s Claro Perú, Chile’s Entel and Vietnam’s Bitel. Together, Entel and Bitel represent approximately 30% of the telecoms market since their entry in 2014. Before then the market was dominated almost entirely by Claro and Movistar. In 2017 Movistar recorded a total of 14.8m lines to represent a 38% market share, Claro with 12.5m lines (32%), Entel with 6.3m (16%) and Bitel with 5m (13%), according to OSIPTEL.

In September 2017 Spanish company Incacel Móvil bought assets from Virgin Mobile. Later in April 2018 the Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones, MTC) granted Inkacel, subsidary of Incacel Móvil, sole concession for the delivery of public telecoms services across the country for a period of 20 years.

To distinguish themselves among rising numbers, mobile telephony operators have been increasing the attractiveness of their mobile internet and fixed internet plans. Bitel led the segment for the most economical post-payment plans – those less than PEN29.9 ($9.20) – offering 3072 MB of free data, compared to its competitors’ offering of 1536 MB. During that period Bitel also led post-paid plans, which started from PEN89.9 ($27.68) and offered 24,576 MB of free mobile data.

Portability

Key to the telecoms industry’s competitiveness is number portability, which allows mobile phone users to keep their number when they change operators. The Number Portability Act, or Law No. 29956, came into effect in July 2014, and since then until December 2017 an accumulative 113,581 fixed lines were ported. The company that gained the most lines in 2017 was Claro with 74,416, though it lost 17,112 lines to yield a net total of 57,304 lines. At the regional level, Lima accounted for 74.5% of the fixed telephony market with 84,603 lines that year, followed by Arequipa and La Libertad with a share of 5.9% and 4.4%, respectively.

Mobile portability registered a record high in 2017 with 3.3m users switching to a different operator. From July 2014 to May 2018 an accumulative 9m mobile numbers were ported. During this period, Entel gained a net total of 1.6m lines, while Claro recorded 350,587. Meanwhile, Bitel registered a negative balance of 452,514 and Movistar lost a total of 1.5m lines. In 2018 mobile number portability continued its upward trend, growing by 13.9% in May to reach 703,772 transfers, the highest in almost three years. Of the total mobile numbers ported, 65.5% were prepaid lines and 34.5% were post-paid. Claro gained the most lines that month with 55,736.

Market Expansion

Another strategy that stimulates competition is price comparison, though some industry players believe there are better ways to expand the sector. The average mobile tariff rate fell from PEN0.17 ($0.05) in 2012 to PEN0.12 ($0.04) in 2017, though according to Nino Boggio, institutional relations manager at Entel, this price war is not sustainable because it puts the quality of services at risk. Rather, the strategy for new operators wishing to enter the market should be to diversify services to segments related to the market or markets that have not yet been penetrated, Muente told OBG. Phan Hoang Viet, CEO of Bitel, told local press that competition in 2018 would be stimulated by the offer of unlimited calls. Comparatively, Rosa Bonilla, head of institutional relations at Entel, argued that the profitability of the sector would be based on customer satisfaction. “The transformation of the sector since 2014 – including upgrades to the regulatory framework and the entry of new competitors – has been well received,” Bonilla told OBG.

In 2017 two important changes occurred in the mobile virtual network operator (MVNO) market: OSIPTEL approved Dolphin as an MVNO, while Virgin Mobile exited the market. The remaining MVNOs include Cuymobile, Dolphin and Famagusta. Muente told local press in September 2017 that there is room in the market for more MVNOs since these types of operators are oriented to meet the specific needs of users and do not compete with large operators.

4G Technology

According to UK-based mobile research firm OpenSignal, 4G availability increased across all four operators between August 2017 and February 2018. In early 2018 OSIPTEL reported that by the end of 2017, 4G technology had reached 30,085 population centres across Peru, representing growth of 431.7% on the previous year.

The latest study on mobile networks in Peru by OpenSignal in February 2018 cited Movistar as having the fastest 4G download speed with approximately 21.8 Mbps, followed by Entel with 21 Mbps. In comparison to the global average of 16.9 Mbps, Peru’s average 4G internet speed was 0.4 Mbps slower. Claro registered an average download speed of 14.3 Mbps, while Bitel averaged 5.7 Mbps.

In 2017 Entel invested $150m in its networks, in addition to the $300m allocated to the 700-MHz bandwidth concession granted by the MTC in 2016 to upgrade its 4G coverage. Meanwhile, Movistar invested $600m, making it the top investor that year despite having recorded the biggest profit loss, while Claro invested $400m and doubled its 4G coverage.

According to OSIPTEL, however, 36,513 cellular base stations (CBS) are required by 2021 to meet the demand for increased internet access and voice communication services. In 2017 there were 18,928 CBS, meaning that a further 17,585 are needed. The areas with the largest CBS deficit relative to the 2021 goal are: Lima having 4938, followed by La Libertad (1444), Piura (987) and Cajamarca (869).

Rural Telephony

The Telecommunications Investment Fund provides subsidies for telecoms services in areas where there is little economic return for providers. One of the measures that have already been implemented to benefit rural areas is differentiated interconnection charges. “The result of these systems in fixed and mobile telephony are currently being evaluated,” Muente told OBG. In January 2018 differentiated mobile charges were reduced for operations in rural areas with the goal of encouraging investment in sub-par infrastructure. In May 2018 OSIPTEL reduced mobile charges in rural areas from $0.0021 to $0.0004 per minute. Meanwhile, mobile charges in urban areas stood at $0.0066 per minute.

Radio Spectrum

Radio spectrum is considered a limited natural resource, and is used for wireless communications. Different frequency ranges are assigned and covered by a variety of telecoms services, such as mobile telephony, radio and television broadcasting, citizens band radio, microwaves and satellites. However, in some cases the occupation of these frequencies does not exceed 25%, and researchers are working to determine those white spaces. By 2020 it is expected that the gap in radio spectrum availability will be reduced through reutilisation. In 2017 the MTC issued a decree to modify the General Regulations of Telecommunications Act in relation to radio spectrum rates. Specifically, it revised the method for calculating the annual fees paid by mobile service providers and provides the possibility of a lower rate for operators that expand their coverage to areas without service or implement technological improvements to their networks.

User Protection

To protect consumers against high costs, regulators have introduced new policies. In 2017 OSIPTEL approved plans to roll out a symmetric mobile termination rate of $0.007 per minute, effective as of January 1, 2018. In February 2018 the regulator also proposed to examine the calculation methods companies use to measure the consumption of mobile internet. Instead of the current rounding scheme, mobile data consumption would be calculated on the amount actually utilised.

Another regulation that seeks to benefit the user is the Law of Just Accumulation of Minutes and Megabytes, which was drafted in March 2018, suggesting a rollover scheme for unused data. However, some industry stakeholders have said that the legislation lacks technical and legal support, and its implementation may end up inconveniencing the consumer as the accumulation of data could exceed network capacity.

In order to prevent the illegal sale of mobiles, the National Registry of Mobile Terminal Equipment was created in January 2017. The new system will track down and disable any devices reported as stolen.

In the face of greater interconnectivity of mobile and fixed telephone services, complaints and claims have become more frequent. Since 2016, OSIPTEL has received 2.7m complaints, of which 50% were related to mobile services, while its Administrative Tribunal for the Settlement of User Claims received some 233,342. To handle this issue, OSIPTEL extended its dispute resolution deadline to 139 days and implemented temporary measures such as the suspension of appeals and complaints by phone and the introduction of categories for cases concerned with incorrect rates and billing calculation.

Outlook

In 2017 the dynamism of fixed and mobile telephony has continued to drive the growth of the telecoms sector. Although mobile telephony expanded at a greater pace, while fixed telephony was able to resume positive growth. Increased participation of new operators continues to restructure the market by heightening competition, which is leading to better options for users. The incoming regulations and bills are expected to continue promoting competitiveness levels, while also leading to better service, quality and rates for consumers in 2018.

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The Report: Peru 2018

ICT chapter from The Report: Peru 2018

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