Since it was privatised almost 20 years ago, Peru’s telecommunications industry has grown by leaps and bounds. Fuelled by private investment and broad economic growth, the Andean nation has been transformed from a country limited by its technological readiness to one on the road to economic development and modernity, in part thanks to the penetration of communications technology. As the mobile market becomes more saturated, non-voice services are being rolled out to maximise customer revenues, such as mobile money and banking. Prospects following privatisation have been largely realised and growth in the market is likely to continue at a slower pace. Additionally, 2013 will mark the entrance of a fourth mobile operator, Viettel Perú, in a market historically dominated by two providers, Telefónica’s Movistar and America Movil’s Claro, adding to the competitive landscape. Among the major challenges facing the sector are the overwhelming dominance of two operators in the mobile segment, stagnation in the fixed-line market, and the obstacles to the establishment and maintenance of infrastructure in rural areas presented by Peru’s topography.

History & Structure

Before privatisation, the industry was marked by poor service, excessive waiting times for line installation, and generally outdated equipment and infrastructure. As part of the privatisation programme of the 1990s, the two big state-owned players, Compañía Peruana de Teléfonos (CPT) and Empresa Nacional de Telecomunicaciones (ENTEL), were sold to Spain’s Telefónica in 1994. Prior to the sale, the government created its first sector regulator, known as the Supervising Organisation for Private Investment in Telecommunications (Organismo Supervisor de Inversión Privada en Telecomunicaciones, OSIPTEL).

Though it was technically created by law in 1991, OSIPTEL did not take over the reins until August of 1993. As an autonomous entity under the purview of the president and attached to the Presidency of the Council of Ministers, OSIPTEL’s responsibilities include monitoring network operations. As the market regulator, OSIPTEL routinely monitors quality of service (QoS) and coverage, as well as issuing fines and penalties.

The Ministry of Transportation and Communication (Ministerio de Transportes y Comunicaciones, MTC) has supervisory powers, though it generally leaves regulation to OSIPTEL. The MTC does, however, assist OSIPTEL in negotiations as well as with the general strategic framework. The MTC is also in charge of overseeing all publicly funded projects involving telecoms and has several organisms for doing so, including the Telecommunications Investment Fund (Fondo de Inversión en Telecomunicaciones, FITEL). FITEL has recently been used as an instrument for cooperation with the private sector as it seeks to reduce the gap in infrastructure, particularly for broadband.

Emerging Middle Class

In addition to a revitalised investment environment following the privatisation, broad-based economic growth and the rise in disposable income levels have played a major role in the development of the telecoms industry. According to the World Bank, GDP increased at an average of 5.4% over the 20-year period from 1992 to 2012, with GDP per capita at constant 2005 US dollars rising from $1966 to $4249. The emerging middle class has therefore become an important driver of consumer and service-oriented industries such as telecoms. Even so, per capita expenditure on telecoms remains low in comparison to regional peers, while pricing remains average.


Having experienced double-digit growth of 16.4% in 2011, the information and communications technology (ICT) market has since slowed, in line with general economic growth, according to the ICT Committee of Lima Chamber of Commerce (Camara de Comercio de Lima, CCL). In 2012 the telecoms market grew 13%, and in 2013 growth is projected to drop slightly to 11%, according to figures from consultancy DN Consultores. This would bring the market’s annual revenues up to $7.3bn, or 3.9% of GDP, according to CCL forecasts. Of this total, the telecoms market represents $4.3bn (2.47% of GDP). Mobile saturation of Peru’s population of around 30.5m is fast approaching. As of June 2013, according to OSIPTEL, mobile lines totalled 28.98m, with 3.66m fixed lines.

However, growth figures mask fundamental problems. Peru ranked poorly in the World Economic Forum’s (WEF) “Global Competitiveness Report 2013-14” in terms of innovation and technological readiness – both of which are considered key factors for countries making the transition from efficiency-driven to knowledge-driven economies, such as Peru. The country ranked 97th out of 148 nations in innovation and sophistication enhancers, and slightly higher in technological readiness, yet still came in the bottom half of the rankings at 61st overall. This was below Chile (34) and Brazil (56), but above Colombia (69) and Argentina (104).

Mobile Market

At the turn of the millennium, mobile teledensity was 4.93 phones per 100 inhabitants (4.93%), according to the International Telecommunications Union (ITU). At the end of 2012, mobile teledensity had increased more than 20 times to 98.84%, while the most up-to-date figures from OSIPTEL show mobile penetration reached 116.1% in September 2012.

These figures are driven by urban users with multiple lines. According to Spanish mobile operator Telefónica, mobile coverage has increased to almost 80% nationally but stands at just under 60% in rural areas, while internet penetration was around 22% in 2012. Telefónica will be adding 3500 mobile stations over the next four years, which should boost these figures.

Movistar, a subsidiary of Telefónica, has dominated the fixed and mobile markets since it took over from CPT and ENTEL in 1994. However, its control of the mobile market has eroded in the past decade, primarily due to the entrance of Claro. A subsidiary of Mexico’s America Movil, Claro entered the market in 2005, and with significant investments saw its market share increase to level the playing field with Movistar. While Movistar and Claro dominate the consumer segment, battling for customers via pricing strategies, new services and promotions, Nextel had taken up the niche business market since its arrival in 1998, offering fixed-line and internet services for the corporate segment.

According to figures from the operators, as of June 2013 Movistar had a market share of 55.77%, while Claro and Nextel had 38.69% and 5.54%, respectively. Looking back at 2009 data, the market has not changed dramatically, although both Claro (33.5%) and Nextel (3.4%) have increased market share at the expense of Movistar (63.2%). All three operators continue to show positive growth in numerical terms, indicating there is still room to expand penetration.

In August 2013 ENTEL announced it had completed its takeover of Nextel’s Peruvian subsidiary after a 100% share transfer from US firm NII Holdings to the local operator. The transaction, announced in April 2013, was valued at $410.6m. In May 2011 a fourth operator licence was granted to Vietnam’s Viettel, a state-owned operator run by the Vietnamese Department of Defence. Viettel won a concessionary contract to operate two bands of 1900-MHz and 900-MHz, work on which is expected to finish in the fourth quarter of 2013. As part of its concessionary bid, Viettel agreed to provide free internet to 4025 schools and 718 state entities over the next decade, in line with the government’s goal to expand telephone and internet services to rural areas. Viettel is also expected to bring in fresh competition to the sector, building on its experience outside Vietnam in low-cost markets including Haiti, Zimbabwe, East Timor, Laos and Cambodia.

Meanwhile, OSIPTEL is considering whether the market can accommodate a fifth operator. Gonzalo Martín Ruiz Díaz, president of OSIPTEL, told OBG, “Pricing for services in Peru is about average for the Latin American region. We see increased competition, possibly from another entrant, as the most effective way to push down prices while simultaneously improving access to rural areas” (see analysis).

Licensing Renewal

The negotiations to renew Telefónica’s operating licence first began in 2009 as the operator’s agreement on using the 800-MHz and 1900-MHz frequency bands was due to expire in mid-2011. In December 2012 OSIPTEL handed over a proposal from the government with the terms of the agreement lasting 18 years. This term is lower than the 20-year contract Telefónica wanted and higher than the 10- to 15-year contract preferred by the government.

In January 2013 it was announced that Telefónica and OSIPTEL had come to an agreement despite a dispute over unpaid taxes. The National Superintendent of Customs and Tax claimed the operator owed $850m in taxes and accumulated interest from more than a decade ago. Telefónica claimed it made investments that legally countered its tax liabilities. OSIPTEL and the MTC repeatedly claimed the tax dispute would not be a factor in the decision to renew Telefónica’s operating licence, and at the time of writing the issue had not been resolved. Terms for Telefónica’s licence renewal include the reduction of rates for pensioners, increasing coverage capacity to 1842 towns from the current 1376, as well as investing an additional PEN3bn ($1.1bn).

Network Coverage

Coverage outside the coastal region is severely lacking as is clear from the penetration rates in remote areas. While Lima and Callao boast a combined mobile penetration rate of 159.2%, the provinces of Huancavelica (28.7%), Loreto (42.1%) and the Amazon (47.7%) show the disparity of penetration between rural and urban areas. Rural penetration is high on OSIPTEL and the MTC’s list of priorities, and concessionary contracts are generally accompanied by terms aimed at improving services in rural areas. Additionally, in the second quarter of 2012 OSIPTEL announced it would be cutting interconnection rates by 68% for rural operators connecting to urban networks to help stimulate growth in rural markets. Additional decreases will be implemented annually.

Movistar’s strong grip extends to the mobile industry, where it operates the largest network in terms of districts served, with 1661 to Claro’s 1640 as of December 2012. Private sector operators are generally slow to expand into remote areas as they generally require heavy investments, in particular in the central Andes Mountains and western Amazon jungle. Establishing infrastructure for each operator in these areas is not economically viable, so creating a framework for sharing could play an role in development.

Infrastructure Development

Heavy investment in communications infrastructure has been a key factor in stimulating growth in penetration rates. The sector accounted for $3.93bn, or 17.33%, of foreign direct investment stock at the end of 2012, according to figures from ProInversión. This placed the industry third, behind finance and mining. Both America Movil and Telefónica announced three-year development plans in 2011. Telefónica’s $1.5bn investment between 2011 and 2013 will largely be used to expand its fibre-optic network in a bid to increase broadband penetration, while it will spend an additional $1.1bn to broaden network coverage as agreed during licensing negotiations.

America Movil’s $1bn programme for Peru is part of a wider $10bn investment scheme for Latin America. The money has also been used to amplify its fibre-optic network in addition to increasing general coverage and implementing a new 4G network. Meanwhile, Viettel announced it will be spending more than $300m on infrastructure and other related setup costs.

Of the four operators, only Movistar and Claro have 3G and 3.5G networks covering the whole country. Nextel is focused on Lima, Cusco, and some coastal and mountain cities, while Viettel is still in the process of establishing its network infrastructure.

In July 2013 Americatel Peru (subsidiary of ENTEL Peru) and Telefónica Moviles won the tenders issued by Proinversión to operate the first two 4G bands in the country for a total of $257.7m. Telefónica Moviles bid $152.2m on the 1710- to 1770-MHz band, while Americatel Peru acquired the 2110- to 2170-MHz band for $105.5m. Deputy Minister of Communications Raúl Pérez-Reyes Espejo told local media that the government would hold a new tender for 4G services by the end of 2013, to be awarded in the first quarter of 2014.

Fixed Telephony

Unlike the mobile segment, the fixed-line segment has been relatively static in the past decade, a global trend as mobile devices become more common. Yet fixed-line penetration grew from 7.7% in 2000 to 10.6% in 2012 in Peru. Significant growth of fixed lines has come from increased penetration in the business segment. However, as the bundling of services has yet to make an impact, new strategies for increasing fixed-line penetration are being explored. Chief among them is number portability. This was successfully rolled out for mobiles in 2010, and in December 2012 Congress established that it must take effect for fixed lines no later than July 28, 2014.

Mobile Money

Telecommunication services often impact other industries, which is why determining economic impact requires more than adding up revenues from telecommunications operators. E-commerce has already begun affecting the retail sector with an estimated 1.5% of consumers shopping online, increasing opportunities for mobile money and banking services.

Rural areas are often considered financially unviable for banks to establish branches. According to the Ministry of Economy and Finance, 65% of districts do not have access to the formal financial system. Additionally, Peru has seen an influx of rural residents to its cities in search of better-paying jobs as the effects of growth are significantly slower to be felt in rural areas. Many of these migrants remit part of their wages home, often through informal and insecure channels.

The societal impact of mobile money and banking services prompted the current administration to introduce legislation regulating the transfers of finances via electronic means. In January 2013 Congress passed the Law of Electronic Money, which establishes basic guidelines for the use of mobile banking services, including maximum monthly transactions of PEN4000 ($1506). Users do not need a bank account to use the services, instead customers approach authorised vendors under the purview of the Superintendent for Banking and Insurance to establish a mobile banking account.


Despite its rapid development over the past 15 years, there is room for expansion in the telecoms sector, though the next decade will likely see single-digit growth as the mobile segment becomes more saturated and operators continue to expand services in rural areas. Saturation will also help transform the competitive landscape as operators increasingly seek to grow their businesses by focusing on non-voice services. The promise of number portability in 2014 should help open up the stagnant fixed-line segment. With economic growth forecast to be maintained at around 6% in the short to medium term, the sector is well positioned to continue its development right alongside it.