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Cablegate: Gop to Hear Public Comments On Mobile Termination

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 LIMA 004108

SIPDIS

SENSITIVE

DEPT FOR WHA/AND, WHA/EPSC, EB/CIP
COMMERCE FOR 4331/MAC/WH/MCAMERON AND KFERGUSON
USTR FOR KSCHAGRIN/JMCHALE
FCC INTERNATIONAL BUREAU FOR ETALAGA

E.O. 12958: N/A
TAGS: ECPS ETRD EINV ECON PE
SUBJECT: GOP TO HEAR PUBLIC COMMENTS ON MOBILE TERMINATION
REGULATION

REF: A) LIMA 3162 B) LIMA 2509 C) LIMA 2027 D) LIMA

1035

Cable contains business sensitive information. Not for
internet distribution. Please protect accordingly

1. (SBU) Summary. On July 20, Osiptel, Peru's
telecommunications regulator, published its model for the
reduction of mobile termination rates. After a 40-day
public comment period, Osiptel will hold a public hearing,
scheduled for September 26, where companies will have the
opportunity to react to Osiptel's model. Nextel
representatives plan on making its case at the hearing.
Edwin San Roman, President of Osiptel, acknowledged that he
received Ambassador Gross' August 29 letter, but noted that
Osiptel is treating it as a public comment and will not
likely respond to it directly. End Summary.

Osiptel to Hold Hearing
-----------------------

2. (U) After over a year of anticipation and numerous
reminders from USTR and Embassy Lima, Osiptel, Peru's
telecommunications regulator, published its new mobile
termination rate model on July 20 (Ref A). The new model
calls for mobile termination rates to be applied
asymmetrically, based on factors including the value of a
company's network investment and the spectrum value. Under
the new model, it will take 4.5 years to meet the new mobile
termination rate goal of $.11-.13. Thus, Osiptel will
maintain the mobile termination rate at between $0.203 cents
for the rest of 2005. Beginning in January 2006, the rates
will change to between $0.1816-$0.1873, depending on the
company. By 2009, Osiptel will lower the termination rate
to between $0.1107-$0.1333.

--------------------------------------------- --------------
Osiptel's Proposed Cost Model
July 2005
--------------------------------------------- --------------
Company Original Temp Rate 2006 2007 2008 2009
Rate Jun 2005
--------------------------------------------- --------------
Nextel $.250 $.2053 $.1816 $.1580 $.1343 $.1107
TdP $.207 $.2053 $.1834 $.1616 $.1397 $.1179
TIM $.250 $.2053 $.1873 $.1693 $.1513 $.1333
--------------------------------------------- --------------

3. (U) Per Peruvian law, Osiptel must post the model for
public comment for a 40-day period. Edwin San Roman,
President of Osiptel, informed us on September 16 that
Osiptel will be holding a public hearing on the proposed
model on September 26. According to the agenda, all mobile
companies, including the recently sold TIM, will have the
opportunity to react to the model. Other participants are
welcome to comment, but must sign up for time by September
23. Jaime Cardenas, General Manager of Osiptel, noted that
Osiptel has 30 days to respond to any inquiries and publish
the final model.

4. (SBU) During a U.S. Trade and Development Agency
(USTDA) signing ceremony on September 16, San Roman
acknowledged that he received Ambassador Gross' August 26
letter, which registered the United States Government's
discontent with the published model. San Roman noted that
Osiptel is treating the letter as a public comment, and
would publish it along with all other public comments on
Osiptel's website. (Note: After a thorough search of
Osiptel's website, Econoff was unable to find any public
comments posted on Osiptel's website. End Note.) Jamie
Cardenas indicated that Osiptel would not likely respond
directly to Ambassador Gross' letter.

Nextel's Position
-----------------

5. (SBU) We met with Miguel Rivera, Executive President
and Ernesto Montagne, Regulatory Counsel of Nextel Peru on
September 16 to hear their views on Osiptel's mobile
termination rate regulation. Rivera informed us that Nextel
representatives met for 20 minutes with the Osiptel Board on
September 15 to share their analysis of the proposed model.
Rivera informed us that during the public hearing, Nextel
will present three arguments explaining how Osiptel's model
is flawed. First, Rivera noted, the model is based on the
assumption that Nextel is not planning any future investment
in Peru. Rivera highlighted that Nextel has invested over
$400 million in Peru to date and plans on investing another
$13 million to expand its service to Arequipa, Moquegua and
Tacna (in southern Peru) in the next two years. Second,
Nextel will argue that Osiptel's cost model on which the
draft regulation is based does not take into account real
prices paid by Nextel. Rivera explained that Nextel
purchased an $18 million switch, but the Osiptel model
valued it at only $4 million. Finally, Nextel will
highlight the need for Osiptel to regulate mobile
termination rates in the short term, not over a 4.5-year
period.

6. (SBU) Rivera highlighted that Nextel recently submitted
a claim to the Osiptel Competition Court (Cuerpo Collegiado)
regarding Telefonica's predatory pricing scheme. The
Osiptel competition court accepted Nextel's claim,
indicating that 67% of Telefonica's on-net rates may be
below cost. The Competition Court also noted that there is
sufficient evidence that Telefonica may be committing abuse
of its dominant position (predatory pricing), including off
net and fixed mobile rates.

TDA Grants Signed
-----------------

7. (U) On September 16, Ambassador Struble, working
closely with FCS, presented the GOP with two USTDA grants
for the Peruvian telecommunications sector. The first
grant, worth $425,720, provided the Ministry of Transport
and Communications (MTC) with assistance in developing the
new National Telecommunications Plan, which will lay the
foundation for a new telecommunications law. The second
grant, worth $425,400, was given to Osiptel to assist with
its integrated rural broadband project. The grants form
part of Post's Trade Capacity Building efforts under the
umbrella of the U.S.-Andean free trade negotiations.

Comment
-------

8. (SBU) While Nextel will make clear arguments against
Osiptel's cost model, we expect that Telefonica and
AmericaMovil will come out in favor, at least partially, of
the proposed regulation. Osiptel faces pressure from not
only Nextel, but also from Vice Minister of Communications
Juan Pacheco, who believes that a lower mobile termination
rate will improve competition in the sector. Pacheco
continues to encourage San Roman to reduce regulation time,
as well as lower the overall termination rate. We will
attend the public hearing on September 26 and will report
any new developments. We will also encourage San Roman to
respond directly to Ambassador Gross' letter.

POWERS

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