Peru: A mobile market set for growth - Prepaid MVNO

Peru:
A mobile market
set for growth
By Roberta Prescott
FEBRUARY 2013
Sponsored by:
ATC LATIN AMERICA

FEATURE REPORT
Peru’s wireless market – dominated by Movistar and Claro – may
not be the most dynamic, but it may present new opportunities as the
country works to increase broadband penetration, expand 3G services
and data consumption.
Dominated by the two largest Latin
American telecom operators, Peru’s
wireless market still holds promise. As
observers have noted, there is room to
grow in Peru as mobile penetration is at
96%, 2G services accounts for 91% of the
total market and 76% of mobile lines are
via prepaid. Evolving technologies and
more carrier competition are potential
drivers of new opportunities.
Analysts noted that while Peru is currently
home to three established carriers
– Telefónica’s Movistar, América Móvil’s
Claro and NII Holdings’ Nextel – the
country lacks the depth of competition of
some markets such as Brazil.
“Two operators pretty much hold the
market, and the operators are in a very
comfortable competitive position. It is
not a dynamic market, nor is there high
competition,” said Daniele Tricarico, analyst
at Pyramid Research.
More activity is expected in the future.
In the mobile space, Vietnamese mobile
network operator Viettel Group recently
was awarded spectrum licenses and announced
the launch of technical operations
and trial services. Some niche companies
have also entered the market, such
as Olo, which is offering mobile Internet
services using WiMAX technology.
Despite the challenges, Tricarico noted
Peru is a growth market and is far from
saturated. Peru has also been going
through a period of robust economic
growth, which should spell opportunity
for the mobile space.
“There are opportunities for data services,
for both fixed and mobile broadband
providers mostly in the corporate
segment, and there are good opportunities
for mobile providers to offer broadband,
even Wi-Fi,” Tricarico said.
Although some analysts count Peru’s
mobile lines at 29 million, the latest official
data from Peru’s regulatory agency,
Osiptel, states that the country had
just over 34 million wireless customers
in mid-2012. Of those, Movistar counted
Peru snapshot
Mobile telephony penetration: 96%
2G : 91% of total connections
3G: 4% of total connections
Prepaid: 76% of total connections
Postpaid: 24% of total connections
Carrier market share:
Movistar: 51.5%
Claro: 43.2%
Nextel: 5.3%
Source: Informa Telecoms & Media/Q312
20.8 million customers, Claro served 11.9
million subscribers and Nextel’s customer
base numbered just over 1.3 million.
According to an Informa Telecoms &
Media report, Movistar led the Peruvian
telecom market with a 51.5% market
share in the third quarter of 2012. Claro
followed with 43.2% of the market and
Nextel with 5.3%.
Although still leading, Movistar has
lost some of its market share. In 2010,
Telefónica’s unit in Peru controlled
about 54% of the market, with Claro
having grown its share from 41% in
2010. Nextel’s share of the market has
remained stable.
Elia San Miguel, principal analyst with
Gartner Research, believes that Movistar
will keep its leadership and make more
aggressive moves following the unification
of its fixed and mobile operations.
“Peru is a very concentrated market, with
Movistar and Claro leading not only in mobile
lines but also in fixed telephony and
pay-TV services,” said Sebastián Menutti,
analyst at Signals Telecom Consulting.
Although Nextel is a niche player focused
on the corporate market, by deploying
its 3G network, the carrier is
expanding its reach, noted Menutti. He
also highlighted that Nextel’s average
revenue per user is almost double that of
Movistar and Claro.

FEATURE REPORT
“These technologies allow corporations
to jump into unified communication solutions,”
he said.
Peru’s mobile penetration is near saturation, though only a small fraction use advanced devices.
Source: Osiptel
In Peru, growing ARPU is a challenge, structure required to support telecommunications
growth is one of the mar-
with current ARPU of $9 per month,
which is one of the lowest in the region. kets main investment areas.
“Generally, Peru’s wireless market In addition, La Rosa said that corporate
adoption of information and commu-
has been growing, but there’s still more
room to grow,” said Carlo Dávila La nications technology is also increasing,
Rosa, telecommunications analyst at and enterprises will need to invest in
IDC Peru. La Rosa noted that infra- networking, switching and IP telephony.
New competitors on the way
With only three major mobile players,
Peru would seem to an attractive market
for new competitors, and some companies
have seen this opportunity. The Viettel
Group launched its technical operations at
the end of January, and Virgin Mobile has
also showed interest in launching telecom
services in Peru as a mobile virtual network
operator. It is important to note that
Peru does not have appropriate regulations
in place yet for MVNO services.
Viettel’s technical operations started in
the cities of Huarochiri, Huaura, Chincha,
Ica and Trujillo. However, under the
concession, Viettel was only contractually
obligated to launch technical operations.
As of press time, Viettel had not
yet launched commercial services.
“The expectation is that Viettel will
enter the market with more aggressive
prices, charging less than current players,
which would be in line with what
they’ve done in Vietnam,” said Menutti
of Signals Telecom.
Erasmo Rojas, 4G Americas director of
Latin America and the Caribbean, said
that Viettel faces a very difficult challenge,
and it might be forced to undercut
rivals as they will use the same devices
other carriers use.
In January 2011, the carrier won a
license in the the 1.9 GHz frequency
band, setting the stage for it to become
the fourth mobile operator in the
country. In April 2012, the Viettel Group
announced plans to invest about $400

FEATURE REPORT
Total customers/dominant carriers across Latin America markets
300
Total Customers
250
200
150
100
266 M
94 M
Number of Largest Mobile
Country Major Carriers Telecom Operator(s)
Brazil 5 Vivo, Telefonica
Mexico 4 Telcel, América Móvil
Argentina 4 Claro, América Móvil
Colombia 4 Claro, América Móvil
Venezuela 3 Movilnet
Peru 3 Movistar, Telefonica
Chile 3 Entel
50
0
Source: 4G Americas
57 M
46 M
Brazil Mexico Argentina Colombia
29 M 28 M 26 M
Venezuela Peru Chile
million in Peru over the next 10 years.
Last August, the company secured more
spectrum in the 900 MHz band, which
cost a total of $48.43 million.
Viettel has tapped ZTE to deploy a
2G/3G wireless network in Peru, and according
to ZTE, the first phase of the project
will include building more than 2,000
base stations. Dubbed Viettel Peru, the
company’s local unit expects to penetrate
the market with low prices and aims to
reach 338,000 subscribers by 2014. The
carrier currently has operations in Cambodia,
Laos, Haiti and Mozambique.
“I think it will be difficult for Viettel
to replicate the strategy they’ve used in
other regions, where they focused on rural
areas,” said Marceli Passoni, senior
analyst for Latin America at Informa
Telecoms & Media. “In Peru, the players
are consolidated already, and the government
has set policies for rural areas.”
Informa forecasts that Viettel could
capture 1% of the market by 2017.
As for Virgin Mobile Latin America,
the company has launched telecom services
in Chile, with plans to expand into
Colombia and Brazil. The U.K.-based operator
said that while Peru was of interest,
it was not likely to launch services in
the country this year.
“Peru is a vibrant market and one of
our priority target markets because
we know we can offer a better deal,
great customer service and a more fun
mobile experience to Peruvians. We have
registered our business and have been
approved to launch an MVNO in Peru,”
said Pete Macnee, CEO of VMLA.
Olo also recently entered the market,
spending $50 million to launch a mobile
Internet services using WiMAX technology.
The offering is a prepaid mobile
data services targeting the country’s
capital Lima.
Olo is expected to expand its WiMAX
network to other provinces starting in
the first quarter of this year, including
Arequipa, Chiclayo and Trujillo.
Another player, VelaTel Global Communications
(previously ChinaTel Group),
has been offering WiMAX-based wireless
broadband for the last couple of years
under the brand GoMovil.

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FEATURE REPORT
Network evolution
With LTE yet to be earmarked by carriers,
wireless technology has been focused
on 3G networks. Although 3G has been
available in Peru for years, penetration
was only 4% as of last September, according
to Informa Telecoms & Media.
Telecom operators have preferred to
evolve their 3G networks, improving
quality and coverage, instead of jumping
into LTE. Both Movistar and Claro
have deployed HSPA+ networks in major
centers. And Nextel has started its 3G
deployment throughout Latin America
beginning in Peru.
The carriers are relying on these efforts
to gain in the mobile broadband market.
But 3G penetration is still very low. According
to Signals Telecom, 3G connections
represent only 5% of the total market.
“Investment in 3G is not finished,
and carriers will continue to promote 3G
to boost data consumption,” Signal Telecom’s
Menutti said.
Although LTE deployment is not tied
to a spectrum auction in Peru, carriers
have preferred not to launch LTE
with the spectrum they already have,
explaining that those frequency bands
are not the most appropriate ones. Gonzalo
Ruíz, Osiptel’s president, explained
that in Peru there is no allocated radio
spectrum for a given technology; in that
sense, there is technological neutrality
in the use of the band.
“We tie the auction to coverage reach,
telecom service expansion and social
goals, not to the technology the carrier will
use,” explained Ruíz. The country’s Ministry
of Transport and Communications
has increased the maximum amount of
spectrum each operator can control from
60 megahertz to 100 megahertz.
In any case, observers and carriers
are expecting the upcoming auction of
spectrum in the 1.7/2.1 GHz band, also
known as the advanced wireless services
band, to boost the deployment of
LTE networks in Peru. The Promotion
of Private Investment (ProInversión)
said plans for the auction will include
two blocks in the 1710-1770 MHz and
2110-2170 MHz bands. The process is
still in its early stages, with the auction
expected to take place during the first
half of 2014.
In addition, 4G Americas’ Rojas said
that Peru’s government has decided to
adopt the Asia Pacific Telecommunity
(APT) band plan for the 700 MHz bands;
however, no plans regarding the spectrum
have been set.
Last August, ProInversión conducted
auctions for the 899-915 MHz and 944-
960 MHz bands (Lima and Callao) and
the 902-915 MHz and 947-960 MHz
bands to provide telecom services for the
rest of the country. Viettel snapped up
those bands.
“LTE is the wireless technology of the
future,” said Informa’s Passoni. “Sooner
or later all countries will adopt it, but I
don’t think it is time for Peru. LTE devices
are too expensive for Peru, considering
its economy. It would be a very high
investment for little demand.”
Since LTE has not been deployed, Osiptel
has prohibited telecom operators from
using the term “4G” or “fourth generation”
to market their products. The measure
is intended to ensure the accuracy
of information that companies provide
users about their plans and products, as
required by Peru’s Article 6 of Regulation
Terms of Use of Public Telecommunications
Services and according to the
country’s Consumer Act.
Indeed, Osiptel’s resolution is in line
with standards posted by the International
Telecommunication Union that
set specifications for next-generation
mobile technologies. The ITU has stated
that IMT-Advanced, also known as
LTE-Advanced, and WirelessMAN-Advanced
technologies meet the requirements
for 4G services.
Government’s role
Peru’s telecom regulator, Osiptel,
has set three main focus areas for
2013: user rights; quality enhancement
and improvement; and encouraging
competition. As Osiptel’s Ruíz
Challenges ahead
• To increase the average
revenue per user: Peru’s
ARPU is $9, one of the lowest
in the region.
• To improve competition: Peru
is a very concentrated market,
with Movistar (Telefónica)
and Claro (América Móvil)
splitting the market.
• To increase Internet coverage,
penetration and reduce
Internet costs.
• To increase mobile data
consumption.
• To expand wireless coverage,
reaching remote areas.

FEATURE REPORT
explained, the agency is working to
increase customer service quality.
That includes improving service and
reducing the time that carriers take to
attend to customer complaints as well
as improving the way the government
agency manages complaints.
Regarding the quality of mobile voice
and data services, Ruiz said that Osiptel
has set an agenda for regulations aimed
at improving wireless service quality by
setting rules for coverage and quality.
Osiptel is also reviewing regulatory procedures
and supervision.
Ruíz highlighted the need to promote
competition, noting that this issue is also
related to greater telecom service coverage
in the country.
“In Peru, the market is highly concentrated,
and for us, this is the main
thing that has prevented the country
from improving infrastructure and Internet
broadband in the countryside,”
Ruíz said.
Among Osiptel’s main projects is the
deployment of a fiber-optic backbone to
boost broadband connections and penetration.
The contract bid for selecting
a vendor to deploy and manage the fiber
optic backbone is being evaluated
by the MTC, and bidding is expected to
be held by mid-2013.
“This fiber-optic transport network of
14,000 kilometers, aims to reduce the
deficit of infrastructure. It will be a concession
contract with a private company
– a carriers’ carrier – that will operate
this network,” Ruíz explained.
Osiptel has been working since 2010 on
the national broadband plan. The agency’s
role is to oversee the implementation
and operation of the fiber-optic backbone,
ensuring competition takes place so that
equal access is provided.
In Peru, there are three governmental
agencies that regulate and influence
the telecom market. The MTC is responsible
for developing telecommunications
policy, granting contracts and managing
resources such as spectrum and numbering.
Osiptel regulates and monitors
the country’s public telecommunication
service market, and ProInversión is the
government body in charge of promoting
private sector investment in Peru.
“The government is investing to take
telecommunication services to the rural
areas and to universalize telecom services,”
Informa’s Passoni noted.
The fiber-optic project is important for
increasing capacity across the country.
Pyramid’s Tricarico said that in Peru it
can be very difficult to bring broadband
to certain areas.
In general, observers agreed that the
Peruvian government has been addressing
several of the most important telecommunications
issues, but they also
noted the lack of regulations or incentives
that could encourage more competition
and geographic expansion.
For example, Peru lacks MVNO regulations.
As noted by Ruíz, currently the
government is reviewing its telecommunications
law, which dates from 1988, to
improve competition rules, encouraging
new entrants and adding new options
such as MVNO providers.
Ruíz also highlighted that the beginning
of number portability has contributed
to a more competitive market. “Last
year, there were about 200,000 people
who switched operators and kept their
original mobile numbers,” he said.
Hot topics
Although dominated by Movistar and
Claro, Peru’s wireless market is recognized
for its potential. Observers are excited
to see the impact Viettel could have
and whether the entrance of the new carrier
means prices will fall.
IDC’s La Rosa said that the rise of the
middle class in Peru is contributing to
making the wireless market more attractive
for new telecom players. He added
that the expansion to uncovered areas
is another opportunity to be explored in
the country.
Pyramid’s Tricarico said that telecom
operators are putting effort into the
extension of 3G (using both HSPA and
HSPA+), deploying more antennas on
base stations to support faster speeds
and increasing population coverage.
“Looking at this, infrastructure is still
a key way to differentiate, since operators
are competing in infrastructure and
coverage layers, and they are not in the
stage of competing with services – when
they would be more open to sharing infrastructure,”
Tricarico explained.
In addition, the migration from 2G to
3G technologies represents a big opportunity,
as data services begin to increase.
“There will be an evolution of mobile data
services, with big growth in the HSPA+
space,” noted Tricarico. “There are a lot of
opportunities for operators to grow. They
are focusing on HSPA+, and there will be
strong growth in that area because LTE
might take a year or more to happen, and
they have to raise data consumption.”
Continued on page 9

FEATURE REPORT
Telefónica’s license renewal
In January, Telefónica Peru announced it accepted the requirements imposed
by the Peruvian government for renewing its operating licenses. Telefónica
classified the conditions and terms required by the Ministry of Transport
and Communications as harsh and said that they were unprecedented.
The government had been evaluating the renewal of three of Telefónica’s
four operating licenses since 2012, and said the new agreement will benefit
more than 10 million low-income Peruvians, directly and indirectly, since
the new requirements focus on providing telecommunication services to
the most disadvantaged and low-income of the country’s populations.
As for the Spanish-based telecom operator, Telefónica said that to
comply with the MTC’s terms and conditions it will have to make extraordinary
investments and management efforts. The telecom operator
also highlighted that it has
completed its previous obligations,
contributing significantly
to the “dramatic
growth of mobile telephony
in Peru with more coverage
and increasingly competitive
rates.”
“The amount Telefónica
had to commit to invest in
rural coverage in exchange
for the license renewal,
around $1.2 billion, is very
high,” noted Marceli Passoni,
senior analyst for
Latin America at Informa
Telecoms & Media.
Sebastián Menutti,
telecom analyst at Signals
Telecom Group, said that
it was not the first time
that the state had imposed
investment and coverage
conditions on Telefónica.
“It also happened when the
company acquired the assets
of BellSouth Peru, and
the government imposed
coverage requirements
for nearly 2,000 rural municipalities
as a condition
of accepting the transaction,”
Menutti said.
At that time, in order to
receive the green light on
the deal, Telefónica was
required to provide coverage
Telefónica Peru was required to meet stringent coverage guidelines in order to secure
continued use of its wireless licences.
Source: Telefónica
for localities that didn’t have any type of telecom services or were underserved.
Telefónica received MTC’s authorization for the merger in April 2005.
According to the latest conditions, Telefónica now must provide more
than 12,000 free Internet broadband connections aimed at improving
the performance of essential state services in areas such as education,
healthcare and security.
Among the agreement’s positive aspects, Menutti said that mobile services
will reach 409 district capitals and 1,848 locations where Telefónica
does not currently provide coverage, achieving 100% mobile coverage of
the district capitals. “In addition, up to one million people will have a reduced
rate for mobile services, which will be reflected in increased service
adoption. These obligations are in line with the objectives of the National
Plan for the Development of
Broadband in Peru proposed
to minimize the digital divide,
ensuring that 100% of
the country’s districts have
broadband,” he said.
On the negative side,
the analyst pointed out
that the negotiation delay
for the contract renewals
resulted in the new district
infrastructure deployments
beginning at least one year
later than they should have,
as Telefónica’s licenses expired
between May 2011
and February 2012.
In a statement, Javier
Manzanares, chairman of
Telefónica in Peru, said
that over the nearly 19
years that Telefónica has
been working in Peru, the
company has invested
more than $6.8 billion in infrastructure.
“Our commitment
to Peru is long term.
We will continue to invest
in Peru and will work even
faster with authorities and
various stakeholders of
the company to continue
expanding telecommunications
as a tool for development,
access to modernity
and inclusion,” he said.

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FEATURE REPORT
Continued from page 7
Rojas added that currently, Voice penetration
is in line with the Latin American
average, according to 4G America’s Rojas,
but 3G adoption lags at about 5% while
the regional average is closer to 17%.
The evolution of prepaid to postpaid
customers is another facet to be considered.
According to Rojas, prepaid accounted
for 81% of the wireless market
by 2010, but fell to about 76% last year.
One challenge Rojas pointed to is stimulating
the personal Internet connection
culture in Peru. “When you walk around
Lima, you notice many cyber-cafés. People
go there to access the Internet because
at home, Internet penetration is
low. Tablets could help to boost this market,”
Rojas said.
Gartner’s San Miguel, agreed that
encouraging broadband use for mobile
devices, even for households facing challenges,
would help the market grow.
Wired Internet in the home is still the
most preferred way to access the Internet.
As a consequence, San Miguel said
that carriers’ data revenue share is 22%
in Peru, while in Argentina it is about
30% and in Colombia 25%. Gartner’s
forecast is that this percentage will increase
to nearly 31% in Peru by 2016.
IDC’s La Rosa is betting that smartphone
and tablet adoption will rise.
“There are marketing campaigns to encourage
their use, and prices are becoming
more accessible,” he said.
When looking at the Andean region,
San Miguel noted that after the crisis
of 2009, the region emerged as a promising
market – and not only for mobile
services. According to San Miguel, Peru
has maintained a constant growth rate
Smartphone are expected to draw consumers towards mobile broadband services in Peru.
of three million new connections each
year, which is a good sign.
The telecom sector is already a key
pillar of Peru’s economy, with $5 billion
and plays a major role to the country’s
GDP. Among the Peruvian government’s
challenges for the near future are to
expand Internet coverage; increase
in revenue, according to Osiptel. And it Internet penetration with reduced
will continue to gain relevance as the
industry attracts foreign investment
costs; grow competition; and improve
wireless services.
Source: Movistar

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