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A more competitive telecommunications market

Interview - June 10, 2015

The Peruvian telecommunications market is projected to reach 111% market penetration in late 2017 with 35.5 million connections, due to the introduction of Entel and Bitel in a market that represents the 3.5% of GDP and where companies earn more than $5,500 million  per year. 

GONZALO MARTÍN RUIZ DÍAZ, CHAIRMAN OF THE BOARD, OSIPTEL
GONZALO MARTÍN RUIZ DÍAZ | CHAIRMAN OF THE BOARD, OSIPTEL

The IMF forecasts GDP growth in Latin America of 1% this year and around 3% for the next five years; while in Peru the forecasts are 3.8% for 2015 and around 5% by 2020. For the first time in nearly five decades Latin America will host the annual meetings of the World Bank Group and the International Monetary Fund and Lima will become a meeting point for governors and leaders from 188 countries, attracting worldwide attention. Not only as President of this institution but as an economist, what has been the contribution of the telecommunications sector to the growth and economic dynamism of Peru, a country that Christine Lagarde has referred to as "one of the brightest economies of the world"?

Since the 90s, Peru has undertaken a series of measures and reforms aimed at creating an institutional framework to attract investments to the economy, particularly for infrastructure sectors. In this context we have provided a number of guarantees to investors, such as non-discriminatory treatment and the possibility of signing agreements on tax and legal stability, which are a sign of credibility and commitment of the Peruvian State. In turn institutions as regulators were created, based on autonomy, independence and a law intended to protect contracts, in the figure of the concession contract. It is within the framework of these institutions that much of the communications sector has developed and this development has been accompanied by administrative regulation established by OSIPTEL; agency responsible for overseeing these contracts. From the 1990s, almost all of the investment in the communications sector has been private, there are no public enterprises after the two State companies (CPT and Entel) were privatized in 1994. From that moment on, the concession contracts began to grow in number, as initially there were only two and now we have more than 600 in the different telecommunications markets. This growth and diversification has been accompanied by regulation from the beginning, first going through a process of gradual demonopolization, then passed through a dominant company regulation phase and was finally led to a stage of opening and liberalization. The launch of mobile technology started at the beginning of the year 2000 in the country, which led to an important development of the telecommunications infrastructure nationwide. This development has faced obstacles such as a rugged geography and a concentrated population mostly on the coast, while there are people scattered in the highlands and the jungle, making a total of between 90,000 and 100,000 population centers throughout our territory. These conditions imply a very important challenge both in transportation and telecommunications, if you want to achieve free and equal access to services for the entire population. Today investment levels in the sector are around US $ 1.2 billion annually, with growth rates between 8 and 10%, a fairly high figure for the country; even in years when the economy has been slowing down.

Regarding the dynamics of the sector, one of the accelerators was the new competition regulations. What was your plan of action when carried out this regulation by making much more competitive a sector that directly affects the citizens’ quality of life?

The growth experienced by the sector in recent years has relied heavily on regulatory incentives. Towards 2011-2012 our diagnosis for mobile industry was that there had been a significant growth in the level of coverage and what we wanted to achieve was to give greater emphasis on competition. While some economists think that there is a correlation of greater competition meaning lower investment and lower production efficiency, we have proven in these two years that competition not only generates greater diversity of options for users but also encourages greater coverage. In the past year, for example, the amount of users has increased in 1.8 million, while we have witnessed a significant competitive process through the use of tariffs and quality as competition arguments, directly benefiting users. From the regulation, we have relaunched portability, have set the release of terminals that prevented the change of operator, have limited the penalties set for the completion of postpaid contracts, among other measures that increase flexibility for migration between operators, thereby strengthening competition. We have also approved significant reductions in mobile termination charges. In the last six months we have also added two new companies, giving greater dynamism to the industry. All this can actually be seen in the evolution of the figures of portability: it has gone from an average of 5,000 monthly requests of this type, to about 65,000 today. From 2012 to date, we have tried to rethink the role of market regulator, adapting to the changes that have been observed in the telecommunications sector. It has gone from a model of natural monopoly regulator -which was the fixed telephony-, to competition regulator in the context of oligopolistic markets. Thus, in recent years, we have tried to promote a more competitive market, with more players and more options for the user and where the regulator has more emphasis on its task of seeking greater user satisfaction. We believe that the regulator then is the piece that creates balance within the industry organization, especially in a market where services are massing.

Looking ahead, we find nationwide projects for fiber optic and in that area you are working with the private sector too. How is the synergy established with the major market players?

In the Peruvian market you can identify bottlenecks that have hindered the growth of infrastructure, such as the laying of fiber throughout the country. From 2010-2011 we have brought up the need to launch a project –the most ambitious of this government perhaps- that is the "Dorsal Fiber Optic Network of Peru." In 2012 the Broadband Law was adopted and with it comes this project to be awarded by the end of 2013. In addition to this, we are currently bidding for 21 regional projects of secondary networks that allow the Dorsal Net to reach several towns throughout the country. This project has been undertaken through PPP, and is conceived as a complement to private investment, hence the idea of ​​a neutral operator is clear to companies that want to invest in the last mile to do so on reasonable terms. Within this process, the regulator has to ensure that the effort made by the State is effectively turned into bringing broadband to remote towns, in terms of quality, at affordable prices and also guaranteeing that the supplier will have a neutral performance, without damaging the established competition logic.

Speaking of PPP's and the United States, where do you see that a greater presence of American companies here in Peru could develop specific sectors?

This year is special because a rule for the entry of mobile virtual network operators, which are those that contract with the network operators and do not have radio spectrum, will be approved. Another area where we think there is a very large potential for the entry of new players, is the market related to electronic money. In this case an interesting situation occurs because on one side we have financial regulations and, on the other, communications regulations and we need to find a coordination between the two. The big difference of this mobile communication based technology is the ability to reach the most remote areas, allowing operators to map and identify economic agents which are very important and will allow more banking services within the market. In turn, there is an important ASBANC driven project, which consists of a fully interconnected platform between all financial institutions where all electronic money transactions can be performed in an integrated way. We believe that this new activity will be very dynamic in the next months and present the possibility of entry for new players.

Since your arrival to this institution in 2012, your professional career as Chairman of the Committee on Consumer Protection, Deputy Minister of Communications and Secretary of Telecommunications Investment Fund has materialized in a series of measures and actions that have fueled the entry of new players and enhanced competition. Even against the critics from part of the traditional operators in the country, they have resulted in a better quality of services for citizens of Peru. Was it difficult to get to where you have come? And, how far do you want to go?

Public offices must be taken as service work, where the one who takes these positions has to be willing to go through hardships. My greatest satisfaction is to deploy my effort to position the OSIPTEL as an institution, a body that citizens see giving legitimacy to regulatory model, a state presence which ensures fairness in the provision of public services. It is not easy because in many cases this involves changing the status quo, which has a cost that should be carefully evaluated as it can generate uncertainties.

We must always maintain a balance, making sure that these changes do not generate any kind of concern in the industry. At the moment, with the results we are seeing that the regulation is not being seen as a threat at all. My vision is to make the telecommunications market more competitive, a market with more satisfied users and position OSIPTEL as an institution that gives legitimacy to the concession model, where public services are run by private provision. This is our great challenge as a regulator.

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