Sold on Cell Phones

The hundreds of thousands of Peruvians who became mobile telephone users last year did not know it, but they were helping the country’s telecommunications market to march past a significant milestone. Driven by lower prices and growing appeals to the mass consumer market, use of mobile phones outstripped the number of fixed lines in use in 2001 for the first time, according to Osiptel, the sector regulator. There were nearly seven mobile lines in use per 100 people at the end of last year, compared with six fixed lines per 100.

Pedro Aguado, CEO of TIM Perú, a cell phone operator, says this pattern is clearly “a natural evolution.” Italian-owned TIM Perú has just completed its first year of operation and Aguado says the company has no intention of going into the fixed-line business. “Mobile telecoms is the future for the mass consumer market, and not just for the residential market but also for corporate customers,” he says. TIM began commercial operations in January 2001, competing with Spain’s Telefónica and BellSouth of the US. Nextel, which offers mobile services based on trunking, rather than cellular technology, is also a competitor. At the end of 2001, the number of mobile customers had risen to 1.8 million people from around 1.35 million. Aguado estimates that tariffs fell by 20-35%.

According to Osiptel, TIM had a market share at year-end of almost 10%, compared with 24% for BellSouth and 60% for Telefónica, which began offering services first. TIM, which paid $180 million for its operating license and has committed almost $400 million in investments to Peru so far, is enthusiastic about its growth and its future.The company has rolled out its network more quickly than planned. It agreed with the regulators to reach nine cities within two years after acquiring its concession. Yet TIM has already begun operating in 11 regions of the country. “This is because of customers’ positive reception,” Aguado says.

Peruvians have shown extraordinary enthusiasm for their cell phones. Aguado says TIM’s users send 70-80 million text messages each month, similar to European levels. And yet telephone penetration in Peru remains very low, making operators feel the best is still to come. “The country went in less than a year from 4.5% to 6.9% [penetration]. But we are still a long way from levels in Chile, Venezuela, Brazil or even Bolivia. There is huge room to grow,” says Aguado. “In terms of penetration, Peru is one of the most backward countries in the region.”

Peru’s telecoms market is now said to be worth about $1.6 billion annually, after growing more than 4% a year since 1998. Cell phone operators have invested more than $4.2 billion between 1995 and 2000. Osiptel expects them to invest a further $700 million each year from 2001 to 2003. Telefónica alone is expected to invest $250 million in 2002.

The ‘new entrants’ – that is, rivals to Telefónica, which took over Peru’s state-owned phone companies in 1993 – doubled their market share during that time, to 25%. Mobile telephony now accounts for 30% of the telecoms market, according to Osiptel.

The political turmoil of the past 18 months has affected all sectors of Peru’s economy, and telecoms is no exception. Decision-making was sometimes too slow and bureaucratic and there were too many government changes, says Aguado. But Peruvian authorities are trying to encourage more private investment in fixed-line services, conscious that more than half of currently installed lines are in the Lima area and that thousands of remote villages lack telephone connections of any type. A program is under way to install at least one public telephone, also capable of fax and data transmission, in each of 5,000 rural locations around the country that would serve around four million people. The government also awarded contracts in December 2001 to private companies to increase telephone coverage for a further 1.8 million people in 1,600 towns and villages in the interior. Officials also want to provide public-access Internet cabins in provincial towns.