World Dialogue on Regulation

This study is a pilot application of a methodology designed to assess the effect of the regulatory environment on investment in the telecom sector of a country. The authors looked at fixed and mobile telephony services in Peru, between 1993 and 2004, a period during which Peru embarked upon an expansive regulatory reform program for its public services and infrastructure, aimed at liberalizing the market and encouraging private investment to fund the necessary expansion and to cover deficits in service coverage.

Available in English and Spanish
Disponible en español e inglés

The methodology, Telecom Regulatory Environment (TRE), was developed to assess the effect of regulatory environment on investment in the telecom sector of a country. The TRE methodology takes five dimensions into account:

1. market entry,
2. access to scarce resources,
3. interconnection,
4. tariff regulation, and
5. anti-competitive practices regulation.

Designed by LIRNEasia director Rohan Samarajiva, TRE is based on the perception of the relevant actors, i.e. representatives from the private sector, consumer associations and the academic world.

This study is a pilot application to test the TRE methodology's applicability in Latin America. A strict application of the methodology would require verification meetings with sector representatives or experts.

In this study, TRE is applied to fixed and mobile telephony services in Peru, between 1994 and 2004. The first step of applying the methodology involved identifying the relevant events in the telecom sector in Peru from 1994, when government-owned companies were privatized, until 2004, when a duopoly surfaced in mobile telephony services. Based on these events, three periods of analysis were identified for fixed telephony services, namely: 1994-1998, 1999-2001 and 2002 to present; and two periods of analysis for the mobile telephony services, namely: 1996-2000 and 2001 to present.

At the beginning of the 1990s, Peru needed tremendous investment for telecom innovation, since the sector’s performance indicators were fairly poor. For this reason, a major privatization process was designed and implemented, which ended with the introduction of a subsidiary of Telefónica de España into the market. Regulations were set in a contract, based on the telecom law enacted in 1994, by which the monopoly of fixed and long distance telephony services were granted to the bid’s winner, allowing for vertical integration. In 1998, the exclusivity period ended a year before expected. In 2000, a new mobile operator (TIM) entered the market, and regulations were flexible with the trunking services operator, who was able to provide voice telephony services.

In general terms, during the three periods highlighted in our fixed telephony assessment, TRE has been favorable to investment, except in our risk assessment included in the tariff regulation. Due to the investment performance of the major fixed telephone companies, very high at the beginning of the period under study and currently almost non-existent, the companies' gross income, determined by tariffs, is crucial to their investment decisions during such period.  For mobile telephony services, the investment performance in the two periods analyzed is more consistent with our TRE assessment; where tariffs, as well as interconnection conditions, play a vital role.