Mobile virtual network operators increase competition in Peru

Besides the high levels of competition resulting from an increasingly crowded market, the Peruvian telecommunications sector is about to experience further change by the expected entrance of one or more mobile virtual network operators (MVNO) in the near future. One thing is certain: any additional player to the market would have a difficult mission.

Crowded House

On top of the traditional players Telefónica and América Móvil, Chile’s Entel entered the market in 2013 through the acquisition of Nextel, shifting away from the company’s historic focus on the business segment towards the general market through rebranding and an ambitious investment plan. Further competition has also come from the arrival of Vietnam-based Viettel in 2014 with its mobile brand Bitel. Potential contenders continue to abound. In June 2015 Gonzalo Ruiz Díaz, the president of the Supervising Organisation for Private Investment in Telecommunications (Organismo Supervisor de Inversión Privada en Telecomunicaciones, OSIPTEL), the sector watchdog, stated that several MVNO companies had been exploring the possibility of entering the Peruvian market, citing Saga Falabella, belonging to the Chilean retail group Falabella, and Virgin Mobile, as the two strongest contenders.

Setting The Rules

Clarification came in October 2015 when authorities published the set of laws expected to govern MVNOs in Peru for a public consultation period. The legislation bans any association between MVNOs and traditional operators currently present in the market, and forces traditional operators that rent-out space on their network to guarantee the same level of service to MVNOs as provided to their direct customers. The regulation also stipulates tight deadlines for requests by MVNOs to be addressed, with operators needing to respond within 60 days, after which time the regulator can impose a deal between the MVNO and the operator. Additionally, MVNOs will be required to contribute to the country’s telecommunications investment fund, managed by the Ministry of Transportation and Communication and focused on supporting expanding access across the country. Operators currently pay around 1% of annual sales into the fund. The planned law is expected to be fully completed and approved in the first quarter of 2016.

In January 2015, Claro Peru’s director for regulatory affairs Juan Rivadeneira stated that the country is not ready to support the entrance of MVNOs due to insufficient infrastructure capacity. The official statement pointed to the fact that there are still not enough telecommunications antennas in Peru, and that the added traffic would bring congestion.

Difficult Market

The Peruvian market is still absorbing much of the change that has come over the past two years. Penetration of mobile communications reached 108.8% in June 2015, according to figures by OSIPTEL, although the number might also hide some opportunities within the lower-income segments of the market. “When you exclude business lines and people with more than one mobile phone, penetration levels are closer to between 80% and 85%,” Carlos Huamán Tomecich, CEO of DN Consultores, a telecommunications consultancy, told OBG.

MVNOs typically compete on price or target very specific segments of the market. In Peru, this space is partly filled by Bitel, which has been focusing on lower-income customers, mostly outside of the capital Lima. Further competition has also come from market segmentation by incumbent operators. In late 2014 Spanish-operator Telefónica launched Tuenti, a brand targeting younger phone users, in what appeared to be a move to pre-empt the eventual entrance of MVNOs into the market. Increased competition is already bringing prices down and encouraging innovative offers for consumers. MVNOs wanting to enter the market in the coming years will need to have clear target customers and be ready to put up a fight.