Peru: Experience of the FITEL payphone programme

Peru’s Fondo de Inversión en Telecomunicaciones (FITEL) was created in 1993 and until recently administered by OSIPTEL, the national regulator. However, FITEL, which is legally separate from OSIPTEL and has its own manager and personnel, is reporting directly to the Ministry of Transportation and Communications since 2008.

The FITEL experience provides valuable lessons on the importance of designing projects and key regulatory conditions, especially tariffs and interconnection, as prerequisites for success. Due to the fact that Peru is a mountainous country, most of the projects have been implemented using VSAT technology.

Since 1994, the FITEL programme has been financed by a levy on all telecom operators – 1 per cent of gross operating revenues.

FITEL awards the implementation of telecommunications projects to the private sector through a public and competitive tendering process for all projects where the financing amount is above USD 1 million. As is the case with many Universal Access and Service Funds (UASFs), FITEL awards its projects to the bidder that requests the least amount of subsidy. In addition, the bidder must pass eligibility criteria and meet certain technical, legal and financial requirements.

However, FITEL is allowed to use a combination or other selection criteria as required. If the winning bidder is a new entrant to the Peruvian telecom sector, it must obtain a licence with the MTC. The licence is non-exclusive and granted for a 20 year period in which the operator has the obligation to provide public payphone services.

FITEL is allowed to fund projects directly if they are pilot projects and do not exceed USD 75,000 for training, process and similar services, and no more than USD 220,000 for goods, equipment and infrastructure.

FITEL projects
The country is divided into six tendering regions. Four separate rounds of USF tenders were conducted between 1998 and 2004 and served:

  • 213 localities in FITEL I;
  • 2,170 localities in FITEL II;
  • 2,520 localities in FITEL III; and
  • 1,614 localities in FITEL IV.

The total subsidies awarded amounted to USD 59.2 million. While figures of maximum available subsidies for Fitel I and II are not available, the competitive tendering in FITEL III and IV required just 58 per cent of the maximum available subsidies in the fund.

A significant difference in the project designs between FITEL I and subsequent FITEL projects was asset ownership. In the case of FITEL I, the government of Peru was established as the owner of the network assets. In all other subsequent FITEL projects, the network assets were owned by the operators themselves.

FITEL I was conceived and implemented as a pilot project and became officially operational in 2000. The purpose of the project was to improve telecommunications access in northern border regions as well as to test the suitability of VSAT-based systems for voice communications.

FITEL II requested a public point of Internet access in designated district capitals in addition to the public payphones, delivering data rates of at least 9.6 Kbps (19.4 Kbps was more typical of actual performance).

In general, FITEL II and III programmes shared a common design but different geographic locations. However, FITEL III requested provisioning for three voice-grade lines in 25 per cent of the locations. On request, the licensed operator had to provide two more additional lines besides the public payphone in those locations, and there was no further subsidy available associated with the installation of these additional lines.

In FITEL IV the objective was to install an additional public phone in places where public phones already existed. The network was also dimensioned for three voice-grade lines and one data port per location.

Regulatory problems arose for the rural operators. The low local tariffs set by the regulator were financially unfeasible to the operators. Traffic data analyses showed that more than 70 per cent of calls were intra-departmental, charged at a local calling rate. However, for a user to have made a local call, the two rural operators using a VSAT network had to route calls via satellite, thus incurring satellite transmission cost. The local call tariffs did not allow the rural operator to recover its full costs even after subsidy payments, let alone to have made a reasonable profit. This created acute financial difficulty for the rural operators.

Interconnection rates were also problematic. The interconnection rates and procedures for rural operators in Peru were the same ones that were applicable to the remaining non-rural operators, thus, they did not reflect the higher network and operation, and maintenance costs. After a review of the issues, the regulator made the required regulatory changes.

Sources: Intelecon report evaluating the FITEL programme on behalf of the World Bank and OSIPTEL in 2003/2004.

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