Global Telephony / November 1998
By Larry Luxner
LIMA -- When Atlanta-based BellSouth International bought a 60% chunk of Tele2000 from the company's Peruvian owners in January 1997, the cellular network had only 45,000 subscribers. Today, only 18 months later, it has 220,000 customers -- and Tele2000 officials say they'll end the year with 250,000.
The company recently paid $35 million for a license to offer cellular service outside Lima, and now plans to invest another $100 million in TDMA infrastructure in Arequipa, Trujillo and other major Peruvian cities.
Meanwhile, rival Telefónica del Perú has ordered Phase I of a CDMA digital cellular network expansion from Motorola that'll replace the existing analog AMPS system and extend service beyond Lima into Peru's western region between the Pacific and the Andes. The CDMA project, part of a $350 million capital investment, will create new capacity for 300,000 subscribers in Arequipa, Trujillo, Cuzco, Huancayo, Ica, Chiclayo and Piura when completed in November.
By year's end, Telefónica says it'll have 450,000 active subscribers, growing to over a million by 2002. It still has a 60% market share throughout the country, but that's gradually being eroded by upstart Tele2000.
"I belive our choice of conversion from analog to TDMA has improved the service quite a bit," said T. Larry Smith, executive president of Tele2000, in a recent interview in Lima. "Telefónica has chosen to convert from analog to CDMA, but we have higher-quality customer service. For instance, we're the only one to offer 911 emergency software. BellSouth has had a lot of success with TDMA in markets where there's a very concentrated urban population."
Smith says Tele2000 has 110 cell sites and two switches -- all supplied by Lucent Technologies -- and offers automatic roaming with rival Telefónica del Perú.
Telefónica, on the other hand, has chosen to go with CDMA technology for its Peruvian operations. Manuel Garcia, president of Telefónica del Perú until he was transferred to Brazil in September, said that "with the huge subscriber growth we are experiencing in Peru, it was important for us to select CDMA to meet our capacity requirements and allow us to offer quality services that will differentiate us in the wireless marketplace."
Adds Jack Finlayson, vice-president and general manager of the Americas unit of Motorola's Cellular Infrastructure Group: "This contract is extremely significant for Latin America, since it marks the first countrywide CDMA deployment by a wireless operator in Latin America."
Asked why BellSouth chose to implement TDMA rather than CDMA for its Tele2000 subsidiary, company spokesman John Price had this to say: "It comes down to price, efficiency and capacity, and looking at your overall business plan. We're not married to any particular technology, we do it on a case-by-case basis, and in the Peruvian case TDMA just made more sense."
Driving the cellular market in Peru, says Smith, is Calling Party Pays (CPP) -- a new concept which allows customers to buy a phone without a credit check and use that phone on an as-needed basis. Some 40% of the business is now CPP, a number likely to go even higher in the near future.
"For the first five or six years, the cellular phone was a status symbol here," he said. "Now that it's become more affordable, it's a necessity." Such a necessity, in fact, that nine out of every 100 limeños now have cellphones -- making the gadgets almost as common as conventional fixed-phone lines, which boast a teledensity of about 13 per 100.
Recently, Tele2000 signed a memorandum of understanding with ICO Global Communications, under which Tele2000 customers would be able to use the ICO global satellite system while keeping one phone number and billing system.
"Using their handsets, customers will be able to roam between ICO and mobile networks around the world," said the company. "If no cellular network is available, the handset will roam to ICO's satellite network." Similar deals are underway with cellular providers in Argentina, Chile, Colombia, Ecuador and Venezuela.
Not satisfied with a significant chunk of the cellular market, BellSouth says it'll ask Peruvian regulatory agency Osiptel for permission to offer long-distance as well as local phone service to Peruvian customers.
"This will be one of the first markets in Latin America where we'll offer long-distance," said Smith, adding that "with regard to local service, we'll serve the banking industry as an alternative to Telefónica. We're going for the top end."
In mid-August, Osiptel terminated Telefónica del Perú's monopoly on basic phone service (which was to have lasted until June 1999) and expanded local calling areas to encompass entire provinces. Telefónica agreed to give up its exclusivity period 11 months early in exchange for a more favorable tariff structure. Other companies likely to enter Peru's local and long-distance market include GTE, Italy's Stet and France Telecom.
Christopher Neal, a Latin American analyst with Pyramid Research, said BellSouth may have chosen TDMA simply because it wanted to stick with what it knows best, and also because CDMA -- despite its higher capacity -- is more expensive.
"What would be interesting now is to see whether BellSouth wants to go into local telephony," said Neal. "If they did so on a broad scale, they would leverage 800-MHz TDMA for fixed wireless service. But I think if they were seirous about that strategy, they would have gone for more capacity with CDMA from the start. I don't see that happening."