Govt. decides against TDP contract extension

Peru's government has decided not to allow dominant telco Telefónica del Perú (TDP) to extend its concession contract by another five years, the transport and communications ministry MTC said in a statement. The government based its decision on an assessment by the telecoms regulator Osiptel of TDP's track record over the last five years. The assessment found that TDP had failed to adhere to some norms covering treatment of customer complaints, cooperation with rival operators and rates. TDP, a subsidiary of Spain's Telefónica (NYSE: TEF), obtained a 20-year concession in 1994 and in 1999 succeeded in extending it to 2019. "It is not in the state's interest to decide on a situation 15 years in advance," the MTC quoted prime minister Carlos Ferrero as saying. Ferrero advised the company to apply again when there is a new administration in power, which means the next opportunity would be in 2006. TDP's official response was surprise at the decision, reiterating its belief that it has indeed met its contractual obligations and claiming that the government has pandered to political pressure. The company said it is keen to receive official notification of the decision so that it can formulate arguments against the government's logic, but nevertheless pledged a long-term commitment to Peru and a desire to improve service quality. In recent years, the congressional consumer defense council has led a campaign to renegotiate the company's contract, principally to abolish TDP's right to charge a fixed monthly rate and to bill per minute. However, this approach has been found to be unconstitutional and the state will have to wait until the contract expires before it can renegotiate, unless TDP agrees to renegotiate beforehand. Ferrero said the government had no intention to push for renegotiation at this point since there are other means by which rates can be reduced. One such measure is regular reduction by a productivity factor, which Osiptel recently set at 10.38% and 7.9% a year for basic telephony and long-distance services respectively, starting from September this year. The prime minister also stressed that TDP's extension application and the government's right to refuse it are spelled out in the concession contract and cannot be interpreted as an attempt to change the rules of the game.