Profit vs. need: A raw deal for Peru's rural phone users

More services needed for rural mobile phone users in Peru

Peru, the fifth largest country in South America, has a very high population of young people so it may not come as a surprise that the country is now emerging as a vibrant place for mobile and internet users.

According to a June study from the Peruvian National Institute of Information and Statistics (INEI), 87.1% of households have a cell phone while 73.8% of rural homes had at least one person with a phone. Nationally, internet access is much lower though with just 57.1% of people online.

These percentages are only set to increase though. eMarketer tips the number of mobile phones in the country to reach 20 million by 2019 and specifically smartphones to hit over 10 million all while internet user numbers will grow alongside them.

Akamai’s Q1 2015 state of the internet report showed that Peru had the highest 4Mbps broadband adoption rate in the Americas, along with crucial gains in the 10 and 15Mbps categories as well.

Despite the gains, as eMarketer’s research points out, fixed broadband in the country remains poor and is unlikely to grow significantly in the near future. Peruvians are more likely to opt for “nimble” mobile broadband packages, a now recurring theme in some emerging Latin American nations. Brazil for example is seeing a boom in mobile internet use.

Young users and mobile oriented browsing are driving all of this these trends. A 2013 ComScore study showed more young people browsing social media and streaming content than ever with Peru’s mobile phone users growing on a gradual but constant basis.

“In some cases [in South America], there are more mobile accounts users than bank accounts,” says Jeff Pietras, VP at digital remittance provider WorldRemit, who previously worked at Nokia.

“People are effectively using their mobile phone as a bank account, making transactions. Sending and receiving remittances via mobile devices has taken off hugely,” he adds.

INEI’s figures highlight the plodding spread of mobile and internet access to Peru’s rural regions where efforts have been made for years to get people connected but it has still lagged behind in the grand scheme of things. People may be buying more phones there but the coverage and data services aren’t growing at the same pace.

Operators naturally want to have comprehensive coverage in a city like Lima as it’s the most profitable and as a result access in rural areas has always been an issue, explains Mohan Palat, Director of Product Marketing and Digital Services for mobile operators at Comverse. “The government actually forced Telefonica [owner of operator Movistar] to have coverage in some of the rural areas as part of their license renewal,” he says, as there was little incentive for an operator to launch coverage on its own initiative.

Creating a convenient environment for rural communities to communicate, organise, and manage their finances will be a huge driver of growth in South America. WorldRemit for example is in the business of digital remittance, removing over the counter services to make transactions more instantaneous.

“[It’s] not only instantaneous but also the convenience and the cost factor,” says Pietras. In this way the mobile economy could have a profound effect for people in traditionally isolated areas beyond communications.

“People we often see are travelling to capital city regions sometimes spending $10 of their hard earned money to get cash and an hour or two out of their day to do so with opening and closing times that can vary,” he says. Mobile use could reduce that hassle but not if the coverage isn’t available.

Once Peru was considered one of Latin America’s least competitive countries when it came to telecoms, now there is ever-increasing competition in the country since a number of acquisitions, new investments, and the recent entrance of players like Bitel.

Vietnamese company Viettel Mobile launched the Bitel brand in October of last year after it won operating licenses from Peruvian regulators in 2012. At its launch, Bitel promised to cover the country with 3G services and claimed to have reached over 200,000 customers.

“Mobile internet is the future of telecommunications and we believe that when [we] meet this booming demand, Bitel will have great opportunity,” said Hoang Quoc Quyen, Bitel CEO.

Chilean telco Entel also expanded its reach in the market late last year when it purchased Nextel Peru and pledged a $1.2bn investment in the country meanwhile Claro Peru has also promised to launch greater LTE services in more urban and rural areas.

Competition is certainly heating up in the country one way or another. Telecommunications regulator OSIPTEL said in early July that half a million people had changed operator over the last year [Spanish]. Entel captured more than 50% of those switching customers.

Despite these steps, operators need more motivation to expand their rural coverage, says Palat, as right now they have little reason. Rural phone users may very well be growing but the number of smartphone users in urban centres like Lima dwarfs those numbers considerably and that is where the ROI is. The answer may lie in the government forcing the operators’ hand when it comes to renewing their licenses, much like Telefonica.

Encouraging smartphone and data use, beyond traditional phone services, will be vital, says Palat, if operators want to make the investments worth their while.

Claro Peru previously partnered with WhatsApp where users could access the popular messaging app at no extra cost. While Claro’s deal with the app expired in May [Spanish], operators should adopt these kind of partnerships, says Palat, adding that messaging apps are already rather popular in Peru, and they should take advantage of the potentially large user base.

“[Operators] can come up with apps specifically for rural communities. For example, if there’s an agricultural community you can have a kind of app that is useful to that community. I have seen apps in other countries that will track your crops,” he explains.

“Those kinds of things will motivate rural people to buy smartphones and especially the data services. By increasing the data services, the operators can increase their revenues. Mobile data is the big opportunity in Peru.”