The legal and regulatory

environment for MNOs and

towercos in Peru
Useful insights on the current state of telecom and tower regulation and what could change

Jos Miguel Porto, Partner,

Montezuma & Porto

Jos Miguel Porto is an expert in the telecom arena thanks to its sixteen
years of activity within NII Holdings in Peru and in the United States.
In this interview, he shares with TowerXchange some priceless insights
into the current regulatory framework and how it could change
in the imminent future, with new laws concerning environmental
limitations, rural enablers as well as possible further taxations all
pending approval. Furthermore, he analyses Law N. 29022 and its
applicability to both MNOs and towercos, which has considerably sped
up the permitting process across Peru. Lastly, Porto discloses his views
with regards to the creation of Telxius and its impact on the Peruvian
tower market and discusses the rationale behind tower sales from the
operators perspective.

Keywords: 4G, American Tower Corporation, Americas, Americas Insights, Capex, Carve Out, Claro, Entel,
Exit Strategy, Insights, Investment, Lawyers & Advisors, Market Forecasts, Market Overview, Ministry of
Transport and Communications, Montezuma & Porto, NII Holdings, Network Rollout, New License, Nextel
Peru, OSIPTEL, Peru, QoS, Regulation, Sale & Leaseback, South America, Telefnica, Telxius, Universal Access

Read this article to learn:

< Montezuma & Porto: a boutique law firm with very specific telecom expertise
< The current regulatory framework and various laws pending approval
< The regime for towercos and details about Law N. 29022
< Insights into the 700MHz auction and MNOs future plans
< Why do MNOs sell their towers? And which practical challenges do they face?

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TowerXchange: Please introduce yourself and

your professional background.
Jos Miguel Porto, Partner, Montezuma & Porto:
After my law degree from the University of Chicago,
I pursued various roles in the telecommunications
industry and over the past sixteen years, I acted as
Chief Commercial Counsel for Nextel Peru and later
on as Director and Senior Counsel for NII Holdings,
Inc., based in Virginia, United States.
As counsel for Nextel Peru I was responsible for
network deployment in-country while at NII
Holding, Inc. I acted as lead counsel for all major
tower transactions for Nextel in Latin America
and for the renegotiation of legacy tower deals.
During that time, I represented Nextel in the
evaluation and negotiation of tower deals in several
jurisdictions including Argentina, Brazil, Chile,
Mexico and Peru.
Amongst the most interesting tower transactions,
I recall the sale and leaseback deal of 1,666 towers
in Mexico and 2,790 towers in Brazil to American
Tower Corporation for an aggregate amount of close
to US$810mn.
Following a successful career within Nextel,
Oscar Montezuma and I founded Montezuma
& Porto, a boutique law firm focused in the
telecommunications and technology practice in
Peru.
TowerXchange: Tell us about Montezuma &
Porto and its role in the telecom ecosystem.
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Jos Miguel Porto, Partner, Montezuma & Porto:

In light of the many changes happening in the
Peruvian telecom space, we serve clients with
legal, regulatory and policy advice to support them
in their network deployment plans and in other
aspects of their business growth.
Over the past few years, the Ministry of Transport
and Communications (MTC) has been heavily
focused on expanding national telecommunications
networks and increasing the penetration of
broadband services with several key projects such
as shown in table one.
To foster innovation and technology, the Production
Ministry (PRODUCE) has recently launched a
productivity diversification program for the
promotion of non-extracting industries such as
technology with the provision of non-reimbursable
grants to start-ups and incubators.
As a consequence of the government funding, Peru
is now witnessing the growth of a technology startup ecosystem fed by public funds, angel investors
and venture capital firms. These start-ups are being
created with the principles of the democratisation
of entrepreneurship and permissionless innovation
in mind, which have been promoted by the internet
and the wider access to information. And while the
model is quite fluid, there are still plenty of legal
requirements to comply with and this is where our
law firm can help, by offering a variety of advisory
services to start-up companies, from incorporation
to business model validation, financing rounds and
exits.
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Table one: Peruvian latest public telecom projects

National Fibre-Optic
Backhaul (Red Dorsal
Nacional de Fibra
ptica):
13,000km of fibre to cover
22 regional capitals and
180 provincial capital

Regional fibre optic

projects:

700MHz spectrum
auction:

Complementing the
national project with fibre
to the main district capitals
and other localities

Enhancing 4G coverage in
rural and dense urban areas

We share the opinion that to the extent the MTC

and PRODUCE, or another Ministry, are capable
of articulating a common agenda and goals, the
path towards the creation of a digital society
can be accomplished. And this will have a deep
transformational effect, bringing welfare and
social inclusion to developing markets such as
Peru.
In this context, we believe that the telecom
ecosystem is one portion of a broader picture
moving towards the creation of a Peruvian digital
society. We like to think that our current role in
this ecosystem is to foster such permissionless
innovation and to continue our path towards
building a digital society thanks to our academic
and professional work.
TowerXchange: Can you share some details
about the current state of the telecom
regulation in Peru? What is likely to change if
new regulations get approved?
Jos Miguel Porto, Partner, Montezuma & Porto:

During the current administration there has

been increased pressure on consumer protection,
service pricing and Quality of Service regulations.
In fact, MNOs have been charged severe penalties
for breaching the existing regulation and
minimum QoS standards.
Additionally, since the entrance of Virgin
Mobile in Peru, MVNO and rural enabler
regulations have been passed in order to increase
competition and the level of penetration.
However, further regulations looking at access
and termination for rural enablers as well as the
environmental impact of network deployment are
still pending.
In the short term, the regulatory pipeline includes
further pricing and net neutrality regulations
that may adversely affect certain commercial
plans and provide less flexibility to the MNOs
commercial offering. In addition, although
unofficial, the OSIPTEL is supposedly looking at
increasing certain financial contributions that, if
passed, might further squeeze MNO margins.
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TowerXchange: Is there a specific regime in

place for towercos? And if so, what can towercos
operating in Peru expect in terms of permitting,
licensing et cetera?
Jos Miguel Porto, Partner, Montezuma &
Porto: MNOs have the right to deploy their own
infrastructure or to pursue co-locations. With the
introduction of towercos in Peru, MNOs have been
embracing co-locations and the regulation has
acknowledged such sharing activities as beneficial
and went as far as granting towercos with certain
benefits originally reserved to MNOs. I am
referring to the applicability of Law N. 29022 which
establishes a Municipal automatic approval for the
deployment of telecom infrastructure.
According to Law N. 29022, an expedited
automatic approval procedure should be followed
to obtain a Municipal authorisation for the
deployment of telecom infrastructure. Once the
required documentation is submitted within
the Municipality, an automatic authorisation is
granted. Exceptionally, certain Municipalities
have established further requirements to be met
in order to obtain the automatic approval, which
could hinder the deployment ability of MNOs and
towercos. For example, they have set further rules
in terms of zoning and have gone as far as banning
deployments in certain sensitive areas.
Under the General Administrative Law,
Municipalities can declare null and void any
administrative act ex oficio, including the
automatic approval for the deployment of telecom
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infrastructure, if and when the act presents

material defects or contravenes applicable laws.
So whenever there are social uprisings associated
with the installation of a new cell site, its not
uncommon for the Municipality to look for minor
or non-material defects in the automatic approval
proceeding (given its ex-post ability to supervise
the proceeding), and in the absence of such minor
or non-material defects create one, to declare
the proceeding and automatic approval of the
infrastructure null and void, given that (i) certain
requirement(s) were not met and (ii) because the
installation of the infrastructure is adverse to the
public interest.
TowerXchange: What is likely to change in the
mobile market in light of the recent 700MHz
auction?
Jos Miguel Porto, Partner, Montezuma & Porto: The
Peruvian government recently awarded Telefnica,
Claro and Entel with 30MHz each within the
700MHz band. However, Vietnamese-backed Bitel
was left out of the auction. Due to its propagation
characteristics, the 700MHz band is customarily
used to complement higher bands with 4G services
in rural areas and to improve indoor coverage in
dense urban areas. The fact that Bitel has been left
out of the auction raises concerns on its ability to
compete in the 4G market, especially since there
isnt any other available spectrum with similar
characteristics.
Each of the awarded companies paid around

US$300mn per block and have committed to the

obligation to clean their respective blocks from
harmful interference, mainly from broadcasting
companies providing services in such bands, and
to provide coverage in certain rural areas.
The amount paid for each block plus the
additional cost that operators will deal with
to remove harmful interference as well as to
increase their footprints will certainly bring
lots of pressure on their capex. So I believe that
operators will rely heavily on co-locations on
theirs or third party infrastructure which is good
news for the sharing model. However, concerns
remain with regards to the possible increase in
consumer prices as a result of the added pressure
on operators capex.
TowerXchange: Telefnica has recently
transferred some of its assets to Telxius - its
infrastructure company. What is the impact of
Telxius entering the Peruvian market and is it
likely to have any effect on how the regulator
treats and deals with towercos?
Jos Miguel Porto, Partner, Montezuma &
Porto: Based on publicly available information,
Telefnica has divested certain tower and fibreoptic assets into Telxius and is seeking to float
40% of Telxius shares. As long as Telefnica
retains a controlling stake within Telxius, these
vertical integrations could potentially raise
concerns whether co-location agreements
between the two are at arms-length and on
similar terms with third party carriers.
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in exchange for payment, unless there are

technical, legal or economic constraints and (iv)
apply tax transfer-pricing regulations to affiliated
transactions.

The current disclosure

requirements applicable to
towercos preclude the ability
of Telxius to enter into non
arms-length dealings with
affiliated companies. And I
dont foresee the regulations

being affected by the entrance

of Telxius in Peru

The current disclosure requirements applicable to

towercos preclude the ability of Telxius to enter into
non arms-length dealings with affiliated companies.
And I dont foresee the regulations being affected
by the entrance of Telxius in Peru.
The existing regulation requires towercos to (i)
notify MNOs of their commercial offers and access
conditions; (ii) submit to the regulators a copy of
all executed co-location and use arrangements;
(iii) make their infrastructure available to MNOs
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TowerXchange: In light of your experience

within Nii Holdings, can you tell us what are
the key drivers that push an operator to select
a tower sale versus another form of financing?
And which challenges and limitations do
operators face while divesting their assets?
Jos Miguel Porto, Partner, Montezuma & Porto:
MNOs are constantly in need of financing sources
to deploy, optimise and upgrade networks, run
operations efficiently (including backhaul costs),
procure handsets and devices and to purchase
spectrum to sustain commercial operations and
growth. Given that telecoms is a capital intensive
industry, MNOs customary financing sources
are the capital markets, vendor financing, debt
financing and export financing. In recent times, the
tower industry has made available a new source
of financing through the monetisation of non-key
assets such as towers.
Whenever an MNO decides its time to raise capital,
a decision making process requires to explore
each and every available financing resource to
determine which path to follow. When cheaper
financing resources have been exhausted, due to
financial covenant constraints, liquidity or credit
issues, the monetisation of tower assets might
have additional benefits such as a lesser impact on
EBITDA, financial covenants and earning per share.

But this is true when and if the deal is correctly

structured.
Some of the challenges that operators face during a
tower deal include the possible lack of all required
paperwork and documentation, since MNOs tend
to collect what is needed to operate a network
which might not be sufficient to sell a tower to an
independent towerco. Depending on the quality
of the information and the amount of sites in the
portfolio, the process to complete a data room prior
to the tower sale might take several months and
can result in an expensive procedure that requires
dedicated in-house and external resources.
Additionally, operators need to obtain ground lessor
consents to assign ground leases which is another
expensive and time consuming procedure. And
some assets might not even be sellable due to lack
of permits or other environment issues.
Internally, operators have to deal with a decision
making process involving several stakeholders in
order to determine the best deal structure. Among
the factors to discuss, stakeholders will need to
define the minimum standards in terms of required
operational flexibility so to be able to continue their
business as usual even after the tower sale and
whether theyd prefer to maximise proceeds for
higher rents or go with lower proceeds for lower
rents.
All of the above need to occur while making sure
that the total cost of the deal makes financial sense
if compared with other comparable sources of
financing
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