Telecom Subsidies : Output-Based Contracts for Rural Services in Peru

Abstract

In Peru private telecommunications operators bid for the minimum government subsidy to provide pay phone service to the poor in targeted rural areas. Part of the subsidy is paid on award, part once the equipment is installed, and the rest in semiannual installments for several years, contingent on compliance with performance standards. The winning bidders get a nonexclusive concession defining their rights and obligations. Early pilot results show that the private investment mobilized is twice the subsidy provided.