SecProbe.io

CORRESP
1
filename1.htm

Davis Polk & Wardwell

  450 Lexington Ave.

  New York, N.Y. 10017

212 450 6095

      August 16, 2005

      Telefónica del Perú S.A.A.

	Re:

      Form 20-F for the Year Ended December 31, 2004

      File No. 001-14404

  Mr. Larry Spirgel

  United States Securities and Exchange Commission

Division of Corporate Finance

100 F Street, NE

  Washington, DC 20549

  Dear Mr. Spirgel:

       On behalf of Telefónica del Perú S.A.A., a Peruvian corporation (“TdP” or the “Company”), please find attached as Attachment A TdP’s response to the Staff’s comment included in its letter dated July 13, 2005 in connection with its review of TdP’s financial
statements in its Form 20-F for the year ended December 31, 2004.

       If you have any further comments after receiving this letter, TdP would be pleased to discuss them with you and the other members of the Staff reviewing its Form 20-F, and provide you with written
responses addressing such matters.

       Please do not hesitate to contact me at 212-450-6095 or Manuel Arranz at 011-34-91-514-5072 from Deloitte & Touche, TdP’s auditors, should you have any questions or comments regarding the
foregoing.

        Very truly yours,

        /s/ Manuel Garciadiaz

        Manuel Garciadiaz

      Attachment

      cc w/att:

      Andrew Mew

      Manuel Arranz

      José Fermín Alvarez

  ATTACHMENT A

  TELEFÓNICA DEL PERÚ S.A.A.

  Form 20-F for the Year Ending December 31, 2004

  Note 4. Significant Accounting Policies and Practices

(n) Revenues, costs and expenses recognition

      1.

      Please disclose and explain to us your Peruvian GAAP revenue recognition policies for products and services offered by your business communications and cable television businesses.

       Revenues and costs for products and services offered by our business communications and cable television businesses are recorded on an accrual basis. These revenues are derived from monthly services
and are billed, depending on the service, either at the end of the month (which does not require revenue estimates at the respective closing date) or on a cyclical billing system at different dates of each month (which does require certain estimates
of income).

       In future Form 20-Fs, we undertake to enhance the disclosure of the revenue recognition policies for these products and services as follows:

   (n) Revenues, costs and expenses recognition

      Revenues for telephone services are recognized in the period in which the services
      are provided, as measured mainly by the minutes of traffic processed.

      Fixed telephone and domestic and international long distance services are recorded
      on a cyclical system. Services not billed from the closing day of the billing to the last
      day in the month, are included in the next cyclical billing and the corresponding
      estimate of income is recorded.

      Business communications revenues are recorded, depending on the service,
      both as the services are provided or on a cyclical basis as described in the
      paragraph above.

      Cable television revenues are derived primarily from monthly charges and are
      recognized at the end of the month in which the service is provided.

  A – 1

  Note 11. Other Accounts Receivable, Net, Page F-25

      2.

      It appears from the disclosure in Note 11(a), that for Peruvian GAAP purposes, you have recognized receivables representing claims for the return of funds illegally seized by various municipalities in Lima and provinces. Please
disclose the facts and circumstances of these seizures and advise us. Also, explain to us how you have accounted for the seizures and your basis for this accounting under US GAAP. If you did not recognize a charge to earnings when funds were
disbursed you should explain why and how this accounting complies fully with the guidance in SFAS No. 5.      Since apparently the return of the seized assets is contingent upon the seizures being declared illegal, we question your basis for recognizing a receivable under US GAAP. Please note, for US GAAP purposes, contingencies that
may result in gains should not be reflected in the financial statements. Please revise your US GAAP financial information accordingly or advise us. In your response to this comment please tell us if these receivables represent legally enforceable
claims for payment as of the balance sheet date.

       The receivables representing claims for the return of funds illegally seized relate to the fact that various municipalities in Lima and other provinces have initiated local administrative actions that
have resulted in the seizure of our funds and impaired our rights to directly collect from customers. These municipalities allege that we have installed plant (telephone poles) within their jurisdictions without municipal authorization and,
therefore, that we are subject to fees and fines. These municipalities have seized our assets—cash and accounts receivable—without any definitive judicial determination. In some circumstances, these actions have prevented us from
collecting amounts due from our customers.

       We believe that these actions were illegally initiated since funds were seized before a final judicial decision and before we were able to present an appropriate defense. In addition, we believe these
municipalities do not have valid legal grounds to defend their actions. Some of their coercive collections have already been declared illegal by certain courts and, in such cases, we have initiated procedures to recover the amounts seized. We will
continue to pursue legal actions against these municipalities and anticipate that all or most of the seizures will be declared illegal.

       These seizures from the municipalities have restricted our access to funds and collections (banks accounts and clients, respectively) and, in a subsequent instance, the municipalities diverted such
funds to their own accounts. Given that our legal advisors believe that these seizures will be declared illegal, under Peruvian GAAP we reclassified such amounts seized as “Other
Accounts Receivable”. The reason for such reclassification is that, under Peruvian law an eventual loss is deductible for income tax purposes only if recorded as a receivable.

       In addition, under Peruvian GAAP we have recorded provisions by means of an allowance for doubtful accounts for the amounts that have been effectively transferred to the municipalities’ accounts.
This allowance is shown under the same caption as of December 31, 2004 and 2003. Such provisions were deemed necessary since we believe that these

  A – 2

  municipalities do not have a solid cash position, with which to honor judicial orders to return such cash to us if their actions are deemed illegal. For the
restricted bank accounts, we have not made a provision because the funds therein remain an asset of the Company.

        Consequently, the only difference between Peruvian GAAP and US GAAP relates to those amounts provisioned which under US GAAP would have been recorded as a direct charge to earnings instead of as an
account receivable and a provision. Since this different criterion is deemed to be only a reclassification difference, we undertake to include in future Form 20-Fs the following disclosure for such classification difference:

  Note 35. SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN PERU (PERUVIAN GAAP) AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (U.S. GAAP)

  (…)

      (o)

      Other accounts receivable

      As shown in Note 11, under Peruvian GAAP, seizures are recorded as an account
      receivable and a provision is established for the full amount based on the opinions of
      management and its legal advisors. Under US GAAP, seizures should be expensed at
      once. Therefore our accounts receivables under US GAAP would be reduced by the
      provision made in an amount of S/.152,971,000 and S/.128,664,000 for December 31,
      2004 and 2003, respectively.

  Note 14. Property, Plant and Equipment, Net, page F-30

  (d) Impairment Loss

      3.

      Please disclose your US GAAP policies for recognizing and measuring impairments in the value of long-lived assets. It appears, from your disclosure in Note 14(d), under Peruvian GAAP you recognize a valuation allowance (S/.
79,192,000 as of December 31, 2004). Under US GAAP you should record an impairment loss as a reduction in the cost basis of the impaired asset. Refer to paragraph 15 of SFAS No.	144.

       Under US GAAP, the Company periodically evaluates the carrying value of long-lived assets to be held and used in the business, other than goodwill and intangible assets with indefinite lives, and
assets held for sale when events and circumstances warrant, generally in conjunction with the annual business planning cycle. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of undiscounting cash flows. If the
carrying value is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value for assets to be held and used. For assets held for sale, such loss is further increased by costs to sell. Fair
market value is determined

  A – 3

  primarily using the anticipated cash flows. A long-lived asset to be abandoned is disposed of when it ceases to be used.

       We acknowledge that while under Peruvian GAAP a separate disclosure of the cost of property, plant and equipment and the provision for impairment is allowed, under US GAAP when an impairment loss is
recognized, the carrying amount should be presented net of this impairment loss. The impaired assets correspond substantially to assets that were abandoned by the Company and there are no differences between Peruvian GAAP and US GAAP related to
calculation of the impairment of this kind of assets. The Company determined that those assets will no longer be used based on a technical obsolescence assessment performed at year end.

       In this regard, we undertake to make the appropriate disclosure modification in our future Form 20-Fs, in the reconciliation note, stating that for US GAAP purposes the provision for impairment shall
be presented offsetting the corresponding carrying amount of property, plant and equipment.

  Note 35. SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN PERU (PERUVIAN GAAP) AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (U.S. GAAP)

  (…)

    (p) Impairment of fixed assets

    In respect of Note 14(d), the Company is allowed under Peruvian GAAP not to
    reduce the cost of property, plant and equipment by the provision for impairment.
    Under US GAAP, when an impairment loss is recognized, the carrying amount
    should be reduced in the cost basis of the impaired asset. Therefore, our property
    plant and equipment under US GAAP would have been reduced by S/.65,341,000
    and S/.79,192,000 for December 31, 2004 and 2003, respectively, for those amounts
    recorded as a provision under Peruvian GAAP but that have to be classified as a
    permanent impairment under US GAAP.

  Note 22. Transaction with Related Parties, page F-39

      4.

      With a view towards expanding your policy disclosure, please explain to us your accounting policy for shared service center expenses under Peruvian GAAP. If your Peruvian GAAP accounting policies for these expenses differs from
what is required under US GAAP, please tell us how and where you have reflected the difference in the US GAAP financial information in Note 35. Refer to SAB Topic 1B. Also, clarify for readers why the amounts reported for 2003 and 2004 in this Note
are not the same as the amounts shown on the face of the financial statements.

  A – 4

       As stated in Note 24(f), pursuant to local regulations the pricing of transactions with related companies is determined using the arm’s length principle, which is supported with proper
documentation and a study of the valuation methods used for determining transfer pricing.

       Given that the arm’s length principle governs all transactions between related companies, specifically the shared service center expenses (the related company in this case is Telefónica
Gestión de Servicios Compartidos Perú (“TGSC”), we understand there are no differences between the Peruvian GAAP and US GAAP accounting treatment for these transactions. Therefore, it was not necessary to reflect any
difference (adjustment) in Note 35. In this regard, we undertake to disclose in future Form 20-Fs in Note 22, “Transaction with Related Parties”, that all transactions have been made under the arm’s length principle.

       In addition, the reason why there is a difference in the amounts shown in Note 22 under “shared services center expenses” as compared to those amounts on the face of the financial statements
is because Note 22 discloses only the expenses incurred by the Company with our affiliate TGSC, whereas in our income statement the caption “shared services center” includes the TGSC amount, net of the amounts Telefonica del Perú
bills to other affiliates, related to expenses attributable to them, i.e. expenses from the “shared services center”. We respectfully acknowledge that a better description should have been used in Note 22, such as “back office
service”, instead of “shared services center”, in order to differentiate it from the income statement caption.

       In this regard, we undertake to make the appropriate change in Note 22’s descriptions, from “shared services center” to “back office” in future Form 20-Fs. In addition, in our
income statement we will enhance the description from “Shared services center” to “Back office and shared services center”.

  Note 29. Other Income (Expenses), Net, Page F-50

      5.

      The nature of the other expenses reported in the line item “provisions and prior years’ expenses” and your basis for your accounting is unclear, please advise us and clarify your disclosures.

       The caption “Provisions and prior years’ expenses” involves mainly S/. 95 million resulting from tax contingencies that were recorded during 2004, since during such period the Company
considered probable the risk that some contingencies could have an unfavorable decision for the Company. We have used the name “provisions and prior years’ expenses” since the underlying tax transactions refer to prior years. We have
included additional detail in our response to the Staff’s Comment No. 6 and we undertake to clarify this caption in future Form 20-Fs.

  Note 34. Contingencies, pages F-58 - F-59

      6.

      We note the contingency disclosure provided in Note 34. For US GAAP reporting purposes please provide all of the disclosures required by SFAS No. 5. With respect to the contingencies disclosed in Note 34(a), please quantify the
total amount of

  A – 5

      taxes that the taxing authorities claim the company owes, the amount of reasonably
      possible unasserted claims, and the total amount accrued by the company under US
      GAAP. You should also disclose the amount of reasonably possible loss in excess of
      the amount accrued. In this regard, we note you did not quantify in paragraphs
      (a)(iii) and (a)(iv) of Note 34 the amounts claimed to be owed by the Company and
      you did not address the possibility of owing additional taxes for years subsequent to
      2000. With respect to the contingencies disclosed in Note 34(b), you should provide
      separate, comprehensive disclosure for each significant contingency. In addition, for
      all contingencies, the disclosed amounts of your US GAAP loss accruals should be
      on a gross basis, before adjustments to recognize the present value of the
      disbursements. Also, please disclose the timing of the expected disbursements.

       With respec