Issue 03 - 2020MAGAZINE

Will Brazil’s telecom see new reforms?

The telecom industry holds the promise of total connectivity in the country—but it calls for more regulatory flexibility and legal certainty

Telecom giants like Telefonica, America Movil, Telecom Italia and Oi are conduits for enhancing the current wireless networks, speed and latency across the Brazilian landscape. In 1998, the privatisation of the state-owned telecom companies marked the emergence of new entrants in the industry, pointing to a tremendous growth potential in the future. In terms of numbers, the country was equipped with 27 million broadband internet connections, 244 million mobile access, 42 million landlines and 19 pay TV terminals by the end of 2016. 


The privatisation of Brazil’s state-owned telecom companies have in fact changed the industry’s game in the long-run. In the beginning of 1999, the country was overwhelmed with several private telecom companies and there were unexpected changes in the industry as a result, showing high telecom and broadband penetration levels. In fact, German database company Statista published a report which indicates that the industry is anticipated to generate revenue worth $47.7 billion in 2023. Telefonica recorded revenue worth $43.21 billion Brazillian reals in 2017, making it the largest telecom company in South America. This growth trajectory was an important milestone to the Latin giant and hoped to pave the way for a new era in telecom.


In the 1990s, the capital city Rio de Janeiro installed 10,000 terminals for operating the cellular mobile system. There were 667 devices in the country at the time and the number surged to 6,700 devices in 1991, followed by an increase of 30,000 devices in 1992. But what really transformed the industry was the establishment of Vivo in 2003. During that time, Vivo was the largest operator in Brazil with a subscriber base of 17 million, roughly three times the customer base of the country’s second largest telco Cellco. Both the telecom majors had invested $12. 6 million to launch the brand. 


Vivo’s early potential has assisted in network expansion 

During its initial launch, Vivo covered 86 percent of the Brazilian area except for the North-eastern part of the country and Minas Gerais state because the company relied on local operators for roaming agreements in these regions. The parent companies upgraded the existing TDMA networks to CDMA in the second quarter of 2003, enabling Vivo to establish a 3G network for both corporate and private residents.


In 2008, Vivo upgraded its 3G network with HSUPA in 27 cities. The new development was a big achievement for the telecom major in terms of innovation and sustainability. The launch allowed users to use the internet with fast upload speeds through an Aiko 82D modem. With that, its peer Cello also expressed interest in expanding its device portfolio. Vivo initially made the HSUPA available to the people residing in cities such as Brasilia, Curitiba, Porto Alegre, Salvador and São Paulo, while the HSUPA services were rolled out at a price of $26.20 per month. Although the service was committed to deliver data transfer of 500kbps, another package with a slightly higher cost provided unlimited services for its users.


These developments established the basic framework leading to the country’s debut in 3G services in 2007. With that, 3G network became popular among 90 percent of the residents within a span of five years. This development even brought LTE network tests to several cities in the country and the debut of LTE compatible devices in 2013 encouraged the government to speed up its plans for the industry. At present, the Brazilian mobile market is dominated by Spanish Telefonica controlled Vivo—which is the leading wireless and fixed company in the country. The company has established its presence as the second wireless provider after Claro, while the latter continues to dominate the mobile market after TIM. 


Vivo, Claro, Oi and TIM’s efforts in launching 4G services have created a remarkable improvement in the industry. But there have been speculations about whether the launch was successful or not. In fact, the telecoms had auctioned 4G spectrum and also promised to provide network services coverage to at least 50 percent of the country’s urban area. However, these services were only available in densely populated cities in the country and the World Cup host São Paulo. 


Is the country’s 4G network still underperforming? 

Now, Brazil ranks 22nd in the world in terms of 4G network, with an average speed of 11Mbps. Claro and Oi provide the fastest services at nearly 12Mbps, while other telecoms including Tim and Vivo deliver various speeds of Mbps. These telecom companies are not able to deliver at good internet speeds despite new developments and several customers across the Brazilian landscape have raised concerns regarding poor 4G network coverage. 


But the current trend is changing at a rapid pace. Mobile analytics and insights company Opensignal published an industry report in July which found that TIM remains the best operator in 4G availability. It shows that consumers were able to find 4G connection nearly 88.2 percent of the time using its service, while Vivo and Claro were close to crossing the 80 percent milestone, while Oi made it slightly above the 70 percent mark. This suggests that the level of 4G access in the country is continuing to grow. It seems that since Opensignal’s last report, TIM, Viva and Oi’s scores improved by nearly 2.5 percentage points, while Claro’s scores rose by 1.3 percentage points. Against this background, it is clear that TIM’s high scores indicate that 4G network is maturing. 


When it comes to speed metrics, the report has observed that Claro is succeeding in upload and download speed experiences. In fact, its has demonstrated an average download speed of 23.4 Mbps, which is an impressive 50.1 percent faster than speeds by Vivo, 68.2 percent faster than TIM and 129.6 percent faster than Oi’s network. 


According to TeleBrasil, 96 percent of the population across 144 cities had access to 4G networks in 2019. The reports state that 12.3 million new 4G sim cards were issued to users, while 142 million 4G users were already active during the period between January and May. The overall 4G network in Brazil is above average than most of the undeveloped countries of the world. However, the telecom industry seeks to improve mobile and data connectivity on the back of developing next-generation technology development. Certainly, the country expects to transform the industry in the future.  


GlobalData in its report observed that the number of fixed broadband access lines connections will burgeon from an estimated 31.8 million to 36.7 million, increasing at a CAGR rate of 2.9 percent. The report event estimates that the country’s 36.8 percent of the total share of broadband lines were taken by digital subscriber lines (DSLs) in 2019. In fact, DSLs also accounted for 30.5 percent of the cable lines. Global technology experts predict that fibre will be the fastest growing broadband service segment for Brazil during the period between 2019 and 2020. 


Telefonica’s fibre neutral network—an overview

According to the report, fibre-based internet connectivity will account for 28.4 percent of the total broadband subscriptions by the end of 2024. Telecom majors such as Vivo, Claro and Oi have supported the fibre-based internet connectivity through the national broadband plan initiative. Now Telefonica is planning to launch a neutral and independent fibre optics network and is exploring potential partnership for the development. As it continues to expand its FTTH network across the country, it will simultaneously launch advanced forms of services delivering ultra-speed. 


Telefonica had joined forces with American Tower in Minas Gerais state and a franchise model under the Terra brand last year to develop FTTH. But the franchise is expected to decide whether 100 percent of the capex will be utilised to equip homes with fibre as the Spanish telecom company is only responsible for installing the fibre in the city and obtaining rewards for the operations.  


In this context, Telefonica Brasil CEO Christian Gebara, told the media, “We are going to continue growing fibre, but under different models. Despite the mobility and installation restrictions imposed during the Covid-19 pandemic, this was the best quarter in 14 years.” The company’s approach toward optic fibre internet is not a novel concept, but a lot of capital is required for the development. In fact, other operators are betting on co-apex and partnership models because of the pricing. In the big picture, the company is planning to launch a neutral network that will be made available to other companies and customers in a wholesale format.


5G is making significant progress nationwide 

Although Claro is already operating a 5G-like technology through the DSS system which offers speeds close to that of fibre 250Mb/s per and high bandwidth capacity with more spectrum—making the 5G auction crucial in the first half of next year. However, the 5G-focused bank is ‘occupied by broadcasting services’. America Movil’s President Jose Felix pointed out in a report that the terms for tender should be able to deal with the complexities of spectrum acquisition by those who seek to join the process for acquiring and resale.


Claro and Ericsson have established a partnership to establish a 5G network in the country. Both companies plan to launch 5G services across 12 cities including Sao Paulo and Rio de Janeiro. For that reason, Ericsson will deploy its 5G spectrum sharing platform for the development. Arun Bansal, President of Europe and Latin America, Ericsson, told the media, “Claro’s customers in Brazil will soon be able to tap into the incredible power of 5G. This next generation network has far-reaching potential to transform the country from agriculture and smart cities.”


Ericsson’s 5G platform is expected to provide  low latency  and  faster connections at cheaper costs. The 5G services can be installed through a software update on any of the five million 5G-ready radios that Ericsson has floated in the global market.  This has given Brazil a competitive advantage because it already has more than 400,000 radios installed. In July, Telefonica launched its 5G network. CEO Christian Gebara, told the media. “5G will be available in selected parts of eight state capitals, namely: São Paulo, Salvador, Brasília, Rio de Janeiro, Porto Alegre, Goiânia, Curitiba and Belo Horizonte.” The telecom uses dynamic spectrum sharing (DSS) technology, like its counterparts TIM and Claro. TIM has started serving 5G in September across Bento Goncalves, Itajubá and Tres Lagoas. 


Interestingly, Ericson has proposed a new model for Latin America’s 5G spectrum auctions. The telecom equipment supplier said that it is important to set base prices for frequencies in the region’s 5G spectrum auctions and telecom operators should offer premiums provided in the form of network investment commitments. 


Industry experts believe that it is critical not to treat 5G as an alternate technology developed to replace 4G in personal mobile technology. The reason for that is because 5G technology will be vital to industry 4.0 and IoT networks. So providing it with the same coverage requirements will be futile for the technology and the industry at a large-scale. 


Lack of tax reforms is distressing 

Brazil is among the developing countries in the world and is considered one of the hotbeds for investments on the back of its thriving marketplace. In recent years, the industry has been calling for additional regulatory flexibility, legal certainty and reduced tax burden to promote investments. It seems that taxes in the industry had increased 224 percent during the last two decades and revenues by 123 percent in the same period. Felix said at an event that the country has the highest tax burden on its customers in the world


In fact, Huawei had paid 1.4 billion reais in taxes last year despite the company having established its presence in the country for more than 22 years. By job value, it employs more than 1,800 people directly, of which 80 percent of them are Brazilians. It seems that the lack of tax reforms might have a residual effect on the industry in the coming years. However, the country is actively working on the existing loopholes and it seeks to develop new regulatory frameworks that can accelerate innovations for industry 4.0 and 5G auction. 


The Brazilian telecom industry is complex to analyse because of its isolated nature. But the emergence of foreign investors on the back of recurring mergers and acquisitions between companies have transformed the industry on many levels. So the demand for mobile broadband internet services is only expected to increase or become a bottleneck. The opportunities in the industry are diverse, but there is still a lot of change that is yet to be seen.

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