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Archived Report
Telecommunications in Brazil

by Faulkner Staff

Copyright 2018, Faulkner Information Services. All Rights Reserved.

Docid: 00017746

Publication Date: 1803

Report Type: MARKET

Preview

Between hosting the 2014 World Cup and the 2016 Summer Olympics, the world spotlight
has been shining brightly on Brazil. To meet the needs of its citizens as well as the
millions of tourists who came to the country for these events, the Brazilian
government and the telecommunications industry combined efforts to
improve the types and quality of services offered, especially regarding wireless
and broadband coverage. This report discusses the state of the Brazilian telecom
market and the steps the major players are taking to operate in the 21st
century.

Report Contents:

• Executive Summary
• Market Dynamics
• Market Leaders
• Market Trends
• Strategic Planning Implications
• Web Links
• Related Reports

Executive Summary

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The
Brazilian telecommunications market has gone through major changes in the last
few decades.

Related Faulkner Reports

Telecommunications in South America Market Trends

The market was once dominated by a state-owned monopoly that had a
notorious track record for providing horrible service (if it provided service at
all). The government intervened in 1998 and broke up the monopoly provider in a
move that was very similar to what the United States FCC did to AT&T. This
move created three regional local exchange carriers referred to as Regional Brazilian
Operating Companies (RBOCS), a long distance carrier, and a handful of wireless
companies. The government also slowly introduced competition. The
incumbent service providers still lead the way in most sectors but there is
competition, particularly in the long distance market where the former monopoly
provider has been losing subscribers to rivals. Because of
a recent overhaul in the wireless market, additional infrastructure is now being developed and,
since 2010, telecommunications companies have been required to provide telephone services
to the entire country.

In the meantime, wireless
has
emerged as the service of choice for most Brazilians; the market represents the
fifth largest mobile market by the number of subscribers. Wireless number
portability was introduced in 2009 and the total number of 4G subscribers is
exploding.

Market Dynamics

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Brazil is the largest
country in Latin America. It is home to approximately
211 million
(2018), making it the fifth most populated
country in the world. Despite its large population, however, Brazil has a low population density
(ranked 193 in the world). Most of the
country is covered by a tropical rain forest, and most of the people live in the
major metropolitan areas. The country is organized into 26 states and a federal
district, which is the capital city of Brasilia.

Brazil was originally colonized by Portugal in the 1500s, and it declared its
independence in 1882. The country’s early independent history includes multiple
revolts and military coups in 1889, 1930, and 1964. A stable democratic
government was finally put into place in 1988, after the military-backed
government handed over control to the people. Today, Brazil is run by directly
elected officials, including a president who serves four-year terms. The current
president, Michele Temer, has been in office since August 2016. Figure 1 shows a map of Brazil, while
Table 1 provides a snapshot of the country
and its telecommunications sector.

Figure 1. Brazil

Source: CIA World Factbook

History of the Brazilian Telecommunications Market

The modern-day telecommunications system started in 1972, when the Brazilian
government consolidated more than 900 telecommunications companies into a
government-owned monopoly called Telebras. Telebras was the largest
telecommunications carrier in the region, but as the only telephone company it
had little incentive for it to adequately service the people. Thus,
Telebras became legendary for its track record. By 1998, there were 20
million people on the waiting list for basic telephone service, which had become
a luxury item for the wealthy and well connected, and the fixed-line teledensity
was less than six percent. As a result, a black market emerged that charged as
much as $500 for a single phone line. 

In
1990, the Brazilian government allowed companies to provide private
network and paging services, but Telebras retained its stranglehold on most of
the market. In 1995, the Brazilian government finally intervened and agreed to
open the rest of the market and partially privatize Telebras. 

In
1997, the Brazilian legislature passed the General Telecommunications Law of
1997, which privatized Telebras, introduced competition, and created an
independent regulatory authority called the Agencia Nacional de
Telecommunicascoes (Anatel). At the time, the Brazilian telecommunications
market had suffered for years under the Telebras monopoly, and Anatel was
immediately charged with the monumental task of reversing the damage the
incumbent had done by providing universal service, improving
the country’s infrastructure, and creating a landscape that would be
attractive for potential competitors. Today, Anatel reports its activities to
the Ministry of Communications, but it is financially autonomous and
administratively independent.

In
1998, Anatel decided that a massive shakeup was needed to save the
market, and
Telebras was restructured in a move that was very similar to what the US
government did with AT&T in 1984. Telebras was broken up into 12
companies:
Three regional local fixed-line providers, a long distance carrier, and
eight
regional wireless carriers. The following table provides the names of
the
companies that were created by the reorganization.

The
three regional local service
providers were essentially the Brazilian version of the US Bell System. These
companies remained the dominant providers within their operating regions until
2002, when they were granted permission to enter the long distance market and
Embratel was allowed to start providing local service. Anatel
planned to expand access in the country by deploying 29 million additional fixed
lines. Companies who met deployment targets ahead of schedule were granted the
opportunity to compete in other regions. As a result, the country exceeded the
charter in 2000 by installing 34.2 million lines. 

State of the Marketplace

Fixed-Line Services. The Brazilian fixed-line market
is split into three operating regions, each of which was
covered by one of the local carriers created when Telebras was broken
up. Anatel granted licenses to a competitor in each region in 1999,
and in
2002 it was given permission to issue an unlimited number of licenses
for both
local and long distance services. The three regional carriers are now
allowed to
compete in each other’s home territory as long as they prove to Anatel
that
they are meeting benchmarks for quality of service and adequately
building out
their networks
in their own territory. Thanks to deregulation, telephone service has
expanded by between
five and
ten percent annually, but rural areas still are greatly underserved.
Customers
now have more choices and can subscribe to value-added services like
call
waiting, voicemail, caller ID, and more. 

Brazil’s
infrastructure is considerably more advanced in and around the major
metropolitan areas, especially Sao Paulo, which is the
world’s seventh largest metropolitan area and the largest city in the Southern
Hemisphere. Furthermore, the southwest part of the country accounts for 60 percent of the
Brazilian GDP. 

Figure 2 looks at Brazil’s fixed-line presence from October 2016-2017. 

Figure 2. Fixed-Line Market Statistics (in millions), October
2016-2017

Source:

Statistica

Wireless.
When
the Brazilian government restructured Telebras in 1997, the wireless market was
split into ten geographic regions. The eight wireless carriers that were created
through the Telebras breakup were issued “Band A” licenses to cover these
areas. These incumbent providers did not have overlapping operating regions, so
the government auctioned off “Band B” licenses in 1997 and 1998 to
competitors who built out networks using TDMA-CDMA technology. In 2001, the
government sold Band D and Band E licenses to another group of companies, most
of which built out GSM networks.

As
a result of this licensing plan, Brazil had issued 40 operating licenses to
mobile carriers, although some carriers had licenses in more than one region.
The market has since gone through a period of consolidation, and there are now a
handful of companies leading the wireless sector. 

By the end of 2015, there were 258 million wireless customers in Brazil, a
wireless teledensity of 126 percent. Thanks to industry consolidation, many
carriers use both CDMA and GSM technologies in their networks, although GSM is
the more popular technology. 

Growth
in the Brazilian mobile market has been explosive, since Brazil has a
below-average fixed-line infrastructure outside of the major metropolitan areas.
Wireless services have allowed people living outside of key cities to finally
have telephone service, and mobile telephones now outnumber landlines by more
than four to one. Calling-party pay plans were introduced in 1994 and are very
popular.

4G Growth. As of 2017, there were nearly 100 million 4G subscribers active in Brazil.
Figure 3 looks at 4G growth in the country in recent years.

Figure 3. 4G Growth

Source: Teleco

When named host country for the World Cup in 2014 and the Olympics in
2016, the Brazilian government required the country’s four nationwide carriers to adhere
to a strict and aggressive plan to build out their 4G networks to support a massive
number of visitors. These requirements are detailed in Table 3.

Internet. According to IWS,
nearly 66% of Brazil’s population (2017) have access to the Internet,
representing more than 139 million users. Brazil’s geography and low population
density have been major obstacles for Internet service. Sixty-five percent of the country is covered by tropical rainforest
and parts of the terrain are mountainous, which makes it difficult for companies
to build out infrastructure. Additionally, carriers are slow to build out
infrastructure to remote parts of the country because there are not enough
potential customers living there. 

In recent years, Brazil
has 24.9 million broadband connections, a penetration rate of around 12%.
Several factors are driving growth in the Internet sector, including a wide
array of Portuguese language content providers and a Brazilian government
project to extend Internet access to all citizens. DSL is the most popular form
of broadband access in Brazil, but cable is also available. The government is
particularly interested in broadband and has created SCD (Communications Digital
Service) licenses, generally aimed at supplying broadband services to schools,
to support it.

The following chart shows how the market has grown. It should also be noted
that ITU-D has not updated its statistics since 2015.

Figure 4. Broadband Statistics, 2005-2015

Source: ITU-D

Market Leaders

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The following sections provide information about the leading
players in Brazil’s telecommunications market. 

Fixed Line

The local and
long distance markets are dominated by a few companies created when Telebras was
broken up.

Oi. Oi
is the largest telecommunications carrier in Brazil, providing fixed-line local
and long distance calling, mobile telephony, broadband Internet access, and IP
television services to residential and corporate customers throughout the
country. The company was created in 2009, when Telemar acquired Brasil Telecom.
The acquisition gave the company a nationwide presence, since Telemar serviced
16 states in northern, northeastern, and east central Brazil – including the
major city of Rio de Janeiro – while Brasil Telecom operates in the central and
southern regions of the country.

Vivo (Telefonica).
Formerly
known as Telesp, Telefonica is the smaller of the two remaining incumbent local
exchange carriers, but it provides service to Sao Paulo, Brazil’s wealthiest
state.

Embratel.
Embratel
was the long distance carrier formed out of the Telebras restructuring. The
company was the exclusive provider of national and international long distance
services until the three local service providers were granted regulatory
concession to enter the market. Since then, Embratel’s share of the domestic
long distance market has dropped significantly and the company found itself at a
competitive disadvantage. The company is now owned by Mexican telco America
Movil.

Wireless

When
the government restructured Telebras in 1997, it created one wireless company
for each of the ten subdivisions of the country. Additional licensing
concessions were eventually rolled out, allowing Brazil to have as many as 40
companies operating in the market. This high level of competition could not
sustain itself, however, and the market underwent a massive wave of
consolidation.

Figure 5 looks at the major Brazilian wireless carriers.

Figure 5. Major Wireless Carriers

Source:
Teleco

Vivo (Telefonica).
Vivo
is the largest wireless carrier in Brazil, with 35% (2017) of the market. The company was formed when Telefonica
and Portugal Telecom agreed to pool their wireless resources into a
joint
venture, which subsequently acquired several other companies. Telefonica
eventually bought Portugal Telecom in 2010 and then sold it to Altice
Telecom in
2015. Vivo
also services most of Brazil’s largest cities, including Sao Paolo, Rio de
Janeiro, Brasila, and Porto Alegre. Vivo operates a CDMA network with GSM
technology in place for roaming purposes, but the state of the network varies
from region to region.

TIM
Brasil. TIM
Brasil is the second largest operator, with 28% of the overall market. The company’s network uses GSM
technology, and it was the first to offer nationwide service. Its 4G network is
the largest in the country, reaching 58 percent of the population. It has 14.7 million 4G customers.

Claro.
Claro
is part of America Movil, the fourth third largest wireless carrier in the world.
Domestically, it has a market share of 19%. The company started testing 5G technology in Sao Paulo in late 2016.

Oi.
Oi,
the largest landline telecom carrier in Brazil, is the smallest of the four
major mobile players, with 16% of the market.

Internet

As of January 2018, the three leading players in the broadband market are
Claro (31%), Vivo (26%), and Oi (22%). Figure 6 shows market share for the Brazilian broadband market.

Figure 6. Market Share of Brazilian Broadband Providers

Source: Teleco

Market Trends

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The Brazilian
telecommunications market has grown significantly since the Telebras monopoly
ended and the market was opened to competition. The market is still expanding,
especially in the mobile, broadband, and convergent technologies, areas that are
experiencing explosive growth in markets around the world. Brazil has been
historically slow to adopt advanced services, like broadband or next-generation
wireless, because they are simply too expensive for many people living there.
There has also been a wave of consolidation among providers.

The World Cup and Olympic Games

Brazil was has been in the world spotlight twice recently. It hosted the
World Cup in 2014 and the summer Olympics in 2016. A Brazilian IT industry association called Brasscom
estimates that $3.4 billion was invested in technology before the 2014 World Cup in
order to support demand.

The Booming Wireless Sector

Brazil was an
early adopter of wireless services because of the country’s limited fixed-line
infrastructure. As a result, Brazil is the fifth largest wireless market in the
world, behind China, the United States, India, and Japan, and the Wireless World
Form expects it to move into fourth place soon. As earlier in this report shows,
mobile telephones have accounted for more than half of all telephones in Brazil
since 2003. Consolidation
has been one of the driving factors behind the growth in the wireless sector,
and there are now four major players instead of the several dozen smaller
players that were present a few years ago.

Technology Convergence

Technologies to
converge voice, data, and the Internet are taking off all over, and Brazil is no
exception. Carriers are also cashing in on the convergence trend by offering
service bundles that combine multiple communications services. Brasil Telecom,
for example, was the first provider to offer a service bundle that combines
local and long distance calling, wireless service, broadband service, and
broadband Internet access. 

Voice over IP
is starting to gain traction, especially for international long distance, which
is placing further pressure on Embratel, the incumbent long distance provider.
Moving forward, VoIP should emerge as a viable means to bring affordable voice
services to parts of Brazil that have been historically underserved. 

Strategic Planning Implications

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Brazil has the largest telecommunications
sector,  the largest land mass, the largest population, and the largest
economy in South America. Investors have often come to look upon it as a land of
opportunity. Unfortunately, they have often had their fingers burned as the
country moves from economic crisis to economic crisis following its age-old
boom/bust model. The past several years have been particularly rough for the
telecommunications sector, which has faced a global downturn and recession.
Nonetheless, the Brazilian infrastructure is growing, the market is opening up,
and opportunities are again beginning to appear. Most importantly, there has been a
lot of area for growth as Brazil moves from an abysmal system with long waiting
lines for phones, stagnation, and corruption to a modern infrastructure focusing
on reasonable phone access for everyone and development of Internet and
broadband services.

The Brazilian government has ambitious plans, and
growth of sectors such as mobile services and next-generation networking are in
high gear. The government has committed one billion Brazilian reals to implement
broadband services. Stumbling blocks include a wide disparity between rich and poor in
the country, linguistic isolation within the region, and an aged and still
insufficient infrastructure. Positives include a youthful, forward-thinking
population and urban dwellers who are eager to embrace the latest trends in
technology and fashion. 

International providers are gaining more of a presence in Brazil. 
Despite complaints, and a long list of Anatel demands, foreign investment has
continued to grow in Brazil. Recent years have seen a slowdown in response to
global telecommunications downturn and local events, such as the Argentine
currency crisis. Interest is beginning to turn back to South America, however,
particularly on the part of long-time European investors, including Spain’s
Telefonica, Telecom Italia Mobile (TIM), and Portugal Telecom. Telmex of Mexico
is also involved.

Opportunities exist in the services and equipment supply areas as the
country moves forward rapidly in NGN and advanced
wireless platforms. For service providers, it is important to note that
competition is extremely fierce and crowded; the best entry point is through
investment in existing operations. For equipment suppliers, it is important to
understand Brazilian markets and protectionist tendencies for locally developed
items. Unique characteristics make it easiest to enter this market in a joint
venture. Language is particularly important; Brazilians expect literature and
interactions to be in Portuguese. This has limited some attempts to create
regional hubs here to serve the surrounding countries.

As the global economy continues to improve, investment in Brazilian
telecommunications is likely to grow in attraction. It will always be volatile,
however, and needs to be undertaken with careful planning. For US-based companies, it
is also important to recognize the dominant position of the European operations,
which are beginning to dictate standards, particularly in the fast-moving mobile
sector.

Web Links

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• America Movil:http://www.americamovil.com/
• Claro: http://www.claro.com.br/
• Embratel: http://www.embratel.com.br/
• Oi: http://www.oi.com.br/
• Telecom Italia: http://www.telecomitalia.com/
• Telefonica: http://www.telefonica.com/
• Telefonica Brasil: http://www.telefonica.com.br/
• TIM Brasil: http://www.tim.com.br/
• Vivo: http://www.vivo.com.br

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