The impending liberalization of Brazil’s cellular services sector has attracted interest from a host of global carriers clamoring to position themselves in the region’s fastest growing telecom services sector.
The lucky few that win private cellular operating licenses in Brazil may be jockeying, as well, to become full-service carriers when privatization and liberalization of basic voice services occurs-possibly as soon as 1998. Speculation about the opening of Brazil’s cellular services sector to private competition has run rampant since 1990. Each time, though, the teams of local and foreign players hoping to compete were stymied.
In 1995, President Fernando Henrique Cardoso’s administration built the necessary momentum, backed by the same local and foreign players, to push through lasting reforms that permanently will open what is Latin America’s last great bastion of monopoly cellular services. The B-band licenses could be awarded this year, with service starting in 1997.
Currently, Brazil’s more than 1.1 million cellular subscribers are served primarily by Telecomunicacoes Brasileiras S.A. (Telebras), the state-owned telecom services operator that owns 27 local operating companies. A handful of non-Telebras A-band carriers serve certain areas.
The largest cellular operator is Telecomunicacoes de Sao Paulo (Telesp), which accounted for 33 percent of subscribers in service at year-end 1994. Telecomunicacoes de Rio de Janeiro (Telerj), Telecomunicacoes de Brasilia (TeleBrasilia) and Telecomunicacoes de Minas Gerais (Telemig), jointly accounted for about 27 percent of customers during the same period.
The Telebras regional operating companies this year plan to prioritize providing services to the more than 1.5 million people on cellular waiting lists. This alone should drive the number of subscribers in service in 1996 up past the 2.6 million mark. By the end of the decade, the number of cellular subscribers in service in Brazil is expected to top 9.3 million. Brazil also is predicted to have more than 1 million personal communications services subscribers by 2000.
Regulatory update
While every other major Latin American country has at least liberalized its cellular services sector and tendered concessions for private operators, Brazil is far behind. With extensive waiting lists, Brazil can ill afford to delay competition in the cellular sector much longer. President Cardoso is nearing passage of a reform package aimed at opening this service sector.
On Nov. 28, President Cardoso and the Ministry of Communications presented a telecom reform strategy designed to introduce competition from private companies in selected sectors and increase investment into the Telebras system this year. The “minimal laws” they proposed to Congress prioritize competition in the cellular and satellite markets. In these sectors, the legislation proposes 15-year concessions and limits foreign ownership to 49 percent for private operators.
These measures are expected to pass Congress by the end of February. Once passed, the government will submit terms for granting the B-band licenses. Bidding likely will occur during the third quarter. Thus, by early- to mid-1997, private cellular operators are expected to be directly competing with Telebras.
B-band consortia
Potential B-band cellular operators eagerly are awaiting the release of the licensing terms so they can formalize their partnerships and raise the necessary capital. With terms of foreign ownership not fully defined, many Brazilian firms fear legislation may discourage foreign interest.
In 1992, numerous consortia prepared themselves for the liberalization of Brazil’s cellular market. But after President Fernando Collor was impeached in mid-1992, telecom reform laid stagnant until 1995. In mid-1995, the B-band consortia began re-grouping.
The momentum started in September with the announcement of the consortium between AT&T Corp., the media group Globopar and Banco Bradesco. Since then, other consortia have announced their plans and likely will name more investors once licensing terms are determined.
Important players, such as France Telecom and Telefonica de Espana, appear to have dropped from the competition to prepare for basic services liberalization in Brazil.
Perhaps the second strongest consortium to date includes BellSouth Corp., Banco Safra and O Estado de Sao Paulo. Banco Safra is a strong Brazilian investment and commercial bank, and O Estado de Sao Paulo is a newspaper/media company with political influence in the state of Sao Paulo. This consortium is expected to focus on the Sao Paulo license.
In addition, BellSouth is participating as a 10 percent minority shareholder in a consortium expected to focus on the B-band license of Rio Grande do Sul, Brazil’s most southern state. BellSouth has allied itself with Grupo Arbi and media group RBS, each with a powerful presence in the southern state.
Numerous U.S. companies continue to negotiate with local players, though many have yet to announce their consortia. Motorola Inc., previously allied with Ameritech Corp., Odebrecht and Unibanco, reportedly is negotiating with Bell Atlantic Corp. and Grupo Suzano. AirTouch Communications Inc. and GTE Corp. have been involved in negotiations but have not announced local partners.
Suppliers to the public network, such as Ericsson Telecomunicacoes, NEC do Brasil and Promon/Nortel, have not announced direct participation in any consortia. However, the Globopar group owns 51 percent of NEC do Brasil, and Banco Bradesco and Monteiro Aranha own shares in Ericsson Telecomunicacoes. Motorola and AT&T/SID Telecon also hold shares in the public cellular network.
Digital cellular
Although Telebras was expected to introduce digital cellular services by year-end 1995, the state-owned holding company has yet to settle on a standard. To meet the unmet demand for cellular service and resolve capacity restraints that have impeded growth in the country’s largest cities-particularly in Sao Paulo and Rio de Janeiro-the selection of a standard is a top priority for Telebras in 1996 and is expected to occur during the first quarter.
The handful of affiliated and non-Telebras A-band operating companies are expected to follow Telebras’ lead in digital standards selection, while the newly licensed private B-band operators are expected to have the freedom to choose their own standards for digital services.
Inevitably, and following the lead of the U.S. and other Latin American countries, Brazil is expected to be home to multiple digital standards.
Linda Barrabee is a senior associate and Meredith Persily is an associate at Pyramid Research, Inc., a Cambridge, Mass.-based research firm specializing in telecom markets in developing countries.
