NEW YORK-In late March, the logjam finally broke on the long-stalled liberalization of the Brazilian telecommunications market through the introduction of second wireless carriers.
One forecast predicted the number of cellular telephone customers in Brazil could increase during the next five years to 23 million from 2.7 million. However, after several B-band licenses were awarded through a bid process, further granting of concessions had been stalled for nearly a year, primarily due to a court battle over a winning bid for the state of Sao Paulo.
After a delay of more than seven months, the Brazil Communications Ministry unsealed bids from four groups competing for a second, or B-band, license to provide cellular services in the states of Rio de Janeiro and Espirito Santo. After the city and the state of Sao Paulo, the Rio-Espirito B-band concession is considered the third most desirable because it has a large population, comparatively high per-capita income and a large pent-up demand for cellular services.
Late last month, Brazil’s Supreme Justice Tribunal, upheld the award to the Tess consortium of the second, or B-band, cellular concession for the all of the state of Sao Paulo, except for the capital city, which also is called Sao Paulo.
The winning bidder received a license covering a population of 16 million. It plans to invest $1 billion to launch services, is said to be leaning toward Time Division Multiple Access technology, and will target an initial capacity of 300,000 digital cellular lines within six months.
Tess is led by Telia A.B., the Swedish telecommunications group. Its other members include two Brazilian companies, Airline Cellular and Primave, part of CR Almeida, a construction corporation.
A year ago, Tess was the high bidder, offering $1.17 billion for a 20-year license as the B-band cellular carrier in the region. However, its offer was disqualified on grounds that included failure to use a legally recognized translator and to spell out its bid in words as well as numbers.
“The whole process of allocating the remaining B-band licenses has been held up by that lawsuit,” said Ed Czarnecki, director of international consulting for BIA Consulting, Chantilly, Va.
“The issuance of the remaining B-band licenses is of tremendous importance, a major turning point both for cellular and (wireline) telecommunications in Brazil.”
Brazilian law and regulations require the B-band awards process to be completed nationwide before the Telebras companies, publicly traded and partially privatized wireline and A-band cellular service providers, can seek foreign capital investment, Czarnecki said.
Some of the other B-band licenses already have been granted. BCP Telecomunicac, a consortium led by BellSouth International and Banco Safra of Brazil, won the B-band license for the city of Sao Paulo with a bid of $2.45 billion. It paid 40 percent of the bid at the time the award contract was signed.
BellSouth and Banco Safra announced March 31 they had raised $1.75 billion through a floating-rate note issue, whose proceeds partly will be used for license payment and partly for costs associated with service launch. BCP Telecomunicac’s city of Sao Paulo network is scheduled to offer commercial service starting in May. During the past six months, investments in the cellular infrastructure of metropolitan Sao Paulo have surpassed $1 billion.
“The (debt) issue shows confidence in the potential of cellular services in Sao Paulo and in the Brazilian economy,” said Otavio Castelo Branco, a managing director of investment banking at J.P. Morgan Securities Inc., lead underwriter. “Despite the Asian crisis, investors are beginning to come back to Brazil.”
Northern Telecom Ltd. has won contracts, collectively valued at $700 million, to supply cellular telephone equipment to three B-band cellular carriers.
The onset of duopolistic competition also has spurred A-band carriers to upgrade their networks to digital services. NEC do Brasil announced late in March that it had won a $120 million contract to supply “one million CDMA digital cellular lines” to Telesp Celular. Telesp Celular is Telebras’ wireless unit in the city and state of Sao Paulo.
NEC do Brasil also has signed two other CDMA contracts, one for 150,000 lines in the state of Rio de Janeiro and one for 25,000 lines in the state of Bahia.
