2012 Brazil - Telecoms, Mobile, Broadband and Forecasts

Brazil’s telecom market sprints forward in anticipation of the World Cup and Olympic games

Brazil’s telecom revenues are expected to reach US$120 billion in 2012. With the spending power of Brazilian consumers on the rise and the upcoming 2014 World Cup and 2016 Olympic Games (both being held in Brazil), we can expect strong demand for fixed and mobile broadband, mobile telephony, and other wireless products such as smart phones and mobile applications.

The Brazilian government has been taking steps to reduce mobile, broadband, and pay TV tariffs in order to increase penetration. It has also issued a law offering tax breaks for new telecom investments. The regulator Anatel has approved the country’s third universal service plan, which requires fixed-line operators to install some 108,000 public phones in rural areas including all schools and hospitals. In Brazil, outdoor pay phones are sheltered by a dome-shaped hood known as orelhão, or big ear. With its simple, unobtrusive lines in fiberglass and its efficient acoustic insulation, the orelhão is considered one of the best examples of modern Brazilian design.

The Brazilian telecom sector is fully open to competition and continues to attract operators. The bulk of the market, however, remains divided between three groups: Spain’s Telefónica, Mexico’s América Móvil, and Oi, controlled by Brazilian investors and Portugal Telecom. Telefónica operates through Telefônica Brasil, which offers both fixed-line and mobile services (the latter branded Vivo); América Móvil operates through Embratel (fixed line) and through Claro (mobile); and Oi offers fixed line and mobile services under the Oi brand name.

Telefônica Brasil’s previous corporate name, Telecomunicaçoes de São Paulo (Telesp), was changed to Telefônica Brasil in October 2011, when the operator completed a restructuring process after buying out Portugal Telecom's half of mobile operator Vivo Participações and incorporating it into Telesp. The name Vivo was retained as a trademark for mobile business and would be adopted by the company’s fixed-line operations in March 2012.

The fixed-line market leaders are the two regional incumbents Oi and Telefônica Brasil, with 45% and 26% respectively of the country’s fixed lines in service, but while their basic telephony service stagnates or dwindles, long-distance incumbent Embratel and Vivendi’s GVT have been steadily increasing their local market share (respectively to 19% and 6%).

Four companies dominate Brazil’s mobile telecom market: Vivo, Claro, Oi, and Telecom Italia’s TIM Brasil. Together, these four operators control 98% of the country’s mobile subscriber base. Vivo is the leader, with about 29% of the market. TIM Brasil and Claro account for 26% and 25% respectively; the two companies have been vying for second and third place since 2004. Oi is fourth, with 18%. The remaining 2% of the market is shared between CTBC Telecom, Sercomtel, and Nextel Brasil.

Fixed-line teledensity in Brazil is about two percentage points higher than average for South America. But while the number of fixed lines continues to increase by about 1.5% a year, annual growth has been insufficient to raise teledensity, which has been stagnating at about 21% since 2002. Mobile penetration, on the other hand, looks set to reach approximately 145% by end-2012, with the number of subscribers increasing by 19% annually. Nevertheless, mobile subscribers owning multiple SIM cards are pushing up penetration figures, hiding the fact that many Brazilians have no mobile phone at all.

After lagging behind the rest of the region, Brazil’s SMS market took off in 2011, when text messaging rose by almost 69%. The increase was mainly due to the new competitive pricing models and packages offered by operators. Meanwhile, the growth of 3G in Brazil has been nothing but spectacular. The number of WCDMA subscriptions (including both mobile phones and modems) has soared from less than 2,000 in June 2008 to more than 33 million in 2012.

The number of fixed broadband subscribers continues to show solid growth rates despite the mobile broadband boom. However, there are parts of Brazil where fixed broadband does not reach, and where mobile broadband is the only option.

Fixed broadband plans on offer in Brazil have improved significantly since 2008. In fact, broadband prices in Brazil are lower than in most other Latin American countries. In terms of broadband speeds, Brazil performs well compared with Latin America, but poorly compared with the rest of the world.

Although the government’s National Broadband Plan is proceeding more slowly than originally hoped, it should significantly improve broadband access in Brazil. While the aim of the plan is to bridge the digital divide, it also creates investment opportunities for operators – especially small companies and start-ups – to provide services over the state-owned broadband network. In fact, the plan envisages wholesale rather than retail service, typically in areas with low competition.

Brazil’s pay TV market has experienced sustained growth, not even slowing down during the global credit crunch. The principal operators in Brazil’s pay TV market are Net Serviços, Sky Brasil, Embratel, Telefônica Brasil, and Oi TV. Several operators offer pay TV services as part of triple play packages including voice and broadband.

A new pay TV law was passed in September 2011, aimed at promoting competition and expanding services. This law removed limits on foreign ownership in the cable TV sector. It also gave the green light to all telcos to provide pay TV anywhere in Brazil. Thanks to the change in legislation, fixed-line incumbent Embratel has been able to take control of its subsidiary Net Serviços, the largest multi-service cable provider in Latin America.

Market highlights:

• Former state-owned incumbent Telebrás, which has been reactivated to implement the government’s National Broadband Plan, has been deploying fibre-optic backbone networks in Brazil’s major cities.
• A new broadcasting law has opened the cable TV market to fixed-line telcos and foreign investors.
• The first MVNO authorisations have been issued to Sermatel, Porto Seguro, and Sisteer of France
• Sky Brasil has launched 4G services in Brasilia using TD-LTE technology
• Fixed-line operator GVT has launched a hybrid DTH/IPTV pay-TV service
• Anatel is holding a 4G/LTE auction in the first half of 2012 and a 3.5GHz spectrum auction in the second half of 2012
• The government wants all major cities to have 4G services before the 2014 FIFA World Cup.
• The Brazilian government has said it intends to ensure 100% telephony coverage in rural areas by 2014
• Despite delays in the deployment of DTTV, Brazil intends to complete the switchover from analogue to digital TV broadcasting in 2016.
• Brazil has become the world’s second-largest consumer of Twitter
• Brazil’s Facebook users tripled in 2011, overtaking Orkut.
• Folhapar has increased its interest in UOL and delisted the company
• Telefônica Brasil has acquired a 49% stake in Brazilian cable TV operator TVA from Lemontree
• Embratel has taken control of cable TV operator Net Serviços de Comunicação.
• Start-up mobile operator Unicel, trading as Aeiou, has disappeared from the market leaving around R$100 million in debts
• Nextel is rolling out 3G services in the second half of 2012.
• Vivo is shutting down its CDMA network by mid-2012

Brazil fixed-line, broadband, and mobile statistics – 2010 - 2012

(Source: BuddeComm based on industry data)

For those needing an objective and high-level strategic analysis on Brazil, this report is essential reading and gives further information on:

• The development of Brazil’s fixed-line, mobile, broadband, and pay TV sectors together with industry outlook and forecasts.
• Anatel’s General Plan for Updating Telecom Regulations, known as PGR, which includes lists of actions to be carried out in the short term, medium term, or long term.
• Company performance and ARPU.
• An analysis of Brazil’s broadband sector.
• How different scenarios are likely to affect the fixed-line, mobile, and broadband markets in the ten years to 2020.

Data in this report is the latest available at the time of preparation and may not be for the current year.