Competition in Brazilian telecom Competition in Brazilian telecom market: market:

an emerging market experiencean emerging market experience

Paulo Roberto GiãoPaulo Roberto Gião

University of BrasiliaUniversity of Brasilia

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José Rogerio Vargens Filho (presenter)José Rogerio Vargens Filho (presenter)

Brasil TelecomBrasil Telecom

SummarySummary

1.1. Brazilian telecom privatization (1996-1998)Brazilian telecom privatization (1996-1998)

2.2. The process of consolidation (1998-2004)The process of consolidation (1998-2004)

3.3. Results after privatization: regulator, users Results after privatization: regulator, users and operators points of view (2004)and operators points of view (2004)

4.4. The Brazilian regulatory reform (2004-2006)The Brazilian regulatory reform (2004-2006)

5.5. ConclusionsConclusions

1. Brazilian Telecom 1. Brazilian Telecom PrivatizationPrivatization

1996 - 19981996 - 1998

Privatization main eventsPrivatization main events

Privatization of the public mobile companies in Privatization of the public mobile companies in 1996.1996.

Creation of the national telecom agency Creation of the national telecom agency (ANATEL) in 1997.(ANATEL) in 1997.

Privatization of the public fixed telephone Privatization of the public fixed telephone company TELEBRAS in 1998.company TELEBRAS in 1998.

Brazilian fixed telephone map Brazilian fixed telephone map by 1998by 1998

Region IIRegion IITelemar (incumbent)Telemar (incumbent)GVT (newcomer)GVT (newcomer)

Region IIIRegion IIITelefonica (incumbent)Telefonica (incumbent)Vesper (newcomer)Vesper (newcomer)

Region IRegion ITelemar (incumbent)Telemar (incumbent)Vesper (newcomer)Vesper (newcomer)

Region IV: LD in all Region IV: LD in all BrazilBrazilEmbratel Embratel (incumbent)(incumbent)Intelig (newcomer)Intelig (newcomer)

Brazilian cellular map by 1998Brazilian cellular map by 1998

Region 10Region 10

Region 7Region 7

Region 2Region 2

Region Region 55Region 6Region 6

Region 1Region 1

Region 3Region 3

Region 4Region 4

Region 9Region 9

Region 8Region 8

2 operators per region.2 operators per region.

Telecom policy after privatizationTelecom policy after privatization

CompetitionCompetition Universal serviceUniversal service

Asymmetric rules for fixed Asymmetric rules for fixed telephonytelephony

REGULATORY MARKS INCUMBENTS NEWCOMERSContract Public PrivateGeografic operation Restricted to its area until 2002 No restrictionUniversal obligations Yes NoDiversification of services Since 2002 Since 2001Use of new technologies WLL liberalized since 2001 No restriction

2. The process of market 2. The process of market consolidationconsolidation

1998 - 20041998 - 2004

Mergers and acquisitionsMergers and acquisitions

The Brazilian market did not hold the number of The Brazilian market did not hold the number of players that got into by the time of privatization.players that got into by the time of privatization.

Some players sold their participations and left the Some players sold their participations and left the country.country.

Others restructured themselves and bought the Others restructured themselves and bought the participations from the players that left.participations from the players that left.

As a result, 5 big telecom groups emerged in As a result, 5 big telecom groups emerged in Brazil.Brazil.

Brazilian fixed map by 2004Brazilian fixed map by 2004

Region IIRegion IITelemar (incumbent)Telemar (incumbent)GVTGVT

Region IIIRegion IIITelefonica (incumbent)Telefonica (incumbent)Vesper/TelmexVesper/Telmex

Region IRegion ITelemar (incumbent)Telemar (incumbent)Vesper/TelmexVesper/Telmex

Region IV: LD in all Region IV: LD in all BrazilBrazil

Embratel/Telmex Embratel/Telmex (incumbent)(incumbent)

InteligIntelig

Brazilian cellular map by 2004Brazilian cellular map by 2004

Vivo ( Telefonica ) 44% of subscribers

TIM (Telecom Italia) 18% of subscribers

Claro ( Telmex ) 22% of subscribers

Oi ( Telemar ) 7% of subscribers

Brasil Telecom GSM (Opportunity) 0% of subscribers

Telemig / Amazônia Celular (Opportunity)

9% of subscribers

Vivo ( Telefonica ) 44% of subscribers

TIM (Telecom Italia) 18% of subscribers

Claro ( Telmex ) 22% of subscribers

Oi ( Telemar ) 7% of subscribers

Brasil Telecom GSM (Opportunity) 0% of subscribers

Telemig / Amazônia Celular (Opportunity)

9% of subscribers

Vivo ( Telefonica ) 44% of subscribers

TIM (Telecom Italia) 18% of subscribers

Claro ( Telmex ) 22% of subscribers

Oi ( Telemar ) 7% of subscribers

Brasil Telecom GSM (Opportunity) 0% of subscribers

Telemig / Amazônia Celular (Opportunity)

9% of subscribers

The 5 biggest telecom groups in BrazilThe 5 biggest telecom groups in Brazil

1) TELEFONICA (Spain): the 21) TELEFONICA (Spain): the 2ndnd local telephone incumbent and local telephone incumbent and the 1the 1stst mobile operator VIVO mobile operator VIVO. . 

2) TELEMAR (Brazilian): the 12) TELEMAR (Brazilian): the 1stst local telephone incumbent with its local telephone incumbent with its mobile operator OI.mobile operator OI.  

3) TELMEX (Mexican), the 13) TELMEX (Mexican), the 1stst long distance carrier EMBRATEL; long distance carrier EMBRATEL; the 2the 2ndnd mobile operator CLARO; the fixed local entrant mobile operator CLARO; the fixed local entrant VESPER; and the 1VESPER; and the 1stst Cable TV operator NET. Cable TV operator NET.

4) BRASIL TELECOM/OPPORTUNITY (Brazilian): the 24) BRASIL TELECOM/OPPORTUNITY (Brazilian): the 2ndnd local local telephone incumbent that is also launching mobile operation telephone incumbent that is also launching mobile operation and TELEMIG/AMAZONIA CELULAR. and TELEMIG/AMAZONIA CELULAR. 

5) TELECOM ITALIA (Italian): the 35) TELECOM ITALIA (Italian): the 3rdrd mobile operator that covers mobile operator that covers all Brazil, Telecom Italia Mobile or TIM.all Brazil, Telecom Italia Mobile or TIM.

3. 3. Results of privatizationResults of privatization

20042004

Regulator´s point of viewRegulator´s point of view

INDICATOR 1997 2003 GROWTHPopulation (1000 inhab.) 163.471 176.876 8%

GDP (US$ 1000) 807.745 508.011 -37%Fixed lines (millions) 18 39 more than 2 times

Mobile lines (millions) 4,55 46,37 more than 10 timesPublic phones (millions) 0,52 1,43 almost 3 times

Fixed lines (per 100 inhab) 11 22 about 2 timesMobile lines (per 100 inhab) 2,8 26,2 almost 10 times

Internet users (% of populations) 1,3 9,5 more than 7 timesBroadband access (per 100 inhab) 0 0,65 -

User benefitsUser benefits

Availability of wire and wireless linesAvailability of wire and wireless linesDecrease of tariffsDecrease of tariffsOptions among providersOptions among providers

Operator´s point of viewOperator´s point of view

Investors bid on Brazilian privatizing Investors bid on Brazilian privatizing companies and licenses based on two companies and licenses based on two premises: the Brazilian economic growth and premises: the Brazilian economic growth and the world´s telecom boom.the world´s telecom boom.

The Brazilian economy did not grow and the The Brazilian economy did not grow and the telecom boom turned into a crisis in 2000. telecom boom turned into a crisis in 2000.

As a result, most companies have not yet As a result, most companies have not yet gotten a return above their cost of capital.gotten a return above their cost of capital.

4. 4. The Brazilian regulatory The Brazilian regulatory reformreform

2004 - 20062004 - 2006

Some new rulesSome new rules

UnbundlingUnbundling Interconnection (cost-based access prices)Interconnection (cost-based access prices)New universal obligations 2006-2025New universal obligations 2006-2025New price cap definitionsNew price cap definitionsOther competition rulesOther competition rules Internet access rulesInternet access rules

Monopoly and competition policies in Monopoly and competition policies in the same reformthe same reform

Unbundling and Unbundling and cost-based cost-based access priceaccess price

New universal New universal obligations obligations supported by supported by incumbentsincumbents

Monopoly policyMonopoly policyCompetition policyCompetition policy

RisksRisks

The introduction of policies like unbundling and The introduction of policies like unbundling and cost based pricing and, at the same time, cost based pricing and, at the same time, universal obligations can harm telecom operators.universal obligations can harm telecom operators.

The regulator should measure these policies in a The regulator should measure these policies in a balanced way to improve the Brazilian telecom balanced way to improve the Brazilian telecom model.model.

The costs to implement universal obligations The costs to implement universal obligations should be took in account to the definitions of should be took in account to the definitions of telephone´s tariffs, interconnection´s fees and telephone´s tariffs, interconnection´s fees and unbunlding´s prices.unbunlding´s prices.

5. Conclusions5. ConclusionsThe privatization in Brazil succeeded The privatization in Brazil succeeded

because it improved all telecom indicators because it improved all telecom indicators and benefited users in many ways.and benefited users in many ways.

Five big telecom groups emerged in Brazil Five big telecom groups emerged in Brazil after a long process of market consolidation.after a long process of market consolidation.

The Brazilian telecom model is being The Brazilian telecom model is being revised.revised.

The regulator should issue the new rules The regulator should issue the new rules with some cautions to not harm telecom with some cautions to not harm telecom operators nor treat the successfully telecom operators nor treat the successfully telecom model built in Brazil. model built in Brazil.

THANK YOU!THANK YOU!