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TRANSCRIPT
Texto para Discussão - RedeSist
Desenvolvimento, Inovação e Território
Texto para Discussão - RedeSist
TD DIT - Nº 05/2013
Restructuring of telecommunications sector in Brazil: impacts and perspectives of innovation system in view of
new technologies
Marina Szapiro
Rio de Janeiro
2007
www.redesist.ie.ufrj.br
Sumário
1. Introduction ........................................................................................................................ 1
2. Telecommunications innovation system in Brazil: development and major outcomes ..... 2
3. Restructuring of the telecommunications sector in Brazil.................................................. 5
3.1. The telecommunications services market .................................................................. 8
3.2. The market of telecommunications equipment ....................................................... 10
3.2.1. Internationalization and denationalization .................................................... 10
3.2.2. Trade Balance ................................................................................................ 12
3.2.3. Innovation and R&D investment .................................................................... 14
4. Perspectives of Brazilian telecommunications innovation system ................................... 17
4.1. The Telecommunications Innovation System at present ......................................... 17
4.2. Digital Television .................................................................................................... 17
4.3. Internet Access Universalization ............................................................................. 20
5. Conclusion ........................................................................................................................ 21
References ............................................................................................................................ 24
1
Restructuring of telecommunications sector in Brazil: impacts and perspectives of innovation
system in view of new technologies
Marina Szapiro
1. Introduction
In the course of the 1970 and 1980 decades, Brazilian government has created a public monopoly
(Telebrás), which expanded and consolidated a national telecommunications network. At the same
time, the implementation of a set of industrial and technological policies by the Ministry of
Communications led to the development of the telecommunications innovation system.
From mid 1990s on, following an international trend, the government implemented a broad process
for restructuring telecoms sector aiming both at liberalizing the entry of foreign investment and at
privatizing Telebrás. Such process has promoted the entry of new agents in the Brazilian market, as
much in the services segment as in that of telecom equipment industry, changing considerably this
sector’s market structure. This process has clearly produced substantial impacts on the Brazilian
innovation system of telecommunications.
The purpose of this article is to analyze such impacts from the point of view of the
telecommunication equipment industry, detailing the effects of the restructuring process of the
telecommunications sector on the innovation and R&D investment, on denationalization and
internationalization, and on trade balance. The article furthermore discusses the way the adoption of
new technologies since 2003 in Brazil has been contributing to boost the innovation system in terms of
investment in telecommunications innovative capabilities.
As will be discussed in the following sections, it is possible to note that the process for restructuring
telecommunications sector has not only provoked the disarticulation between the various agents within
Brazilian innovation system, as also brought about the reduction of investment in technological and
innovative capabilities. The adopted model of privatization stimulated most of the telecom operating
firms to reduce the equipment orders from national suppliers, what contributed to a growing process of
internationalization and denationalization of this industry, as well as to closing several Brazilian
companies and to reducing the participation of national technology in the telecommunications
equipment plant. In addition, an increase of the trade deficit in the segment of telecommunications
equipment and a decrease of investment in innovative activities within telecommunications equipment
industry were both observed in the period from 2000 to 2003.
As from 2003, scenarios of decreasing investment in innovation and of disarticulation of the
Brazilian system of innovation in telecommunications began to change. Brazilian government, by
means of the presidential act number 4.901, of November 26, 2003, initiated the process of creation of
the Brazilian Digital Television System (BDTVS) which produced positive effects for restarting
investment in telecommunications technological and innovative capabilities. Furthermore, the
universalization of access to Internet through broadband services, one of the main goals of the current
government, is creating opportunities for introduction of new technologies that may also lead to
enhance investment in the Brazilian telecommunications system of innovation.
From the conceptual point of view, this article is based on the concept of national innovation
systems developed within the scope of neo-Schumpeterian approach. The concept of innovation system
2
used here is based on Freeman (1987) and Lundvall (1992). Concisely, and in order to allow full
understanding of the arguments developed in this article, innovation system is conceived as the
conjunction of organizations and institutions that interact and set relationships for production, diffusion
and utilization of brand-new and economically useful knowledge (innovations) (Lundvall, 1992).
In terms of methodology, the article is based on data collected by means of empirical research
developed in 1998, 2004 and 2006, within various agents of Brazilian system of innovation in
telecommunications (especially CPqD, nationally and internationally owned equipment manufacturers,
and services operating companies)1, aiming at obtaining information on the impacts of restructuring
telecommunications sector on the processes of building up innovative and technological capabilities.
The article is structured as follows. In addition to this introduction, section two presents the
configuration and the principal outcomes obtained by the development of the telecommunications
innovation system in Brazil. Section three, which discusses the restructuring of telecom sector in
Brazil, is divided into two sub-sections: the first analyses the impacts of the process on the
telecommunication services market and the second presents these impacts from the point of view of
telecom equipment industry, featuring the processes of denationalization and internationalization, of
trade deficit, and of reduction in R&D and innovation investment. Finally, section four analyses the
perspectives for the innovation system in face of the development and introduction of new
telecommunications technologies, particularly digital television and those related to the
universalization of the broadband services.
2. Telecommunications innovation system in Brazil: development and major outcomes
Prior to 1970’s, the distribution of telecommunication services providers in Brazil was chaotic.
There were literally hundreds of small municipal-size operators, along with some larger ones, with little
standardization.
The intention of creating Telebrás in 1972 was to organize the system, as it incorporated the
newly-formed state operating companies under the Telebrás holding company. Of these, the most
important were Telesp, Telerj, Telemig and Telebahia. Embratel (Empresa Brasileira de
Telecomunicações), created in 1965, was the provider of national and international long distance
services.
From this point onwards, telecoms standards were drawn up, not necessarily based on international
standards, but always considering the technical and economic reality of the country.
In the beginning of the 1970s, Telebrás launched a R&D program developed through projects, in
partnership with academic research teams, mainly aimed at reaching technological autonomy in the key
areas, developing human resources in telecommunications and consolidating the national telecom
industry (Moreira, 1989). With this purpose, a Research and Development Department was created
within Telebrás, which was responsible for setting up agreements with universities and research teams.
The resulting projects, and the engineers and technicians who participated in the programs as well,
constituted the origin of the Brazilian telecommunications innovation system.
In 1976, Telebrás created the R&D Centre (CPqD – “Centro de Pesquisa e Desenvolvimento”),
based in Campinas, São Paulo, a public R&D laboratory which was to prove fundamental to the
development of national telecommunications technology. The technologies developed by CPqD were
very important to the expansion of the Brazilian telecommunications system, as it reduced the prices of
1 For further details, see Szapiro, 1999 e 2005.
3
the equipment used in the expansion of the network. The qualification of human resources was
reinforced by the creation of CPqD, whose objectives included the training and qualification in the
telecommunications area (Szapiro, 2005).
With the Federal Government centralized control, governmental procurement power became the
main sectorial policy tool for development and organization of the national industry of
telecommunications equipment. It was indeed the concentration of procurement power that enabled
Telebrás to proceed with the homogenization both technical and of equipment specifications which, in
turn, allowed the implementation of industrial and technological policy instruments in the telecoms
sector. Telebrás procurement power was also used for boosting the development of nationally owned
equipment manufacturers and national technology. The funding of this system was based on the
National Telecommunications Fund (FNT), a tariff of 30% on all telecommunications services.
From the creation of CPqD until the privatization of Telebrás, the organization and dynamics of
telecommunications R&D in Brazil were highly concentrated in CPqD. But CPqD worked together
with other research institutions, universities and equipment suppliers, building the Brazilian
telecommunications innovation system. This structure was similar in most of developing and developed
countries during the 70’s and 80’s. The organization of the telecom innovation system can be seen in
figure 1. As can be noticed, Telebrás worked as the coordinator of this system.
Figure 1 - Innovation System of telecom (1977/1995)
Source: Szapiro, 1999.
Figure 1 presents the operation pattern followed by the various institutions within the Brazilian
telecommunications innovation system. Ministry of Communications defined policies and strategies for
CPqD which, through collaborative R&D programs with universities and manufacturer companies,
developed and transmitted technologies to the firms. In addition to technology, the Center also used to
develop and transmit tacit knowledge incorporated in human resources who worked on technological
development to those firms that manufactured products with CPqD technology. This process favored
the diffusion of technology through the innovation system. Manufacturers, on their turn, produced
telecommunications equipment and sold them to Telebrás’ operating companies. The operating
companies participated in this network by using the equipment and signalizing to CPqD their needs of
maintenance and expansion of the telecommunications network.
Between 1976 and 1995, a number of nationally owned manufacturers of telecommunications
equipment were created. The subsidiaries of transnational manufacturers of telecommunications
Operating
Companies
IndustryCPqD
Public policies
Minicom and Telebrás
University and
Industry
technology
demands
products
joint projects
demands
4
equipment which were already operating in Brazil got involved in the activities related to development
of national technology. The main outcomes of the constitution of this innovation system were the
development and diffusion of a number of products especially designed for the Brazilian specificities,
which led to a significant economy of financial resources in the expansion of the national
telecommunications network (Szapiro, 1999). The Brazilian telecommunications innovation system
was considered one of the most developed among developing countries (Mytelka, 1999; Hobday,
1990).
The creation of national equipment manufacturers, one of the goals of telecommunications policy in
the 1970 decade, led to the formation of several small and medium firms. In 1982, 120 firms in this
category accounted for about 17% of the total equipment supply, either produced with national or
foreign technology (Hobday, 1984).
During the period ranging from the end of 1970 decade to the end of the 1980s, all products were
developed in joint projects between CPqD, universities, local firms, subsidiaries of transnational
companies and Telebrás operating companies. The equipment developed and produced held
characteristics appropriate to the Brazilian specificities such as climatic conditions and telephone traffic
of each region. The need for low costs of expansion of the network also affected the development of
new technologies. The equipment produced with national technology was treated as “preferential
products” by Telebrás that used its procurement power to assure market for those products (Szapiro,
1999).
Along the 1980s and beginning of the 1990s the participation of products locally developed in the
equipment market presented a significant raise. In the beginning of the 1980 decade the participation of
technology developed by CPqD in the national market of telecommunications equipment was of only
2.5%. The introduction and diffusion of telecommunications technologies developed by the Brazilian
innovation system has significantly changed this scenario. In 1996, after two years of expressive
growth, the participation of products developed with national technology in the Brazilian
telecommunications market reached 13.9% (CPqD, 1997).
The results of Brazilian technological endeavor comprise a number of segments within
telecommunications sector. These include the radio and digital multiplexers, data packet switching and
telex and low cost earth stations for satellite communication, among others. Yet, among these outcomes
of Brazilian technological effort, there are the Trópico digital switching systems, the optical fiber and
the induction-loop phone card2.
As was mentioned before, the development of national technology, particularly Trópico, provided a
substantial reduction in the cost of expansion of the Brazilian telecommunications network. According
to Szapiro (1999), the cost-benefit analysis of Trópico technology development exhibits an extremely
positive result. By mid 1997, the estimated cost of development of the Trópico program was
approximately US$350 million, US$250 million of which invested on CPqD by Telebrás (federal
resources) and US$100 million by private companies. Between 1990 and 1996, the reduction of the
expansion cost of the network that resulted from the introduction of Trópico RA and the consequent
price decrease of the digital switching systems was estimated at US$2.2 billion (Promon, 1997). It
demonstrates that the introduction of the Trópico switching system in Brazil permitted Telebrás to
obtain significant productivity gains, once the cost involved in the technology development was
compensated by far with the reduction in the cost of acquisition of new switching systems.
2 For further details, see Szapiro (2005).
5
3. Restructuring of the telecommunications sector in Brazil
At the beginning of the 1990s, the Brazilian telecom sector was facing serious investment
problems. In a very turbulent macroeconomic environment, public tariffs were used as an instrument to
control inflation, one of the chronic problems of the Brazilian economy since the 1970s. The growing
government debt prevented Telebrás from using public resources to finance its investment plans.
International lending agencies also prohibited loans for public-owned enterprises as a way to force
privatization. As a consequence, Telebrás lost the capacity to invest in both expansion and
modernization and the telecom system rapidly fell behind the communication needs of the country and
missed the international technology evolution of the sector. So, although Telebrás has reached a
relative success in terms of the consolidation and modernization of a Brazilian telecommunications
network, telephone lines were still scarce, and were treated as physical property. Some companies
specialized in trading phone lines, and many people bought phone lines as a sure investment, safer than
the stock exchange or official financial investment.
At the same time, during the 90s, a very intense and dynamic technological change was observed at
international level, given the speeding up of the diffusion of microelectronics in advanced economies
and the much waited convergence of telecommunications with other areas of the electronic complex.
Technological innovations in telecom allowed a set of new value-added services, new transmission
alternatives and cheaper technologies for the expanding telecom networks.
At the national level, although the liberalization of economy in the beginning of the 1990s has
caused some impacts on the Brazilian telecommunications sector, the most important changes have
occurred only from the mid 1990s on. Trade liberalization of the early 1990s has resulted in new
foreign investment, but the telecom sector remained organized as a state monopoly. In fact, the
telecommunications services supply has continued to be under responsibility of the state monopoly,
Telebrás. During the first half of the 1990s, Telebrás kept using its procurement power to organize the
equipment industry and to guarantee the participation of the national technology in the sector. The de-
regulation and reorganization of the telecommunications sector began in the mid 1990s, in order to
allow for technological modernization and to seek for private financial resources for investment.
The de-regulation of the Brazilian telecom sector started in 1995, when the Concession Law (Lei de
Concessões) and a Constitution Amendment were approved. The first one regulated and established the
conditions for the private sector to operate in areas which theretofore were public, particularly
telecommunications. The second abolished the state monopoly in telecommunications. It made possible
for private firms to offer telecommunications services through direct exploitation, authorization,
concession or permission.
Later on, in 1996, the so-called ‘Minimum Law’ was also approved, allowing entry of the private
sector in value-added services, such as mobile telephony, and into satellite transmission and data
transmission for closed user groups. At the end of 1996 the government presented to Congress a bill,
the General Law of Telecommunications, which was approved in 1997. This bill made provisions to
create a new regulatory body for telecom and to give the government a mandate to merge the 27 local
operating firms (one in each state of Brazil) into 3 regional companies. In 1998 government privatized
these regional operators as well as the long distance and international carrier, Embratel. The state
monopoly of Telebrás was changed into a system with significant participation of international
operating companies, especially the Telefonica (from Spain), Telecom Italia, Portugal Telecom and
MCI (from USA).
Also important to mention is the creation of a regulatory agency in 1997 (Agência Nacional de
Telecomunicações – ANATEL). ANATEL was created with the purpose of controlling and
6
coordinating actions and responsibilities of telecom services suppliers. The Agency also inherited the
regulatory activities which were previously carried out by the Ministry of Communications (Ministério
das Comunicações). It was constituted as a special “autarquia” (a State owned company which has
administrative autonomy) linked to the Ministry of Communications, and became the body responsible
for telecom concessions (for the ratification and the management of concession contracts). In addition,
the agency took on the tasks of planning, supervising and regulating telecommunications services3.
The chosen model for the reorganization of the sector was based on ‘regionalization’ (state and
local operating companies were to be reorganized in three different companies and one long distance
and international carrier), privatization and opening of the market for other private companies to
stimulate the competition in the telecom sector.
A prior regulatory step was the division of each state operator into two companies, one for wireline
access and another one for mobile access. Consequently, where earlier there was, e.g., Telerj and
Telesp, there now appeared Telerj and Telerj Celular; Telesp and Telesp Celular. The reason for this
division was the decision to group and sell off the fixed and mobile companies separately, along
different models, targets and rules.
The wireline operators were then grouped into three companies, which would later be auctioned off.
An effort was made to create three approximately equivalent companies, as can be seen in chart 1:
3 The Ministry of Communications was not discontinued during the telecommunication sector’s restructuring process.
Meanwhile, until 2002, during the government of Fernando Henrique Cardoso, the governmental body kept its
responsibility of setting the general policy on telecommunications. Some years later, in 2003, when Luis Inácio Lula da
Silva began his government, the role of the Ministry of Communications was expanded, taking back from ANATEL some
of the responsibilities then assigned to that agency.
7
Figure 2 - Reorganization of the Telebrás system - 1998
Source: Prepared by the author.
For historical reasons, the operator in the state of Rio Grande do Sul (CRT – colored gray in the
picture) was not part of Telebrás, but was later incorporated into the Tele Centro Sul company.
The result of the auction was that Telefónica bought Telesp, paying 64% over the minimum auction
price; Telecom Italia bought Tele Centro Sul, paying only 6% over the minimum auction price. Worth
to mention is that there were no more international operators bidding for the third operator, Tele Norte
Leste. This auction was therefore won by the only remaining bidder, a group of national companies, for
a surprising 1% over the minimum price.
To introduce competition in all basic services, the new regulatory regime defined that in 1999 four
new operating companies known as the “mirror companies” would be allowed to compete (one with
Embratel and three to each one of the regional operators of fixed telephony). In this case, the idea was
to have a duopoly in all telephony services – fixed and mobile - until all the telecommunications
market was opened to full competition. In fact, there was no interest in one of the concessions. At the
beginning of 2000, the “mirror companies” started to operate. It is important to note that the new
regulatory regime has created some asymmetries between the privatized operators and these
newcomers. Those are obliged to provide universal access to consumers while newcomers may only
choose more profitable areas. At the same time, regulation allowed new services providers to use the
WLL technology (with a few exceptions) in order to compensate for the absence of infra-structure.
Region III Telesp
5.074 million fixed lines 75% digitalisation 24,000 employees
36% of GDP 22% of population US$ 4,967 million
Region I Tele Norte Leste
5.642 million fixed lines 73% digitalisation 37,000 employees
39% of GDP 54% of population US$ 2,949 million
Region II Tele Centro Sul
3.694 million fixed lines 69% digitalisation 19,000 employees
25% of GDP 24% of population US$ 1,778 million
8
So, Telemar had Vésper, Brasil Telecom had GVT, Telefónica had Vésper SP and Embratel had
Intelig as their competitors. Each of these was a brand new operator, with a network to be built.
ANATEL laid down two sets of yearly targets, one for each type of operator (incumbent or mirror).
At the technological level, the General Law determined that CPqD was to become a private owned
institution before the privatization of Telebrás. In order to guarantee the survival of the centre, the Law
defined that the concession contracts should have provisions under which the new operating companies
(the three regional ones and Embratel) were forced to contract a certain amount of services from CPqD
during the first three years (1999/2001). These procedures guaranteed the continuation of all CPqD’s
activities in the short run, even though they forced the institution to divert their activities towards
services and consultancy. Also important was the creation of a technological fund (FUNTTEL –
Brazilian technological telecommunications fund) to support part of the activities developed by CPqD
and other institutions related to telecommunications technology development.
To sum up, the restructuring and de-regulation of telecom sector has completely changed the
dynamics of this sector, with impacts on all segments. The impacts of restructuring on services and
equipment manufacturing markets will be particularly dealt with in the following sub-sections.
3.1. The telecommunications services market
Soon after Telebrás privatization, there were in Brazil seven operating companies supplying fixed
telephony, being four of them concessionaires originated from Telebrás (Embratel, Telemar, Brasil
Telecom and Telefonica), and three small regional firms. In order to promote competition, ANATEL
granted licenses and permissions, along the years of 1999 and 2000, to four “mirror” enterprises4
(empresas espelho) and to about twenty “little mirror” enterprises (espelhinhos). Among the four
concessionaires resulting from privatization of Telebrás, only Telemar was a nationally owned firm.
The other three companies (Telefonica, Brasil Telecom and Embratel) were controlled by international
firms. This fact caused the internationalization of the decision centers of these companies, what brought
about negative consequences, especially for the national industry of telecommunications equipment.
In the case of mobile telephony market, the restructuring process initiated in 1996 and
complemented by privatization of Telebrás resulted in an oligopoly in the ten regions summing up, at
first, twenty firms (ten operating in the B Band and ten others, originated from Telebrás, operating in
the A Band). Subsequently, in 2000 and 2001, following the auctions for the C, D and E Bands, the
number of operators has been expanded.
The movements of consolidation and equity restructuring by companies in the market of mobile
telephony (mergers and acquisitions between companies) resulted in a smaller configuration, comprised
of about five large groups (Vivo, TIM, Oi, Claro and Opportunity) and two smaller companies (CTBC
mobile and Sercomtel mobile). Table 1 presents the evolution of mobile telephone penetration in
Brazilian domiciles.
As was mentioned above, the government created a series of incentives for fixed telephony
operators aiming at universalization of telecommunication services, what resulted in a significant
growth in penetration of fixed telephony in Brazilian domiciles, as may be noted from Table 1.
4 Mirror enterprise is the designation given by ANATEL to firms that received permission for exploiting Switching Fixed
Telephony Services (SFTS) in order to establish competition with the concessionaires arisen from Telebras privatization.
9
Table 1 - Fixed and Mobile Telephony domiciliary penetration rate (in %)
Year 2001 2002 2003 2004 2005
Telephone
(Fixed or Mobile) 58.9% 61.7% 62.0% 65.4% 71.6%
Mobile Telephone 31.1% 34.7% 38.6% 47.8% 59.3%
Fixed Telephone 51.1% 52.9% 50.8% 48.9% 48.1%
Source: PNAD
From the viewpoint of telecommunication services market, this restructuring process resulted in
growth of the number of both fixed and mobile telecommunication services. As may be observed from
Figure 4, the total number of fixed lines in 2006 was of 38.5 million and the number of mobile lines
almost reached the mark of 100 million.
Figure 3 - Evolution of fix and mobile phones
As from 2001, when most concessionaires of fixed services completed their universalization goals,
this segment began exhibiting signs of stagnation. The migration of fixed service subscribers towards
prepaid mobile lines, along with the stagnation of the fixed telephony market, resulted in a crisis in this
market. As an outcome, during the year of 2003, the number of lines’ disconnect requests was higher
than the number of activation requests (Gutierrez e Crossetti, 2003). Furthermore, the number of
mobile lines surpassed the fixed ones in 2003, as may be noted from Figure 4.
These facts, along with the crisis in the telecommunications sector which affected more seriously
Brazil from 2002 onwards, have led to a strategy of integration of mobile and fixed services by
operating companies. Thus, some of the mobile telephony operators started looking for companies in
the segment of fixed telephony to acquire (for instance, Claro which acquired Embratel) and some
fixed telephony operating companies either started or expanded their presence in mobile telephony
0
20
40
60
80
100
120
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
year
millio
n o
f phones
f ixed phones in service
mobile phones
10
markets (the case of Brasil Telecom and Telemar). In such cases, the supply of mobile telephony
services has gained increasing significance within the company’s turnover. In the case of Telefonica,
one of the owners of Vivo in association with Portugal Telecom, the company’s strategy comprised the
concomitant operation in both markets, fixed and mobile telephony, since its very entry in Brazil. Such
a move allowed operators to develop convergent plans and bundles of services, aiming at keeping their
main customers of fixed telephones and, at the same time, expanding their basis of mobile terminals.
In what respects particularly to the fixed telephony market, it is important to emphasize the lack of
significant competition. In this market there is a prevalence of foreign owned operators (with the
exception of Telemar) which keep market shares near to 95% in their respective concession regions.
More specifically, in 2006 Telemar held a 94% market share in its concession region (region I), while
Brasil Telecom held a 93% in its respective area (region II) and Telefonica, in its turn, held a 95%
market share in region III (www.teleco.com.br).
Yet, it is worth mentioning a matter currently under debate within the market of fixed telephony.
Brasil Telecom and Telemar have expressed their intention to merge. This strategy on the part of the
companies has instigated a series of queries by various actors within telecommunications sector,
especially the two main groups operating in Brazil: Telemex and Telefonica.
In spite of a lengthy juridical discussion, Telemar and Brasil Telecom allege that the only way for
them to survive in the Brazilian telecommunications market is through a merger, given the global
trends towards consolidation and concentration in this sector. In case these two operating companies do
not merge their operations, Telefonica and Telmex, that already operate in several segments of the
Brazilian telecommunications sector (fixed and mobile telephony, cable TV and broadband), tend to
acquire the other more relevant companies present in Brazil, thus creating a duopoly dominated by
multinational firms. This matter is currently under debate by Anatel, the Ministry of Communications
and other experts, and is pending of a decision.
3.2. The market of telecommunications equipment
The impacts of the restructuring process of telecommunications sector on the equipment
industry can be analyzed from three main axes: internationalization and denationalization; trade
balance; and evolution of investment of telecom equipment industry in R&D and innovation. This
section will discuss each of these axes, looking for exposing the main outcomes of restructuring in
telecommunication sector, from the point of view of the telecom equipment industry.
3.2.1. Internationalization and denationalization
The entry of international operators, initiated with the privatization of Telebrás and the end of the
procurement policy by the state monopoly both had profound impacts on the national industry of
telecommunications equipment and also on the process of innovation and technological development in
Brazil.
The lack of concrete guarantees – in both law and regulatory procedures in Brazil – for the survival
of nationally owned companies and technologies expanded the level of internationalization of Brazilian
telecom equipment industry. The process of acquisition of national companies by foreign groups,
which started in the beginning of the 1990 decade, has intensified since Telebrás privatization.
The new operators (not only those which participated in the privatization, but also others that
purchased licenses and permissions for exploiting services) have, in general, global supplying strategies
11
(Tigre, 2000; Doria et al., 1999). This means that they utilize the fact of operating in more than one
market looking for gaining economies of scale and scope in their equipment orders.
In this sense, considering that most of the Brazilian operators are foreign owned firms, the
transnational telecom equipment suppliers already existing in this market (Ericsson, Siemens, Alcatel,
among others) and those that were attracted by new business opportunities offered by the privatization
(Lucent and Cisco, among others) have been favored. The nationally owned suppliers have often been
forced to exit market or have been acquired for not getting to survive within an internationalized and
competitive market. The adoption of neoliberal policies in Brazil in the 1990s (and in Latin America,
in general) that substantially reduced or even eliminated tax and other barriers to imports of
information technology related products also contributed to that process of internationalization. The
increase in competition with imported equipment led many nationally owned firms to close or to be
acquired by other companies, in general transnational ones.
The consequence of the entry of new subsidiaries, of acquisitions, and of the shutting down of
nationally owned companies, was the increasing denationalization of Brazilian telecom equipment
industry, what can be observed in Table 2.
Table 2 - Market share of telecom equipment manufacturers in terms of turnover by
capital stock origin in selected years
Control of Voting
capital
1988 1997 2000 2003
National 77% 41,5% 8,7% 4,3%
Foreign 23% 58,5% 91,3% 95,7%
Source: Szapiro, 2005.
Table 2 illustrates the process of denationalization experienced by telecommunications equipment
industry. In 1988, year when the innovation system was significantly developed and several products
using national technology were being introduced in the expansion of Telebras system, the participation
of nationally owned firms in terms of total revenue within the market was 77%, while that of foreign
owned companies was 23%. In 1997, therefore one year prior to Telebras privatization, when Brazilian
industry as a whole had experienced a process of commercial liberalization, the market share of
nationally owned companies had reduced to 41.5% and that of foreign owned companies had increased,
reaching 58.5%. In 2000, two years after Telebras privatization, that is, when the effects of
privatization were already clear, the internationalization level of the industry had substantially
expanded: the foreign owned companies then responded for a share of 91.3% of the total turnover of
telecom equipment industry, while national industry accounted for only 8.7%. Finally, in 2003,
denationalization of telecom equipment industry has intensified and the market share of foreign owned
companies raised to 95.7%, while that of nationally owned manufacturers decreased to 4.3%.
Indeed, the denationalization process and the increased level of internationalization of the 1990s
resulted essentially from the deregulation of telecommunications sector. In this respect, as previously
emphasized, Telebrás privatization and the subsequent entry of new international operators strongly
contributed to that process. Many nationally owned equipment producers had difficulties to face the
increasing competition and were acquired by transnational companies.
Example cases of enterprises which were acquired by transnational companies are: Condulli
(acquired by Furukawa in 1996), Mapra Indústria e Comércio (acquired by Andrew, in 1997), Batik
and Zetax (both acquired by Lucent, in 1999), Cook Eletric (acquired by Corning), Saturnia (acquired
12
by Invensys) and Xtal (acquired by Fibercore) (Oliva, 2002). In some cases, such acquisitions result
from the interest in increasing total market share by transnational companies and, in others, they
represent a way to access the Brazilian market. In this latter case, Lucent acquisitions of Batik and
Zetax illustrate the kind of strategy of accessing the market used by some transnational companies5.
It is worth underlining that the entry of Chinese companies, such as Huawei (in 1999) and ZTE (in
2004) has significantly affected the Brazilian market of telecom equipment. The first of these firms is
constituted by private Chinese stockholders and the second is a Chinese state-owned enterprise. Both
companies have plants in São Paulo and supply full lines of equipment as much for the fixed telephony
segment as for the mobile segment. In the case of this latter, the companies offer equipment either with
GSM (Global System for Mobile communications) technology, as well as CDMA (Code Division
Multiple Access).
The strategy of Chinese companies for entering Brazilian market was driven by the supply of
telecommunications equipment with prices usually lower than those of competitors. This fact
compelled many equipment manufacturers to reduce prices in order to compete in the market. More
recently, the Chinese companies have been looking for installing manufacturing plants in Brazil in
order to benefit from tax subsidies, although keeping high content of imported parts, assemblies and
pieces. One of the major problems associated to the entry of Chinese companies is that they are import
intensive and present reduced level of value-added locally.
Few nationally owned telecom equipment manufacturers survived in the context of the restructuring
process of the telecommunications sector. Those which survived are, in general, small or medium firms
either operating in segments of low degree of technological specialization (wires and cables
components, assemblies and pieces) or operating in market niches with greater degree of specialization.
In this latter case, there are companies which developed internal capabilities, either within projects in
association with CPqD or in partnership with foreign owned companies (Oliva, 2002). The outstanding
companies in this group are: Daruma and Icatel, in the segment of induction-loop phone card; Asga,
Parks and Digitel in the segment of digital modems; and Monytel, Dígitro and Intelbrás, in the segment
of telephone terminals and PABX (Private Automatic Branch exchange) (Gutierrez e Crossetti, 2003).
The main problem regarding internationalization and denationalization processes is that most often
they cause a substantial reduction in local value-added. Furthermore, investment in the local
development of technology by foreign owned companies tends to be smaller than those of nationally
owned firms, which usually present great innovation and R&D efforts (Szapiro, 1999; 2003).
It is worth mentioning that such denationalization process was not only observed in the Brazilian
telecommunications sector. In fact, several economic sectors in Brazil as well as in other Latin-
American countries faced a profound denationalization process.
3.2.2. Trade Balance
Another extremely important impact of restructuring of telecommunications sector on the
equipment industry was the raise in trade deficit, especially between the years 1998 and 2001. It was in
5 Lucent Technologies entered Brazilian market in 1999 through the acquisition of two Brazilian equipment manufacturers,
Batik and Zetax (created respectively in 1980 and 1987). These firms developed and produced small and medium switching
systems (ZTX-610 and ELCOM), and together these two firms had nearly 6% of the digital installed plant of fixed
telephony in 1998 (Szapiro, 1999). These two companies did not withstand the increased competition of other equipment
manufacturers and also the stagnation of orders, which occurred immediately after the privatization of Telebrás.
13
this period that telephone service providers implemented most of their investment due to compliance
with and antedating universalization goals. Information on trade deficit for the period from 1996 to
2005 can be found in Table 3.
Table 3: Trade Balance of telecom equipment industry in Brazil
(US$ million)
DESCRIPTION 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
IMPORTS 2,087.5 2,752.6 2,682.1 2,710.8 3,434.9 3,752.9 1,510.8 1,482.6 2,306.8 2,942.2 3,812.20
EXPORTS 154.1 288.2 329.5 494.2 1,311.3 1,551.9 1,547.3 1,548.1 1,452.1 3,165.3 3,537.90
DEFICIT (1,933.4) (2,464.3) (2,352.6) (2,216.6) (2,123.6) (2,201.0) 36.5 65.5 (854.7) 223.1 -274,3
Source: BNDES
It may be asserted that the raise in imports, and therefore in the trade deficit, is directly related to
both the process of denationalization of the national equipment industry and the changes in
procurement policy by operating companies.
Table 3 shows that imports in the telecommunications equipment market have significantly
increased from 1999 onwards, just after Telebrás privatization. In that year imports totaled US$2,711
million; in 2000 it reached US$3,435 million, and in 2001 it achieved its highest value when they
amounted to US$3,753 million. In the following year, 2002, imports of telecommunications equipment
market started a downward trend, amounting US$1,511 million and falling further in 2003, to
US$1,483 million. In 2004, however, imports raised significantly, as a result of the growth impulsion
of the sector, reaching US$2,307 million. Finally, imports increased again and amounted US$ 2,942
million in 2005 and US$ 3,812.20 million in 2006.
The change in trend of telecom equipment imports observed in the period of 2002 to 2003 is
related to two basic factors – one associated to domestic market, and the other to international market.
The first can be explained by the process of anticipating universalization goals by the telephone service
providers. During the process of Telebras privatization, the operators which acquired concessionaires
were encouraged to anticipate the fulfillment of their universalization goals, in order to be allowed to
operate in other segments of the services. Thereto, they made large equipment orders, most of which
addressed to the external market; that is, such orders constituted imports. This fact can be also verified
through the telecommunications sector investment that, like imports, reached its greatest degree in
2001, totaling R$22.1 billion. As from the next year on, investment has substantially decreased, falling
to nearly half that value (R$10.1 billion), and reaching in 2003 the lowest level since the year of 1996 –
two years before Telebrás privatization6. The other factor that explains imports reduction is the
generalized crisis of the telecommunications sector that prevailed along almost the whole world from
2001 on. The firms of telecom sector, be them equipment manufacturers or operators, generally
reduced their investment and expenses.
From the perspective of exports by the telecom equipment segment, the data in Table 3 show a
positive evolution during the period from 1996 to 1999. In 2000, the total value has significantly
increased reaching US$1,311 million, and rose to US$1,552 million in 2001. From this latter year
onwards, exports have practically stabilized (US$1,547 million on 2002 and US$1,548 million in
6 In 2003 the investment of telecommunications sector was R$6,4 billion, while in 1996 such indicator had reached R$7,4
billion (Valente, 2004)
14
2003). In 2004, exports declined to US$1,452 million. The high increase in total exports in the period
of 1999 to 2001 is mainly related to the raise in mobile phones external sales. Nevertheless, these
products had an increasing share of total telecom equipment exports, reaching 75% in 2006. Worth to
mention is the increase in exports observed in 2006: the external sales reached US$ 3,537.90 million.
Again, the mobile phones represented the major part of these exports.
The result of the trade balance which in most part of the featured period (1996-2001) results in
deficit, turns into a surplus in years 2002 and 2003, and returns to be negative in 2004. In 2005 the
trade balance presents a positive result again. It must be underlined that, in 2002, the deficit extinction
is mainly due to both stagnation in Brazilian telecommunication industry and the generalized crisis in
telecommunication sector initiated in the previous year. The international crisis in the sector affected
Brazil in 2002, soon after the huge investment made in the year 2001, and reduced activities of telecom
industry in general.
The trade balance of 2004 (US$855 million deficit) demonstrates that the equilibrium attained in
2002 and 2003 is not sustainable within a context of retaking the growth path in telecommunications
sector. This problem is further aggravated by the fact that mobile phones, which have an important
share of domestic market sales and a remarkable weight within Brazilian exports, are mostly comprised
of imported parts, which constitute not less than 80% of their components (Anuário Telecom, 2004). In
this case, focusing Brazilian telecommunications equipment exports on mobile phones implicates any
increment in exports to have a consequent raise in imports.
3.2.3. Innovation and R&D investment
Following privatization of Telebrás, the organization of the telecommunications innovation system
has completely changed. CPqD became a private owned institution before the privatization of Telebrás
and had to change its mix of researches and projects. The survival of CPqD was guaranteed in the first
three years after privatization by some contracts with the concessionaries. From 2001 on, the Brazilian
technological telecommunications fund (FUNTTEL) and some contracts CPqD established with
telecommunications firms became the main sources of resources for CPqD.
The concession contracts had a clause determining that the incumbents (Telemar, Telefonica, Brasil
Telecom and Embratel) should contribute to the survival of CPqD during a transition period after
privatization (from 1999 until 2001). The total amount of contracts between the incumbents and CPqD
was around US$ 53.44 million, which was compatible with the previous budget of CPqD. For this
payment, CPqD provided software and services for the incumbents.
After the end of those contracts, different agreements were established between the concessionaries
and CPqD provided for the Foundation's development of software and IT services.
The outcomes of telecommunications restructuring processes in what respects to expenditures in
R&D and technological innovation activities by firms can be observed in the survey on technological
innovation (Pesquisa em inovação tecnológica - PINTEC) by Instituto Brasileiro de Geografia e
Estatística (IBGE 2003; 2005; 2007).
Data presented in PINTEC 2000 and 2003 provide evidence on the evolution of innovation and
R&D investment in the segment of telecom equipment suppliers. The survey includes manufacturers
of communications equipment and devices employing at least 10 persons, which implemented a
technologically new or substantially improved product or process.
Table 4 presents information about innovative activities by manufacturers in the segment of
communication equipment and devices in Brazil, in the years 2000 and 2003 (IBGE, 2000 e 2003). At
first, it may be observed from the table that, despite the increase in the number of firms (298 in 2000 to
15
306 in 2003), the number of innovative firms declined from 167 in 2000 to 136 in 2003. In the next
period, from 2003 to 2005, an increase may be observed both in the number of firms (from 306 to 318)
and in terms of innovative firms (from 136 to 148).
Expenditures in innovative activities by the segment of communication equipment and devices
manufacturers showed first a decline in the period from 2000 to 2003, and then an increase in the
period 2003 to 2005 both in relative and in absolute terms. In relative terms, investment in innovation
as a percentage of the sales net revenue declined from 4.97% in 2000 to 4.25% in 2003 and then
increased to 5.5% in 2005. In absolute terms, investment in innovative activities fell from nearly R$1
million in 2000 to R$863 thousand in 2003 and after that increased to more than R$ 1,8 million.
Comparison between PINTEC data for 2000 and 2005 indicates a worrying trend. In spite of the
rise indicated above regarding both absolute and relative expenditures on innovative activities, the
expenditures on internal and external activities of R&D expressed as a share of net sales show a decline
in both periods, 2000-2003 and 2003-2005. In the first period, the total expenditures on internal and
external R&D activities decreased from 2.4% to 1.99% and, in the next period, fell from 1.99% to
1.67%. An interesting datum is that the innovative activity which underwent the major growth in the
period was the acquisition of machinery and equipment. In 2000 these expenditures represented 1.45%
of net sales. In 2003 they fell to 1.36% and, in 2005, expenditures on acquisition of machinery and
equipment rose over 50%, reaching 2.78% of net sales.
The PINTEC data show that the participation of internal and external expenditures in R&D in the
sales net revenue is extremely low in the Brazilian industry if compared to the same indicator of the
main international suppliers of equipment (Szapiro, 2005). There is a remarkable difference in R&D
investment by Brazilian firms (be them either nationally owned or Brazilian subsidiaries of
transnational companies) in comparison with foreign firms. Szapiro (2005) presents data regarding
expenditures in R&D by the main suppliers of telecommunications equipment both in absolute terms
and as a percentage of total income. It is observed that, in average, participation of R&D expenditure
on the total revenue of selected firms increased during the period between 1997 and 2003, rising from
9.5% to 13.7%.
The comparison between this data and that of the Brazilian firms shows a huge discrepancy. To
begin with, there is a difference in terms of trend. While the average expenditures with R&D by
selected foreign firms raised in the period between 1997 and 2003, in Brazil, from 2000 to 2005, these
expenditures declined.
16
Table 4 - Value of expenditures related to innovative activities developed in the manufacture of communications equipment and devices
in Brazil – 2000, 2003 and 2005
2000 2003 2005
Innovative Activity
Number
of firms
Value % of
SNR
Number
of firms
Value % of
SNR
Number
of firms
Value % of
SNR (1,000 R$) (1,000 R$) (1,000 R$)
Internal Research and Development
activities 110 364,768.25 1,75 84 265,164.10 1.30 109 377,268.87 1.1
External acquisition of Research and
Development 52 135,679.82 0,65 29 139,101.63 0.68 40 184,016.21 0.55
Internal and external R&D - 500,448.07 2,4 - 404,265.73 1.99 - 561,285.08 1.67
Acquisition of other external knowledge 42 75,273.95 0,36 38 21,208.26 0.10 12 73,517.65 0.2
Acquisition of machines and equipment 104 302,204.87 1,45 94 276,601.07 1.36 99 917,510.42 2.78
Training 62 18,791.97 0,09 49 5,991.74 0.03 50 14,487.41 0.04
Market introduction of technological
innovations 68 32,668.69 0,16 63 126,454.06 0.62 81 208,952.36 0.62
Industrial Project and other technical
provisions 96 109,514.34 0,52 75 29,250.33 0.14 70 56,744.71 0.17
Total investment in Innovative activity 167 1,038,901.89 4,97 136 863,771.20 4.25 148 1,848,176.34 5.5
Total segment and SNR(1) 298 20,891,430.00 306 20,341,955.00 318 33,566,942.36
Innovation rate 56% 44% 46%
Source: IBGE (2003; 2005; 2007).
(1) Sales net revenue of products and services estimated as from data extracted from sampling of Pesquisa Industrial Anual - Empresa 2000 and
2003 (Firms Annual Industrial Survey – 2000 and 2003)
17
4. Perspectives of Brazilian telecommunications innovation system
4.1. The Telecommunications Innovation System at present
During the decade of 1990 Brazilian telecommunications innovation system
underwent a restructuring process characterized by a remarkable decrease – and even
cessation – of investments in development of national technology by most of the national
firms which used to heavily invest in it. Their reasons for reducing investment in new
technology were varied: either for having been acquired by a national corporation, or due
to the need of reducing costs.
From the perspective of the universities and research institutions, which used to play
an active role in the process of development of technological capabilities in Brazil, the
restructuring of telecommunications sector has substantially reduced the number of
research projects in this area. However, one may now perceive that much of the
capabilities built up previously to privatization have been kept in those institutions,
notwithstanding the reduction in the number of projects developed. During the time from
Telebras privatization and resuming publicly supported R&D projects on
telecommunications, the telecom equipment manufacturers and the operators contracted
research institutions and universities for developing particular projects including mostly
staff training and education. In addition, they established project agreements for
development of specific products and technologies, with strict confidentiality provisos.
These projects, along with those supported by Funttel (from 2002 on), allowed research
by universities and other institutions to survive during this period when the number of
research and development projects was reduced.
A recent survey (Sarti et al., 2007) reveals that universities and research centers
which constitute reference centers in telecommunications’ research and development in
Brazil keep accumulating significant capabilities and developing projects in this field.
As seen in section 3.2.3, CPqD has also been restructured, changing into a Private
Foundation in 1998, and started to develop projects (mostly short term) for telecom
operators and equipment manufacturers.
Most of the investments in long term activities were reduced. Those research and
development activities of longer terms and aimed at providing to the Ministry of
Communications the information required for decision making started being financed by
the funds of Funttel. This has been the case, for instance, of the development of the
reference model of the Brazilian Digital Television System coordinated by CPqD as from
2003 which will be analyzed in Section 4.2.
4.2. Digital Television
Although the restructuring process of 1990 decade has caused negative impacts over
the telecommunications innovation system, the choice of the digital television standard to
follow in Brazil has opened a new window of opportunity for the process of capability
building in the telecommunications area. In this respect, Brazilian government began to
drive efforts and resources towards the development of the digital television R&D
project. This project has involved a group of different actors within the innovation system
18
(CPqD, universities and research institutes) in a broad research program. It represented a
new opportunity for articulation and capability building in the telecommunications area.
Most part of the studies related to the development of BSDTV is funded with resources
of FUNTTEL (Fund for Brazilian Telecommunications Technological Development).
The digital TV project started with a presidential act (Decree nº 4901 of November
26, 2003) which created the Brazilian Terrestrial System of Digital Television
(BTSDTV), comprised of a Development Committee, an Advisory Committee and a
Board. CPqD and FINEP were selected as institutions for technical and administrative
support.
The role of integrating the projects comprising the Digital TV system has been
attributed to CPqD, as well as the responsibility for technical monitoring and elaboration
of advisory reports on experiments and outcomes of the work developed by the R&D
institutions involved in the Project.
The purpose of the Project was, initially, to present a report comprised of studies
performed by CPqD and by a range of other institutions which should include proposals
regarding: (i) the definition of a Reference Model of Brazilian digital television system;
(ii) the standard of digital television to be adopted in the country; (iii) the guidelines for
exploitation of digital television service; and (iv) the period and mode for switching from
the analogical to digital system. This report served as a basis for the Federal Government
and the Ministry of Communications to make a decision on which Digital TV Standard to
follow.
In fact, the choice for a digital TV standard in Brazil involved a great controversy. At
the beginning, the Government along with the Ministry of Communication analyzed the
possibilities for development of a Brazilian standard of digital TV. It was believed then
that the switchover from an analogical TV system to a digital one could contribute to the
social goals of the government as, for instance, digital inclusion. The digitalization of the
transmission of TV signals create an infinite range of new possibilities, be it for
improving image quality through High Definition TV (HDTV), or by means of the
introduction of interactivity and new services7. However, these possibilities can not be
simultaneously attained due either to technical or to cost limitations, and it is necessary to
choose which alternatives must be set as priorities. USA, Europe and Japan have set their
priorities in the process of development of their own digital TV standards.
The development of the Brazilian digital TV system must define conditions and
requirements so that it can also constitute a means to meet specific needs of Brazilian
society. In this case, it should be highlighted some basic features to serve different social
classes that have access to television in Brazil, such as: low cost; flexibility and evolution
capacity; and interactivity and supply of new services for allowing the achievement of the
digital inclusion goal.
The development of the Brazilian digital TV system considered also technical aspects
and issues regarding industrial policy and counterparts offered by the representatives of
the available standards. The government conducted negotiations with representatives of
Japanese and European standards looking for attaining specific counterparts such as, for
instance, the establishment of a multinational subsidiary of semiconductors in Brazil. 7 Digital TV allows, among other things, applications based on Internet IP protocol, such as e-mail, e-
government and e-commerce.
19
The proposal of the Brazilian digital TV research program has been focusing on some
specific parts of the digital TV system. The project for development of a Brazilian digital
TV system represents, essentially, a research and development effort aimed at the
analysis and selection of signals codification and transmission patterns, and at the
development of middleware (the intermediate layer required for standardizing the several
hardware and operational systems of the access terminals). In this sense, the research
program intends to allow the introduction of new services and applications.
Based on the studies and Reference Model of BSDTV, the Brazilian government
decided for the adoption of the Japanese standard of digital TV on June 29, 2006.
Through Decree 5.820 it was established that the Integrated Services Digital
Broadcasting Terrestrial (ISDB-T) constitutes the basis of digital TV standard in Brazil,
also “incorporating technological innovations approved by the Development Committee”
(Decree nº 5.820). This means that, although a decision has been made for the adoption
of the Japanese Standard, there remains room for utilizing technological innovations
developed by the Brazilian innovation system.
One of such technological innovations, jointly developed by Pontifical Catholic
University of Rio de Janeiro (PUC-RJ) and the Federal University of Paraiba (UFPB), the
Ginga Project, shall be used in BSDTV. It is a middleware based in the Nested Context
Language (NCL), developed by PUC-RJ, which brings on facilities that can not be found
in existing international standards and which make viable, among other things, digital TV
interactivity. This middleware confers to the BSDTV an innovative component that will
reflect upon conception of television broadcasting contents.
Another basic component is the converter, or access terminal, also known as Set Top
Box – a converter device to be connected to the analog TV for decoding the digital
signals. This constitutes a niche to be explored by firms in the electronic and electrical
sector and/or in the telecommunications equipment segment.
Although Decree 5820 has set ISDB-T as the “basis-standard” for BTSDTV, this
same act further established that the “Development Committee shall promote the creation
of a Forum on BTSDTV for advising the committee on policies and technical issues
regarding the approval of technological innovations, specifications, development and
implementation of the BTSDTV” (Decree no 5.820). Such Forum is currently being
formed by television broadcasters, industry and by universities.
It is important to stress that digital TV promotes a process of convergence of several
segments: broadcasting (signals transmission); audiovisual production (which will
produce the contents for digital TV); software production (which develops software
aiming interactivity and the like); telecommunication services (which may, among other
things, supply the return channels for TV interactivity); electronic and electrical (which
will produce converters) etc. Such a convergence, therefore, opens opportunities
essentially related to the production of software, audiovisual contents and converters,
among others.
The implementation of a digital TV system represents a window of opportunity for
the process of capability building in the telecommunications sector in Brazil. It also
represents an opportunity for the country in terms of new businesses for those firms
engaged in consolidating digital TV. The development of research projects by institutions
of the Brazilian telecommunications innovation system illustrates how the efforts towards
20
the development of BSDTV may contribute to strengthen the innovative and
technological capability process in this field.
4.3. Internet Access Universalization
Another significant window of opportunity for development of new technological
capabilities in the telecommunications sector is associated to the efforts towards the
universalization of broadband Internet access. This strategy follows the current consensus
on that universalization of access to fixed telephony has exhausted, what is evident in
view of the stagnation of fixed service basis. So, the broadband Internet access became
the main services to be universalized.
The penetration degree of broadband Internet services in Brazil is extremely low:
only 3% of the population afforded broadband access in 2006. So, as may be noted from
table 5, although the number of broadband connections has substantially increased more
recently, only a small part of Brazilians uses this service.
Table 5 - Broadband connections by technology of access in Brazil
Period from 2002 to 2006 (in 1,000 connections)
Technology 2002 2003 2004 2005 2006
ADSL 526 993 1,880 3,092 4,341
Cable 135 203 367 629 1,200
Other N.D. 13 30 75 115
Total
Brazil 694 1,199 2,280 3,796 5,656
Source: www.teleco.br
With the purpose of expanding high speed Internet access, by making it available in
remote regions, especially those characterized by low income and low population
densities, the Ministry of Communications has implemented some measures aiming at
finding solutions more appropriate to the Brazilian reality. This process is also associated
to the efforts by the Ministry of Education to make available high speed Internet access at
primary and secondary public schools in the whole country.
The resources aimed at the universalization measures will come from the Fund for
Universalization of Telecommunications Services (FUST) and there are some projects
under consideration by the federal government. However, legislation currently in force
puts some hindrance to the use of FUST’s resources.
The strategy to be implemented by the government is also to take the opportunity
opened by the need for universalizing Internet broadband access to foster national
industry and technology. The solution under consideration is based on WiMax
(Worldwide Interoperability for Microwave Access) technology. This is a wireless
communication technology which allows high speed Internet access and which is still
under development by large telecommunications equipment manufacturers. It represents
an alternative to ADSL (Asymmetric Digital Subscriber Line), the mostly used
21
technology for internet access, which uses fixed cable networks and is usually supplied
by telecom services concessionaires.
There are two kinds of WiMax technology networks (fixed and mobile). Some large
international telecom equipment manufacturers have been investing in the development
of mobile standard equipment, with Samsung standing out among them. The fixed
standard is developed by small specialized suppliers, such as Alvarium (Israel), Aperto
Networks (USA) and Airspan Networks (USA) with 2005 turnover of about US$100
million (Airspan Networks and Aperto Networks) and US$200 million (Alvarium).
Given the need for heavy investment in equipment acquisition associated to the
process of universalization of broadband services access, Brazilian government has been
looking for designing a strategy for promoting national industry and technology.
Considering that mobile WiMax technology is already under development by large
equipment manufacturers and that fixed WiMax technology is dominated by small
equipment manufacturers, the purpose is to create new national firms or stimulate
existing ones capable of developing both technology and equipment in Brazil. The
demand created by the implementation of a universalization policy would guarantee both
market and scale that might justify the necessary investment for the creation or expansion
of telecommunications equipment manufacturer firms. The main equipment to be
developed and produced are the Radio Base Stations (RBS) and the Customer Premises
Equipment (CPE) which operate at frequencies of 3.5Ghz and 5.8Ghz.
5. Conclusion
This article analyzed, initially, the development of the telecommunications sector in
Brazil starting from the consolidation of the state monopoly constituted by Telebrás, as
well as the innovation system associated to it. Evidences were presented regarding both
the gains resulting from the development of the innovation system and the benefits
generated by this latter.
Along with the restructuring process initiated in the second half of 1990 decade, it
was observed a drastic change in the configuration of the telecommunications sector. The
services market presented a significant expansion of the number of telecommunications
services, although the level of competition in some segments (especially the fixed
telephony one) has kept low.
The data presented in this article showed that the restructuring process of
telecommunications sector in Brazil produced significant (and negative) effects on the
innovation system. The evidences presented point out to an intensive process of
denationalization and internationalization of telecom equipment industry, as well as to a
trade deficit. Furthermore, the telecommunications equipment manufacturers presented a
negative evolution of investment in innovation activities in the period between 2000 and
2003. The number of innovative firms declined in that period, also connected to the
process of internationalization and denationalization. The total expenditures of the
segment with innovative activities presented a reduction both in relative terms (from
4.97% in 2000 to 4.25% in 2003) and in absolute terms (R$1 million in 2000 to R$863
22
thousand in 2003). Expenditures with R&D (both internal and external) as share of net
sales revenue of the Brazilian firms was revealed to be extremely low if compared with
those of the main foreign suppliers of equipment. In addition, such expenditures have
declined in the period (from 2.4% in 2000 to 1.99% in 2003), while the average
expenditures by the main foreign suppliers of equipment have grown in a similar period
(from 9.5% in 1997 to 13.7% in 2003). Another relevant indicator that shows significant
reduction in the segment of communications equipment and devices manufacturers is the
innovation rate, which declines from 56% in 2000 to 44% in 2003. Finally, it is observed
a substantial change in the profile of expenditures with innovative activities within this
segment, with increasing investment for the introduction of technological innovations in
the market and decreasing investment in R&D both internal and external.
A broad process of acquisition of nationally owned firms by transnational companies
was observed. Also, it could be noticed that the nationally owned firms that survived to
the restructuring process have been concentrating their activities in niches of either less
technological specialization or where flexibility and promptitude to meet specifications
by customers provide them competitive advantage in relation to large international
suppliers. On the other hand, the adjustments performed by the large transnational
companies privileged import of parts and components, thus reducing local manufacturing
stages to less intensive technology activities. Investment in R&D by international
manufacturers has been mainly focused on software, as they are obliged to invest some
amount of their revenue as a counterpart for the benefits (tax exception) obtained through
the Information Technology Law (Lei da Informática). As for the national firms, they
tried to keep R&D investment in their specialization segments, although facing the
difficulties inherent to small firms (Sarti et alli, 2006).
The CPqD, one of the main agents of the Brazilian telecommunications innovation
system, was compelled to change focus and substantially diversify its R&D activities,
what resulted in a technological downgrade process. Furthermore, its interactions with
the national equipment industry, that during the 1980 decade were fundamental to the
development of national technology, have been reduced to the development of R&D
projects, most of them of short term, and to provision of consultancy and services.
As it was discussed along the text, the development of the BSDTV, initiated in 2003,
has represented a significant opportunity for the re-articulation of the various agents
within the innovation system, as well as for the expansion of innovative and
technological capabilities in this field. The way in which such process will happen
strongly relies on future definitions by BTSDTV Forum and by Brazilian government
which will complement the Decree 5820 and will delimitate a room for both Brazilian
locally developed innovations and Brazilian firms.
In addition to the opportunity represented by digital TV, it was also noted that
Brazilian government, by means of the Ministry of Communications, has been analyzing
opportunities for industrial and technological development opened by the process for
universalization of broadband Internet access. Such initiative aims at making use of the
heavy investment that shall be made by the government in the expansion of Internet
access to Brazilian regions and population not covered yet by such services, in order to
foster Brazilian technology and industry. The strategy may be the local development of
fixed WiMax technology (or the licensing of such technology already developed by
23
foreign firms), as well as the creation or expansion of Brazilian equipment manufacturers
(mainly RBS and CPE).
24
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