Inside Brazilian Algar Telecom: president reveals company’s strategies

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Headquartered in Uberlândia, a city with 600,000 residents in the Brazilian state of Minas Gerais, Algar Telecom is the biggest part of the Algar Group, a private, family-owned company that runs nine different businesses in areas such as telecommunications, tourism, agriculture and aviation. Of the Algar Group’s total revenue of U.S.$1.53 billion (R$3.1 billion), the telecom and IT unit accounts for 55%, demonstrating its importance to the whole group. That’s why making big changes in the telecom segment and launching innovations, such as M2M initiatives, are critical parts of Algar’s strategy.

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Algar’s experience in telecommunications dates back to 1954, when the company’s founder decided to invest in communications, so the Brazilian people could better reach each other. He launched CTBC (Telecommunications Company of Central Brazil). Since then, the business has grown but kept its local focus. Today, CTBC has a presence in 87 municipalities in the states of Minas Gerais, São Paulo, Mato Grosso do Sul and Goiás, proving both mobile and fixed voice and broadband, as well as corporate communication and pay-TV services. Algar is a fixed telephony concessionaire, and the cellular operator of Band A; it controls ACS (Contact Center) and other companies’ cable TV, Internet, data centers and network engineering.

Nationally, CTBC is very small and really behind compared to the big four wireless carriers. In June, according to Anatel, CTBC owns 725,438 mobile lines or 0.28% of the market share in Brazil. However, CTBC does not want to play a national role. Its ambition is to lead in cities where it has a license and presence. This explains why the company did not bid in the frequency band auction in June that will make LTE services available in Brazil.

As Divino Sebastião de Souza, executive director of Algar Telecom, told RCR Wireless  News in an interview at the company’s headquarters, it did not make sense to bid under Anatel’s rules for the auction, since Algar does not offer services in any capital city or locations where the World Cup games will be held. “The four telecom operators that bought licenses have a strong presence and strategy in capital cities, so it is easy for them,” he said. “They will have network costs, but they already have all the cellular tower infrastructure installed. We don’t, so it would demand a lot of investment because we would have to start from zero.”

On the other hand, Souza said that Algar Telecom would bid if Anatel releases the 700 MHz spectrum for LTE. This frequency band currently belongs to television. By 2016, all analog TV, which is on the 700 MHz band, will be turned off. While this has not happened yet, Algar Telecom has conducted trials. The carrier has also released its HSPA+ network.

Without disclosing its total investment amount for 2012, Souza said that the company has focused its investments on improving and modernizing its telecom infrastructure, including fiber optic and next-generation network (NGN). “We are increasing our fiber backbone ring with a focus on expanding our networks,” Souza said.

New bets and innovation
Algar Telecom’s two main objectives are improving customer relationships and diversifying revenue sources. “We aim to increase our portfolio by aggregating value added services, such as technical assistance, security tools, connected home, converged video offers with on demand services and IPTV,” said Zaima Milazzo, coordinator of new products at Algar Telecom. Her job is to make sure the portfolio is up to date with attractive plans, including triple play offerings.

Several executives told RCR Wireless News that Algar Telecom loves to innovate. Souza noted that voice is becoming a commodity, and it is best to bet on data and other services. During his 35 years with Algar, Souza has observed the behavior of the telecom market. “The future is data, not only in terms of capacity but also in content: to add intelligence on top of data,” he said.

Algar Telecom has conducted 3G offload and LTE trials and has made its backbone IPv6-ready, as well as unveiled wired Internet services with data speeds of up to 100 megabits per second and a high-definition pay-television service. This last move was part of Algar’s attempt to diversify its product offerings.

The company’s most recent bet is the machine-to-machine project with TESA Telecom, a pilot program that is testing a vehicle tracking solution. The whole M2M project includes a partnership with Algar Telecom as an MNO, Transtelco as an MVNE and Bichara Tecnologia, which provides IT infrastructure. “I believe there are lots of opportunities with M2M. We have a partnership with TESA, and we are open to new partnerships,” said Milazzo.

A mobile virtual network operator (MVNO) is also in Algar Telecom’s plans. Souza said there are internal groups studying the possibility of starting an MVNO to sell to the corporate market, though nothing has been set yet.

Souza said there is a long history of innovation at Algar. CTBC was the first Brazilian carrier to offer prepaid services. Currently, about 40% of its total base is post-paid, while 60% is prepaid. “A lot of the C-class uses prepaid services. Our focus is to reach this emerging middle class, and there is a lot to explore,” said Souza.

The corporate market also plays a big role. While competitors are focusing on the top of the pyramid and global enterprises, Algar Telecom mostly targets medium-sized and small firms. “The best Ebitda comes from medium-sized firms,” said Souza.

All these efforts are very important. A  little less than 10 years ago, the mobile unit of CTBC was for sale. “We stayed stagnant for two years and that made us lose part of our leadership,” said Milazzo. During the period of uncertainty over mobile’s future, Algar’s competitors started to operate in the same areas. “Today’s business is no reflection of that time,” said Souza, emphasizing that Algar Telecom will keep its local focus to attend to its customers in a very customized way.

Algar Telecom provided travel costs for the visit to its headquarters.

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