With forecast of $13.6B in investments, Telefónica Brazil sets sights on expansion

VIVO_TELEFONICA

The Brazilian unit of Spain’s Telefónica (NYSE, ADR: TEF) aims to be the biggest and best telecom provider in Brazil — and that consumers recognize it as such. That might not be easy, because Telefónica Brazil faced serious problems with its Internet broadband service Speed in 2008, and it took some time to recover from the brand damage. However, the current scenario is brighter: Little more than one year after the mobile carrier Vivo’s acquisition, all Telefónica’s products will be rebranded under the Vivo name.

In March, Telefónica Brazil set a goal of U.S. $13.6 billion (R$24.3 billion) in infrastructure investment from 2011 through 2014, an increase of 52% from the U.S. $9 billion (R$16 billion) invested from 2007 to 2010. This year, the carrier has spent U.S. $3.4 billion (R$6 billion) in projects related to infrastructure, mostly to expand coverage and the network, and related to the integration process between two operators, including building a data center to support them.

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Telefónica’s plans comprise expanding HSPA+ services, increasing 3G network coverage and the range of fiber to the home (FTTH), going international with its push-to-talk service (PTT), changing its TV over IP platform provider to become stronger in IPTV, expanding TVA’s pay TV through direct-to-home (DTH), as well as participating in the 4G auction, though the carrier argues that the coverage’s counterparts (goals that carriers that buy 4G licenses must meet) should not be as difficult as they were for 3G licenses.

During a Dec. 6 news conference to present Telefónica Brazil’s 2011 results and 2012 forecast, CEO Antonio Carlos Valente noted the deployment of network in the 1.8MHz frequency, acquired last year in an Anatel auction. The band allows Vivo to increase its traffic and voice network capacity. In addition, Vivo is able to offer its GSM customers cellphones that operate in all GSM frequencies.

The carrier’s 3G coverage is also expanding: 3G services will be available in 2,000 cities by the end of this year, with a goal of 2,832 cities by the end of 2012, reaching 85% of all Brazilians.

Vivo also aims to increase its HSPA+ offerings. The carrier launched HSPA+ services in São Paulo in November and plans to make them available to the rest of Brazil during 2012. “Vivo built its network to be prepared to upgrade to HSPA+, so in terms of network, it is ready. However, to launch this service commercially, it is also required devices and customer’s offers,” said Daniel Cardoso, marketing director for mobile.

Regarding its push-to-talk service, launched in July, the company said that 1 in every 2 of new mobile subscribers are push-to-talk. The carrier plans to launch push-to-talk international next year. Prior to Vivo’s launch, Nextel was the only PTT player in Brazil. Although similar to Nextel‘s offering, Vivo’s push-to-talk is based 3G and EDGE instead of the iDEN standard used by Nextel until now (the carrier is developing its 3G network).

In term of fiber-optic networks, Telefónica is investing to reach 1 million clients by 2015 using fiber to the home (FTTH). Current, the group counts 50,000 users, which is more than 2010, where there were 11,500. Connecting FTTH enables Telefónica to increase its television over IP (IPTV) services.

Although the operator already offers this service, sales will be suspended for a while until the platform’s migration is completed. Telefónica has decided to change its provider from Alcatel to Microsoft throughout Latin American countries. “Microsoft is the most used technology and offers more features and a high level of interactivities,” Henrique Freire de Moraes, marketing director for fixed brand, told RCR Wireless News.

Integration
The year of 2011 also marks the integration of two carriers. In December 2010, commissions were created to work on the integration process, including exchanges of shares and branding. Vivo will remain the brand in Brazil, while O2 will be used in Europe and Movistar in Latin America and Spain.

As a result of the Telefónica/Vivo integration, a new data center was built in the metropolitan area of São Paulo (Tamboré) to support operations until 2019. To date, Telefónica has invested U.S. $223.5 million (R$400 million). The data center will attend only internal demands. Another one might be built next year for customer support and such offerings as hosting and colocation as well as cloud computing and software as a service. Telefônica has about 1.2 million corporate clients.

Another example of the carriers’ integration is the launching of fixed voice and Internet solutions outside São Paulo state, where Telefónica has the licenses to provide land telephony. Named Vivo Fixo and Vivo Box, they were first launched in Porto Alegre, then in the metropolitan area of Rio de Janeiro; they will be available in Vitória (ES) and Belo Horizonte (MG) cities by year’s end. Telefónica estimates there are 52 million houses outside São Paulo state, half of them without fixed-telephony.

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