Brazil is in the wireless spotlight. Demand is high, penetration is low and growth in all sectors is being fueled by deregulation and a stronger economy.
Brazil’s current annual cellular growth rate is about 70 percent. The number of subscribers totaled 2.7 million last year, which is expected to jump to 16.1 million by the end of 2001, forecasted Pyramid Research Inc. of Cambridge, Mass. Wireless is expected to account for more than half of Brazil’s total public market revenues of $25.6 billion by 2001.
Landline phones only serve one out of every 11 people in Brazil. In a population of 161 million, more than 10 million are waiting for a basic phone line and between 2 million and 5 million are waiting for cellular service. But as the A-band cellular systems become private and as B-band spectrum is licensed, much of that pent-up wireless demand should be relieved.
Sergio Motta, Brazil’s minister of communications, forecasts between 10 million and 12 million people will subscribe to cellular service by 2000, representing 192 percent annual growth.
The Ministry of Communications also has shown interest in issuing personal communications services licenses.
The A-band cellular spectrum is dominated by state-owned Telebrasilia, through 27 regional affiliates, which will be sold for an estimated $25 billion, said the government. As such, subscriber tariffs have increased dramatically over the last year, said the Yankee Group, Boston.
How Telebras will privatize isn’t clear, said the Yankee Group, but the affiliates are expected to break off from the parent company and merge into about nine private regional operators. CRT, Sercomtel and CTBC are municipally owned operators that have already begun privatizing.
Ten 15-year regional licenses will be issued in the B-band. Operators will be limited to 49 percent foreign ownership for the first three years. Those companies willing to pay the most for the licenses will be a chief criterion in who the ministry selects as winners, the Yankee Group said.
Bids are due April 7 and licenses are expected to be issued about a month later.
Foreign partners in the running for B-band cellular licenses include AirTouch Communications Inc., AT&T Wireless Services Inc., BellSouth Corp., France Telecom Group, GTE Corp., Hutchison Telecom, Mannesmann AG, Millicom International, Motorola Inc. and DDI Corp., SBC Communications Inc., Stet of Italy and Perez Co. of Argentina, Telia AG and a consortia of Telefonica de Espana, Telefonica Argentina, CTC of Chile and Citibank Corp. Each of these companies is partnered with at least one Brazilian entity.
Today, Telebras operates chiefly using Advanced Mobile Phone Service technology. Subscribers report poor quality and low capacity on the networks, said Yankee. Calling-party-pays service contributes to congested networks, but monthly use averages 300 minutes, compared with 100 in the United States. Carriers’ average revenue per customer is $70 per month.
In 1995, the ministry introduced a $75 billion investment plan to stimulate telecom and postal industries and increase foreign investment, said Pyramid. About 39 percent of the fund is devoted to “basic network” services, including cellular and wireline telephony, data networks and pay TV. Eighteen percent will be applied to transmission accounts and 28 percent will be spent on access network accounts, said Pyramid.
Much of Brazil’s growth and improving economy is attributed to President Fernando Enrique Cardoso. The Yankee Group’s Carlos Guzman-Perry said a tight monetary policy and new currency, called the “real,” has supported a stronger economy. In a recent white paper, Guzman-Perry said Brazil’s gross domestic product increased almost 5 percent in 1995, under Cardoso’s rule. Inflation decreased from 1,000 percent in 1994 to 22 percent in 1995 and was expected to drop below 15 percent for 1996.
Attesting to the wireless opportunities in Brazil, both Motorola and Nokia Mobile Phones have established handset manufacturing facilities there. Motorola will start making pagers in the Brazilian factory as well.
Brazil is the 13th largest paging market in the world, accounting for 25 percent of paging users in Latin America and the Caribbean, according to Strategis Group research. Paging growth more than doubled in 1996 to 800,000, noted Larry Conlee, corporate vice president and general manager, Motorola Pan America Messaging Systems Division. The same happened the year before. Naturally, limited wireline service means the paging market is dominated by text users-about 95 percent. The company said alphanumeric service runs about $30 per month and most carriers operate regionally.
The paging market is open, spectrum is granted on an as-needed and performance basis and there are countless carriers. MobiCom, partly owned by the Portuguese Telephone Co., is the largest paging carrier in the country. Motorola is second. Motorola’s FLEX advanced paging technology is infiltrating at different rates, depending on a carrier’s spectrum capacity, added Conlee.
No one is licensed yet for two-way services. Motorola’s Messaging Systems and Products Group last month had its first meeting with government and industry leaders in Sao Paulo to discuss the introduction of voice paging and other two-way advanced messaging services.
“People are bullish about growth and excited about going on narrowband PCS,” said Conlee.
Motorola expressed interest to the ministry in receiving an experimental license for advanced paging services, said Conlee. The ministry’s response: An experimental license approach is a waste of time. Instead the government is on course to issue two-way licensing specifications any day and grant licenses by June, added Conlee.
The “virtual telephone” is another growing telecom service in Brazil, said Conlee. For $10 per month, people can receive a voice mailbox. Paging could see growth as an adjunct to the virtual telephone. When a message is waiting, users receive a beep.
The Yankee Group said Brazil is working toward forming a communications agency modeled after the Federal Communications Commission.
