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Anatel, the Brazilian regulator, concluded its spectrum auction on June 12, offering 4G services in the country in 2.5GHz as well as mobile broadband in rural areas in 450MHz. As expected, the top four Brazilian operators—Vivo, TIM, Claro and Oi—acquired the four licences for national coverage in 2.5GHz. Also, given that there were no bids for the 450MHz frequency alone, each winner of a 2.5GHz license was given a 450MHz license and will have to offer mobile broadband coverage in rural areas by 2015.
There were no surprises from the auction: a combination of the high guarantee prices and tough coverage requirements demanded by Anatel meant that only six contenders were bidding for the licenses; the top four operators were expected to win the four national licenses with the remaining two contenders, pay-TV operators Sunrise and Sky, focusing on regional licenses.
Vivo and Claro paid the highest price for the best bands, 20MHz+20MHz, while Oi and TIM bought the lower capacity bands, 10MHz+10MHz. Overall, operators paid 34% above the reserve price. This is a very different outcome from the 3G auction in 2007, when the total fees paid for the spectrum were 88% above the reserve price, thanks to Nextel’s aggressive bidding at the time.
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The auction split the operators into two groups: Claro and Vivo were clearly willing to pay the price for the best spectrum, while TIM and Oi acquired the lower capacity bands. For Informa, this might hint at how aggressive each operator will be with their investments in 4G, with the Mexican and Spanish groups taking the lead and gaining more flexibility with 20MHz bands. Not surprisingly, Vivo and Claro were also the first to launch HSPA+ networks in Brazil and have the highest data ARPU in the market.
Sunrise and Sky were not interested in the national licenses. For pay-TV operators, the auction opened the possibility of increasing their portfolio by adding broadband, but this is not their core business, and their option was to invest with caution. Sunrise acquired two regional licenses and Sky acquired 12. This will bring more competition to these regions, but without national coverage, they will have limited impact on the Brazilian market.
Coverage more important than license fees
This auction concludes a lengthy debate in the Brazilian market. Some operators had argued against a new spectrum auction while they were still investing in 3G, especially an auction in 2.5GHz, when it is expected that the 700MHz spectrum will be made available in 2016. This debate was reflected in the lower than expected license fees paid by operators.
Operators had a tough decision when it came to participating in the auction, but in the end, they could not risk losing the opportunity to acquire more spectrum. However, the task ahead is quite challenging for carriers still investing in 3G, while deploying a new network in 4G, and at the same time, covering rural areas in 450MHz.
Even though Anatel’s solution to tie the 450 MHz spectrum to the 2.5GHz auction, after no company showed interest in the 450MHz spectrum alone, was not well received by the contenders, the auction’s success might just have proved to Anatel that this is the best solution to guarantee coverage in economically less-attractive areas. Different models were tried in the past to guarantee telecom services in such areas, the most famous, the Universalization Fund (Fust) created in 2001, had very ambitious goals, ranging from rural telephony to providing coverage for schools, hospitals and libraries, among many others. However, after 11 years the fund collected more than U.S.$4.0 billion, but almost nothing was used to fulfil its goals; instead, the fund turned into just another type of taxation (it collects 1% of operators net revenues).
So another important outcome from the auction might be the creation of a new model for future auctions to follow: tying coverage obligations in less attractive areas to the more sought-after spectrum with Anatel supervising operators’ progress. This way, Anatel would be prioritizing coverage over revenues with licensing fees but would avoid failures like the Fust.
Ari Lopes is the principal analyst for Latin America at Informa Telecoms & Media.
