More Phones Than People in Brazil

With the privatization in 1998, Brazil stopped being a country where the telephone was a privilege for the few. With over $ 235 billion of investments since then, the country is already has the world’s sixth largest telecommunications market. But more investment is still required in the broadband super highway infra structure.

By Marco dos Santos

The privatization of Brazil’s phone market in 1998 inaugurated a new era which led to plummeting prices for phones and eliminated the queues.

In 2010, according to the International Telecommunication Union (ITU), Brazil had the sixth largest roster of phones in the world with 42 million mobile phones and 202 million fixed phones.

In March this year, while the number of fixed remained stable, the handset market was already 251 million, well above the Brazilian population.

The privatization brought a new element to the market: competition. In fixed telephony, the territory was divided into three. For each region was created a mirror operator to compete with the main – GVT, the mirror of Brazil Telecom, and now controlled by France’s Vivendi, was the only one that worked.

Besides them, there is Embratel, for international calls. In mobile telephony, the idea was that there were two competitors for the state. Here, the competition remains really fierce. “Today, all operate on an equal footing,” said Juarez Quadros, a former communications minister in the government of Fernando Henrique Cardoso and partner at Orion Consulting Associates.

No carrier has more than 30% of the market, which is led by Vivo, controlled since 2011 by Spain’s Telefonica, followed by Italy’s TIM, the Mexican billionaire Carlos Slim, and the Brazilian Hi.

With increased competition, the prices dropped and the quality of services has improved.

To participate in this growth market, operators have been required to invest to ensure coverage in both north and south of the country. Also competition itself has forced companies to put their hands in their pockets in order not to lose customers. Between 1998 and 2010, operators have invested U.S. $235 billion, at an average of $18 billion per year. This is six times the investments made prior to the privatization.

Last year, operators invested between 18% and 20% of their net revenue, according to a survey done by the former minister. The exception was the GVT, which invested almost half of that was earned.

One of the fastest growing carriers in the country, a company controlled by Vivendi has a clientele different from competitors. The vast majority (over 90%) uses broadband – and speed up to 10 MB. “Because it has a very significant technological advantage, it is taking customers from other operators,” says Quadros. “Racing is now taking the other customers. And this is one of the pillars of the revolution in telephony.

“To Luis Minoru Shibata, director of consulting PromonLogicalis this war for customers is intensifying with increased portability. “The competition is even more pronounced after 2008,” said Shibata. “You can now change carriers without having to change the number.”

He said that a byproduct of portability was a significant improvement in quality of care. “Nobody wanted to lose customers.” With the number of new mobile lines breaking records every month and the models of the devices become more sophisticated, allowing Internet access, the demand became explosive in the country.

“If you look at the terminals who are launching today (tablets, smartphones, TVs), they will require more telecommunications infrastructure, “says Shibata. “The lines will start to connect not only people but things.” The biggest problem is the broadband. “The demand is explosive and the network is being built now. Before the customers was happy with a speed of 64 kbps. Today it is a mega bit, “says Eduardo Tude, director of consultancy Teleco.

Companies need not only to improve the internet superhighway, but also extend the infrastructure to support new voice traffic, and also especially data traffic. By 2014, Vivo, for example, plans to invest U.S. $24 billion in its operation, more than 50% of disbursed in the previous four years.

Also TIM Hi plans to invest similar amounts to fund its expansion over the next half of the decade.

Rapid growth has also brought a problem: the poor quality of services. “The data fall all the time; the voice cracks up” complains Herberto Yamamuro, president of NEC of Brazil, a leading supplier of equipment for the sector. Also, “I sometimes receive SMS with three days late.”

In addition to the substantial funds that have already been invested in the Brazil telecommunications market, a further boost in investment is required by the networks to

upgrade the quality of services, woo customers, and keep up with the soaring demand for broadband services and connectivity attractions.