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Competition in Brazilian telecom market: an emerging market experience

Competition in Brazilian telecom market: an emerging market experience. Paulo Roberto Gião University of Brasilia & José Rogerio Vargens Filho (presenter) Brasil Telecom. Summary. Brazilian telecom privatization (1996-1998) The process of consolidation (1998-2004)

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Competition in Brazilian telecom market: an emerging market experience

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  1. Competition in Brazilian telecom market: an emerging market experience Paulo Roberto Gião University of Brasilia & José Rogerio Vargens Filho (presenter) Brasil Telecom

  2. Summary • Brazilian telecom privatization (1996-1998) • The process of consolidation (1998-2004) • Results after privatization: regulator, users and operators points of view (2004) • The Brazilian regulatory reform (2004-2006) • Conclusions

  3. 1. Brazilian Telecom Privatization 1996 - 1998

  4. Privatization main events • Privatization of the public mobile companies in 1996. • Creation of the national telecom agency (ANATEL) in 1997. • Privatization of the public fixed telephone company TELEBRAS in 1998.

  5. Brazilian fixed telephone map by 1998 Region I Telemar (incumbent) Vesper (newcomer) Region II Telemar (incumbent) GVT (newcomer) Region IV: LD in all Brazil Embratel (incumbent) Intelig (newcomer) Region III Telefonica (incumbent) Vesper (newcomer)

  6. Brazilian cellular map by 1998 Region 8 Region 10 Region 9 Region 7 Region 4 Region 2 Region 5 Region 3 Region 6 Region 1 2 operators per region.

  7. Telecom policy after privatization Competition Universal service

  8. Asymmetric rules for fixed telephony

  9. 2. The process of market consolidation 1998 - 2004

  10. Mergers and acquisitions • The Brazilian market did not hold the number of players that got into by the time of privatization. • Some players sold their participations and left the country. • Others restructured themselves and bought the participations from the players that left. • As a result, 5 big telecom groups emerged in Brazil.

  11. Brazilian fixed map by 2004 Region IV: LD in all Brazil Embratel/Telmex (incumbent) Intelig Region I Telemar (incumbent) Vesper/Telmex Region II Telemar (incumbent) GVT Region III Telefonica (incumbent) Vesper/Telmex

  12. Brazilian cellular map by 2004

  13. The 5 biggest telecom groups in Brazil 1) TELEFONICA (Spain): the 2nd local telephone incumbent and the 1st mobile operator VIVO.  2) TELEMAR (Brazilian): the 1st local telephone incumbent with its mobile operator OI. 3) TELMEX (Mexican), the 1st long distance carrier EMBRATEL; the 2nd mobile operator CLARO; the fixed local entrant VESPER; and the 1st Cable TV operator NET. 4) BRASIL TELECOM/OPPORTUNITY (Brazilian): the 2nd local telephone incumbent that is also launching mobile operation and TELEMIG/AMAZONIA CELULAR.  5) TELECOM ITALIA (Italian): the 3rd mobile operator that covers all Brazil, Telecom Italia Mobile or TIM.

  14. 3. Results of privatization 2004

  15. Regulator´s point of view

  16. User benefits • Availability of wire and wireless lines • Decrease of tariffs • Options among providers

  17. Operator´s point of view • Investors bid on Brazilian privatizing companies and licenses based on two premises: the Brazilian economic growth and the world´s telecom boom. • The Brazilian economy did not grow and the telecom boom turned into a crisis in 2000. • As a result, most companies have not yet gotten a return above their cost of capital.

  18. 4. The Brazilian regulatory reform 2004 - 2006

  19. Some new rules • Unbundling • Interconnection (cost-based access prices) • New universal obligations 2006-2025 • New price cap definitions • Other competition rules • Internet access rules

  20. Monopoly and competition policies in the same reform Competition policy Monopoly policy New universal obligations supported by incumbents Unbundling and cost-based access price

  21. Risks • The introduction of policies like unbundling and cost based pricing and, at the same time, universal obligations can harm telecom operators. • The regulator should measure these policies in a balanced way to improve the Brazilian telecom model. • The costs to implement universal obligations should be took in account to the definitions of telephone´s tariffs, interconnection´s fees and unbunlding´s prices.

  22. 5. Conclusions • The privatization in Brazil succeeded because it improved all telecom indicators and benefited users in many ways. • Five big telecom groups emerged in Brazil after a long process of market consolidation. • The Brazilian telecom model is being revised. • The regulator should issue the new rules with some cautions to not harm telecom operators nor treat the successfully telecom model built in Brazil.

  23. THANK YOU!

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