Brazil calling

Brazil's communications infrastructure is being modernised to position the country as a future economic superpower. E&T reports from neighbouring Argentina.

For we Argentineans, the words "O mais grande do mundo" ("the world's largest") have come to symbolise the apparent obsession of Brazil, our largest neighbour, with claiming to be the best at this or to have the biggest of that. To be fair, many of these claims are true.

Brazil is the world's largest exporter of iron ore, coffee, soya, chicken, beef, sugar and orange juice. It has the world's most advanced fuel ethanol industry, and is home to 60 per cent of the Amazon rainforest (the world's largest), and the world's most powerful river (the Amazon, which carries more water than the next ten largest rivers combined). The country has the world's largest Catholic population, and the largest number of un-contacted peoples in the world (with over 65 indigenous tribes). Argentineans prefer not to talk about Brazil's five football World Cup victories.

Argentina and the other Latin American nations see Brazil as South America's regional leader. But none of us can lose sight of the fact that we all live in developing economies.

Even when Goldman Sachs published its 'Dreaming with BRICs: The Path to 2050' white paper in 2003, which speculated that Brazil, Russia, India and China would grow to become the world's four largest economies by 2050, it was seen as just that - speculation.

Speculation gave way to hope. Modest GDP growth became strong GDP growth. Brazil's national currency, the real, strengthened against the US dollar. Soaring commodity prices boosted the world's second largest agricultural exporter.

By the time president Lula announced earlier this year the discovery of what maybe the world's third biggest oil reserve, the notion that Brazil could become a true global economic powerhouse didn't seem so implausible.

Poor uptake on good infrastructure

An overview of the state of the telecommunications industry in Brazil shows how far the country will have to go before it gets there - and how quickly it is moving towards that goal.

From fibre-to-the-home to Internet protocol television to HSDPA (high-speed downlink packet access), there isn't an advanced communications technology that isn't already deployed in Brazil.

In some cases, such as in digital terrestrial television (DTT) and mobile TV services, the Latin American country is running more advanced technical systems than those chosen by north American and western European operators - thanks in part to the advantage gained by coming later to market.

The problem is that a large number of Brazilians are yet to experience how these services work and how they might benefit from them.

Take fixed-line telephony, the most basic telecom service. A standard subscription to a residential phone line costs R$40 (US$17). This means anyone on minimum wage in Brazil needs to work for three days just to keep a line. So it's no surprise that an estimated 27 million Brazilians (approximately 15 per cent of the population) don't have a home phone line yet, according to Anatel, the National Telecommunications Agency.

In terms of mobile telephony, Anatel figures from the end of September 2008 say 140 million people have a mobile phone, taking the penetration of this service to 73 per cent of the population. Just over 80 per cent of those 140 million mobile lines belong to pre-paid customers.

"Brazil will reach the 160 million subscriber mark by the end of this year, which will equal around 80 per cent penetration," says Ariel Barlaro, director of market research firm TVTelco Latam. "Unlike other countries in the region, which have passed 100 per cent penetration, Brazil still has margin to grow."

The Brazilian government prides itself on the terms it managed to impose on cellular operators when, at the end of 2007, it auctioned the licences required to introduce 3G services.

Having learned the hard way during the introduction of previous-generation cellular and broadband services that, left to their own devices, telecommunications companies will focus on lucrative urban areas and ignore less densely populated areas, the Ministério das Comunicações set tough conditions for 3G licensees.

Each operator had to agree to provide the service to all municipalities with a population of 30,000 or less within the licence's coverage area by mid-2010. Come 2016, every town in Brazil must be covered by at least one 3G network. For hundreds of remote villages, this will be the first time any form of mobile signal has reached them.

Marco Aurélio Rodrigues, chairman of Qualcomm no Brazil, says that a sizeable portion of the big cities and state capitals are already enjoying 3G coverage.

"As of August 2008, services have been launched in more than 100 cities, in some instances by more than one operator," he says. "This means that, just a few months after deployments started, the technology is already available to over 30 per cent of the population."

Aiming for Telmex and Telefonica

Following the wave of privatisations of state-run telecom companies that swept Latin America in the 1990s, the region was left with two dominant players: the Spanish giant Telefónica and Telmex, the Mexican group controlled by multi-billionaire Carlos Slim.

Telmex and Telefónica are major players in the Brazilian market too. Privatisation in Brazil took place in 1998. Five years later, Telmex acquired Embratel, the company that runs all long-distance telecoms traffic and dominates the domestic corporate communications sector.

As for Telefónica, the group emerged as one of the three fixed-line telcos that, after consolidation, ended up controlling one of the three large licensed regions into which the country was divided. The other two are Brasil Telecom and Telemar. The latter -recently rebranded as Oi - is also the country's first quad-play service provider, offering Internet access, digital TV, mobile telephony and fixed-line telephony.

Earlier this year, Oi announced its intention to buy Brazil Telecom. If approved, Brazil's fixed-line telecoms market will be split between just two companies. The merger would also create a Brazil-based telecoms giant capable of rivalling Telmex and Telefónica in Latin America.

"An increasing number of voices in industry and government are saying that Brazil [needs] a major company to compete with Telmex and Telefónica in the region," says Barlaro. "However, generally in Brazil when people talk about expanding regionally, they are not referring to the whole of Latin America but South America. They prefer not to compete in Central America, the Caribbean and Mexico, as Telefónica and Telmex currently do.

"There is still a group of independent companies in South America (such as Telecom Argentina or VTR in Chile, as well as a number of state-owned companies such as Andinatel and Pacifictel in Ecuador, or the Colombian telcos) which could be targeted by this new Brazilian mega-group.

"The process of merging Oi and Brazil Telecom has started. Once the merger receives approval, I expect the company to begin its South American expansion. In the medium term, the company will establish itself as the third big regional player."

Brazil's sheer size, its continuing widespread poverty and the unwillingness of large telecom companies to serve less populated areas, mean that 80 per cent of the population still doesn't have Internet access at home. As of the end of 2007, official estimates say, more than 70 per cent of Brazilians had never used the Web.

Digital inclusion

Broadband technology offered by DSL, cable modem and WiMAX networks, is generally faster and more sophisticated than anywhere else in Latin America. And yet, with broadband penetration of around 10 per cent of households, Brazil ranks fourth behind Chile, Argentina and Uruguay.

Hélio Costa, Brazil's minister of communications, is in charge of an ambitious programme to close that digital divide. Called 'Programa de Inclusão Digital' (the Digital Inclusion Programme), it aims to make broadband access publicly available in each of the country's 5,565 municipalities.

More than 5,000 have already signed up to deploy at least one high-speed Internet access point in public premises, fed by satellite connectivity in areas with inadequate terrestrial infrastructure.

Each town is sent a kit containing a server, a router, ten computers, a laser printer, a remote monitoring camera, a multimedia projector and even tables and chairs.

Hundreds of 'telecentros' have now been deployed in remote villages. There are island communities where the fishermen use the Internet to check fish prices and improve their efficiency, and places where indigenous tribes use it to share information with other communities.

The government hopes to fit all of Brazil's 142,000 public schools with a telecentro. About 70 per cent of them should have received the technology by the end of this year. In a further two years that should grow to about 90 per cent of schools. The remaining 10 per cent will have to wait another year, because they are so remote that they'll need photovoltaic cells to power the computer networks.

A complementary federal pilot scheme called 'Programa Cidades Digitais' (the Digital Cities Programme) is testing the viability of blanketing remote towns throughout Brazil's interior with wireless Internet access.

The first town to test the concept was Tiradentes, in the state of Minas Gerais. Its wireless mesh network can be accessed for free by residents and tourists.

The technology is changing the lives of schoolchildren, shop owners and teenagers. But the Tiradentes authorities acknowledge that the next challenge will be finding a business model to ensure the sustainability of the service.

In the meantime, the pilot has been replicated in three other cities: Ouro Preto, Belo Horizonte (both in Minas Gerais), and Piraí, in Rio de Janeiro.

At the time of writing, the Ministry of Communications had temporarily suspended a public tender to extend the Cidades Digitais scheme to another 160 towns, in order to have a discussion with potential suppliers about its terms.

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