International Issue: September 2005

Special Supplement: The Latin American Opportunity

Brazil: A Mobile Giant

Fast growth and operator consolidation characterise the Brazilian mobile market

by Hot Telecom

The number of mobile subscribers surpassed the number of fixed lines during the course of 2003, and now represents close to 60 per cent of Brazil’s total number of phone connections. Of the total customers, 81 per cent are pre-paid, with the remainder on post-paid contracts. Operators using GSM technology control 38.9 per cent of the customers with CDMA technology accounting for 29.3 per cent, TDMA 31.5 per cent and AMPS now only accounting for 0.3 per cent of the mobile customers in Brazil.

Fig 1.  Brazil Mobile Marketshare, 2Q 2005

Brazil’s mobile market is segregated into three regions and ten operating areas. Brazil’s largest mobile areas in terms of subscribers are areas

1, 2 and 3, which include the urban centres of Sao Paulo Metropolitan, São Paulo Interior and Rio de Janeiro. These three regions alone account for over 40 per cent of Brazil’s mobile subscribers.

Until 2002, each region was covered by two operators: one Band A operator who offered mobile services through the ex-Telebrás network and a mirror company (Band B). However, upon full telecom market liberalisation in January 2002, Brazil’s regulator (Anatel) intensified mobile competition and increased the number of mobile licences per region from two to four.

D Band and E Band regional concessions were sold to TIM Brasil, Telemar (Oi), Brasil Telecom, Claro (America Móvil) and Vesper (Table 1).

	Brazil Mobile operators by band and region   Operator by band Regions Area Band A Band B Band D Band E I 3 Vivo Claro Oi TIM 8 Amazonia Vivo Oi TIM 4 Telemig TIM Oi — 9 Vivo TIM Oi Claro 10 TIM Claro Oi — II 5 TIM Vivo Claro Brasil Telecom Sercomtel TIM 6 Vivo Claro TIM Brasil Telecom TIM 7 Vivo Claro TIM Brasil Telecom CTBC III 1 Vivo Claro TIM — 2 Vivo Claro TIM —

Consolidatory moves

VIVO became Brazil’s largest mobile operator on 13 April 2003 when it launched its new brand. It controls 37.7 per cent of the market (28.5 million customers), making it the single largest mobile operator in South America. The company oversees the operation of: Telesp Cellular, Tele Sudeste Celular, Tele Centro Oeste, Global Telecom, CRT, Norte Brasil Telecom and Tele Leste Celular. It operates in 19 states as well as the Brasilia federal district, covering around seven million square kilometres — 86 per cent of the total country — and 75 per cent of the population.

Portugal Telecom has said it may sell its 50 per cent stake in VIVO, freeing it of regulatory restrictions to buy other Brazilian operators. In this event, it is most likely that Telefónica Móvil would take full control over VIVO.

The second player in importance is TIM Brasil, owned by Telecom Italia. It controls 22.2 per cent of the market (16.8 million customers) and is the only mobile company to operate in all of Brazil’s 28 states.

In April 2005, Telecom Italia and its sister company, Brasil Telecom, reached an agreement to merge their Brazilian mobile operations, hopefully settling a three-year dispute between the two companies. Through this agreement, Brasil Telecom is to transfer its mobile operation to TIM Brasil and in return TIM is to hand over its long-distance business to Brasil Telecom. However, by July 2005, this agreement had yet to be finalised as Citigroup, one of Brasil Telecom’s shareholders, won an injunction blocking that agreement in a US court. At the end of June 2005, Brasil Telecom had 1.4 million mobilecustomers and 1.9 per cent of Brazil’s market share.

The country’s third global mobile operator is Claro, owned by America Móvil. At the end of June 2005 the operator had 16.2 million subscribers representing 21.5 per cent of the market. It acquired BSE in May 2003 and BCP in November 2003 and now operates in 22 of Brazil’s states.

Telemar Norte Leste’s mobile arm, branded Oi, is Brazil’s fourth mobile operator in terms of customers. At the end of June 2005 it had over eight million subscribers, representing 10.7 per cent market share. The company holds mobile licences in 16 Brazilian states.

Continued growth is expected in the Brazilian market as competition intensifies between the three major players and new value-added applications using the 3G technology are launched. The regulator is assessing the possibility of allocating five 3G licences, of which one would go to a new entrant. Bids would take place in 2006 and network rollout in 2008, but potential investors will be pondering the viability of further competition in a market already controlled by three global operators.

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