Brazil's telecom regulator on Wednesday ordered three leading carriers to stop selling new mobile plans in certain states, an unusually strong punishment in response to rising consumer complaints about dropped calls and spotty coverage.
Regulator Anatel said that, in each of Brazil's 26 states plus the federal district of Brasilia, the company with the poorest service would be unable to sell new plans. The suspension will be effective on Monday and remain in place until the carriers present an investment plan to improve service quality, the agency said.
The suspension is one of the toughest pro-consumer measures taken by the government of President Dilma Rousseff and comes as investors are increasingly concerned about the government's willingness to intervene in the struggling economy.
"A growing client base needs to be accompanied by more investments," Anatel head João Batista de Resende told reporters, adding that the regulator had tracked growing customer service complaints for over a year.
TIM Participações, the Brazilian unit of Telecom Italia (Milan), will be prohibited from selling new plans in 19 states. Grupo Oi (Rio de Janeiro, Brazil) will be barred from selling in five states and sales by Claro, a unit of Mexican tycoon Carlos Slim's America Movil (Mexico City, Mexico), are banned in three states.
Telefonica Brasil, a unit of Spain's Telefonica (Madrid), will not have its sales suspended, but must present plans within 30 days to improve service or face sanctions.
Providers violating the sales bans will be fined $99,000 per day.
Phone companies in Brazil are already increasing capital spending to reach a growing consumer class spread across the country and keep up with requirements for new technologies ahead of the 2014 Soccer World Cup.
But Communications Minister Paulo Bernardo has said telecoms need to step up investments faster, to more than 24 billion reais ($12 billion) annually compared with 17 billion reais in recent years.
TIM was "quite surprised by such an extreme measure," the company said in a release, calling the sales suspension "disproportional" and "anti-competitive."
Oi called the regulator's analysis "out-of-date" in a press release, citing its plan to increase investments to 6 billion reais this year, compared with 5 billion reais last year and 3 billion reais in 2010.
Telefonica said it always revises the impact of new products and services on its network before launching them. A Claro spokeswoman had no immediate comment on the measure.
The growing cost of expanding networks in Brazil is weighing on phone companies as revenue growth shows signs of flagging in an economy now expected to expand less than 2% this year.
Brazil's mobile phone market more than doubled in five years to 256 million connections, thanks to a robust job market and rising wages, but growth has shown signs of slowing in a country of about 190 million. Still, the government is increasing demands for investments.
In June, Anatel distributed licenses for wireless broadband spectrum with targets for minimum investments to provide coverage in host cities for the Confederations Cup next year, a dress rehearsal for the World Cup in 2014.
Rousseff's government has also prodded Brazil's car makers to invest in local factories with a series of tax breaks, lending incentives and import limits.
Brazilian industrial output has contracted over the past year as a heavy tax burden and weak global demand hammer manufacturers and drag on investment.
Brazil's investment rate fell to 18.7% of the country's gross domestic product in the first quarter of the year, from 19.5% in the same period a year before.