Global Insight Perspective | |
Significance | Telefônica has increased its investment in broadband internet by 22% y/y to 623 million reais. |
Implications | The company’s efforts will be mainly directed towards conventional ADSL technology, which currently claims 2.2 million accesses. |
Outlook | The increasing popularity of multiple-play packages and the outstanding revenue growth from internet and pay-TV services play a vital role in drawing the company’s investment plans for the future. |
The Brazilian fixed-line unit of Spanish giant Telefónica has announced capital expenditures of 623 million Brazilian reais (US$383 million) in high-speed internet access until the end of 2008, reports Gazeta Mercantil. This represents an increase of 113 million reais (US$69.47 million) compared to last year’s figures. Conventional ADSL technology will absorb the lion’s share (500 million reais), with the remaining 123 million reais to be directed towards the company’s fibre-optic network. The latter supports speeds of up to 30 Mbps and was field-trialled last year in 40,000 homes in São Paulo’s Jardins neighbourhood. According to the announcement, the company aims to expand coverage to 400,000 homes by December 2008.
Outlook and Implications
Telefônica is the regional incumbent in Brazil's most populous state and business hub, São Paulo, with a total of 15.6 million accesses. The state that bears the same name is accountable for almost one-third of the country's GDP and the demand for high-speed internet access is higher here than anywhere else in the country.
In March 2008, the company’s fixed telephony accesses stood at 11.9 million, marginally lower than in the same period last year (-0.8% y/y). However, the pace of growth of São Paulo’s broadband market has remained strong, with Telefônica accounting for around 58% of total market share. According to the firm’s latest quarterly release, the telco increased its retail broadband customer base by 28.2% y/y from March 2007 to 2.2 million accesses, with net additions of 98,072 in the first quarter of this year. Additionally, the operator totals 1.1 million dial-up connections, which could eventually follow a migration path towards a higher-revenue, broadband access plan.
This positive evolution has fuelled outstanding growth of the company’s combined internet and TV revenues (32.8% y/y in local currency), which now contribute 11.7% of total revenue and compensate for declining revenues from traditional business.