Global Insight Perspective | |
Significance | Brazilian operators have paid a high price for licences in the first two days of 3G spectrum auction. As a result, telecoms regulator Anatel has raised its revenue forecast from 4 billion Brazilian reais to 6 billion reais. |
Implications | Operators will be bound with a list of contractual obligations to ensure growth in all regions and lift the current 61.2% mobile-line penetration rate to 100.0% by 2014 to comply with Anatel's plans. |
Outlook | Global Insight does not expect a quick take-up rate of 3G services, while returns to the operators' investments will only come in the long term. |
Brazil's telecoms regulator, Anatel, received eight bids from the following companies: 14 Brasil Telecom S.A.; Americel S.A./BCP S.A. (Claro); CTBC Celular S.A.; Nextel Telecomunicações SMP Ltd; Telemig Celular S.A.; Tim Celular S.A. and Tim Nordeste S.A.; TNL PCS S.A. (Oi); and Vivo S.A. (see Brazil: 12 December 2007: Brazilian Regulator Receives Eight Bids for Upcoming Auction of 3G Spectrum). These have competed for 36 lots in 11 service areas in four (F, G, I, J) of the phases designated for the deployment of 3G services. Band H will be auctioned on another occasion and is likely to be assigned to a new player or a company that is not willing to compete with the big players in the first tender.
Aiming to establish equal interest for all spectrum blocks linked to different geographical regions and quick coverage expansion even in non-competitive areas of the country, Anatel has stipulated a number of contractual obligations for the winning bidders. To promote competition on a regional level, Anatel has awarded four blocks of spectrum in each lot, bringing the process in line with the objectives of the most recent 2G spectrum auction in September 2007 (see Brazil: 26 September 2007: Brazilian Vivo Wins Six Regional Licences and Achieves Nationwide Coverage).
The Brazilian state has raised a hefty 5 billion Brazilian reais from the first two days of the long-awaited tender of 3G spectrum in the 1.9 GHz and 2.1 GHz frequency bands. This represents an average 89.24% premium over the earlier announced minimum bidding prices, and as a result, Anatel has raised its revenue forecast from 4 billion Brazilian reais to 6 billion reais.
The big three players, Vivo, TIM, and Claro, have all won licences in all of the areas auctioned so far with the exception of area VII, which attracted interest from Claro and smaller-in-size operators Oi, Telemig Celular, and CTBC. All three operators are foreign-owned: Vivo is jointly owned by Spain's Telefónica and Portugal's Portugal Telecom; TIM's main shareholder is Telecom Italia; and Claro is owned by pan-Latin American operator América Móvil, part of Mexico's Carlos Slim's empire. The prosperous, south-eastern key states of São Paulo and Rio de Janeiro attracted premiums ranging from 20.27% to 273.92% over the nominated minimum price. Information about the service areas, minimum bid and winning price, name of the winner, and premium can be found here, in Portuguese.
Outlook and Implications
The heavy investment and high premiums in most service areas are indicative of the increased interest of the participating players in the auction. Although investors will only see returns in the long run, the deployment of 3G networks will see the provision of services such as video calling, video streaming, high-speed internet access, and a range of next-generation content applications. Anatel's president, Ronaldo Sardenberg, was quoted by Dow Jones on Tuesday saying that the auction will likely lead to investment of 10 billion Brazilian reais (US$5.54 billion) over the next two years, including the purchase of licences. However, the high premiums paid, particularly for lots in the south-eastern state of Rio de Janeiro that were elevated by aggressive bidding from trunking operator Nextel, which ultimately did not win a licence, will probably raise the final capital expenditure figure.
Given the slowly growing mobile penetration rate in the last few quarters, Global Insight does not expect to see quick take-up of 3G services that would lead to high revenue for the operators. According to the latest Anatel data, November saw a total of 116.3 million mobile lines, which corresponds to 61.2 accesses per 100 inhabitants. Although this only represents 1.42% growth over the previous month of October, Anatel expects to see a 100% penetration rate by 2014 with an approximate 200 million lines in service. At the moment, the highest rate of 114.82% is recorded in the capital city of Brasilia, followed by the states of Rio de Janeiro and Mato Grosso do Sul with 76.83% and 74.39%, respectively. The north-east and north of the country are found at the bottom of the rankings with 47.34% and 44.15%, respectively. The high variance among regions poses a problem for Anatel and stands behind its decision to link this recent auction with the list of contractual obligations, which aim to bring down the inequalities and boost steady growth rates in all regions.