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Brazil Telecommunications Report Q1 2008Product Type: Market Research ReportPublished by: Business Monitor International Published: February 2008 Product Code: R302-2113 Description Brazil’s telecoms market is proving to be more robust than previously forecast by BMI, with growthexpectations for the mobile and broadband sectors revised upwards and the fixed-line market decliningmore gradually than we had anticipated. Positive news for the mobile market is the September auction ofadditional wireless frequencies, while a date for the long-awaited 3G auction has been set for December.Questions over the ownership of regional mobile operators Telemig Celular and Amazônia Celularhave been resolved, with Vivo agreeing to buy controlling stakes in both companies which, combinedwith the mobile frequencies it received in September, will finally enable it to roll out services nationwideand compete on a level playing field with rivals TIM Brasil and Claro, both of which have been steadilyencroaching on its market share.Brazil reported a second quarter of strong mobile growth in Q307, with nearly 6.1mn net additions onlyslightly below the 6.2mn signed up in the country’s biggest ever quarter - Q405 - in a seasonally strongChristmas quarter. The strong growth was partly driven by Vivo, which recorded its second straightquarter of over 1mn net additions in Q3 (the last time it took over 1mn in a quarter was in Q405),although this was - at least in Q2 - at the expense of a worsening subscriber mix, while Oi also pulled ina near-record performance and, encouragingly, actually improved its subscriber mix. We now forecast theBrazilian mobile market will grow by around 18-19% in 2007, penetration of 62.6%, and anticipatepenetration will exceed 80% in H110 and 90% in H211. Growth rates should slow again from 2008 as operators focus on launching 3G services, with 3G takeupexpected to be moderate as long as operators do not make the mistake of heavily subsidising handsets.Services will initially be launched in Brazil’s wealthiest cities, but we do not anticipate demand will besignificant given the relatively low instance of data and VAS usage. BMI is concerned at Anatel’srequirement that operators receiving 3G licences for wealthy regions will also be required to roll out 3Gservices in less developed areas. While we applaud the efforts to standardise service availabilitynationwide, forcing operators to deploy 3G infrastructure in areas where demand is likely to be lowbefore they have been able to recoup costs elsewhere could prove problematic, and we would hope to seesensible rollout targets from the regulator. The mobile market will also be affected by several measures introduced by Anatel in Q307. Theintroduction of mobile number portability (MNP) between August 2008 and March 2009 will make iteasier for customers to switch service provider in a market with already high churn rates. However, thepositive effects will be somewhat mitigated by measures mandated by Anatel to strengthen customerrights which are to be implemented by Q108 and are likely to have financial implications for operators -which could bring about another round of belt-tightening. Brazil Telecommunications Report Q1 2008 Brazil’s broadband market will be boosted by the launch of Brazil’s first commercial IPTV service byBrasil Telecom in September 2007, with Oi reported to be planning a Q108 launch in Rio de Janeiro. Thetwo operators continue to record strong broadband subscriber take-up, although they are beingoutperformed in terms of net additions by both TELESP and cable company NET, which acquired fellowcable operator Vivax in H107. As the big four operators continue to post healthy growth rates and smallerplayers such as cable TV operator TVA have an increasing impact on the market, we have made upwardsadjustments to broadband forecasts for 2007 and beyond, now expecting the market will expand byaround 50% in 2007 to bring penetration to 3.8%, a year earlier than previous forecasts. We expectgrowth rates will slow but remain in healthy double digits over the forecast period, raising penetration tonearly 9% by 2011. Brazil’s fixed-line market continues to decline, but at a slower pace than forecast earlier in 2007 as thelargest operators Oi and TELESP are stemming the flow of fixed-line subscribers with alternate minuteplans, although their fixed-line user bases continue to decline. The more gradual growth comes despitefaster take-up of mobile services and, with less than 25% of Oi’s subscriber base on such plans at H107,there are still considerable opportunities for the operators, while Brasil Telecom could also follow suitonce it completes a clean up of its subscriber base to cut off blocked lines not generating revenue. Wenow forecast fixed-line penetration will dip from 20.1% to 19.5% in 2007, against earlier expectations of19.3%, but continue to expect penetration will drop to around 17.6% in 2011. Table of Contents
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