|Latin America I 2003
|Broadband Access in Brazil
|Luiz Guilherme Schymura
Luiz Guilherme Schymura de Oliveira is the President and member of the Board of Directors of Anatel, Brazil’s telecommunications regulatory agency. Prior to his nomination to his present post, Mr. Schymura served as the Director of FGV consulting, as a consultant to the World Bank, to BID, to other institutions and industries and as editor of a magazine about econometrics- Revista de Econometria. Mr. Schymura, a native of Rio de Janeiro earned a degree in electrical engineering from PUC in Rio, received a masters and a doctorate in economy from the Fundação Getúlio Vargas and completed his post doctorate studies in economy at The Wharton School of the University of Pennsylvania. He has been active orienting masters and doctoral theses and has had many of his articles and essays published.
The use of advanced telecommunications for the widespread dissemination of information is a key to progress and development in the world today. Accordingly, Brazil’s integration into the Knowledge Society is Annabel’s primary task. Government action is needed to disseminate and develop broadband applications, to encourage the development of new applications and content and to help small- and medium-sized businesses, improve productivity and opportunities within the existing economic environment. Education will help this happen and broadband will make distance education a reality.
The continued growth of applications related to information and communication technology is transforming the economies of the world, at the local, national, and international levels. This has led to the emergence of a new paradigm for the economies and societies of the 21st century. For despite the differences among nations and the wide array of distinct perspectives, the common premise that underlies this issue is the intensive use of advanced telecommunications networks to bring about the widespread dissemination of the key agent of progress and development in the world today: information. New services intended for high-speed Internet applications will revolutionize economic and social relations, bringing with them enormous challenges for regulatory bodies throughout the world. Adapting Brazil’s telecommunications regulatory setting to this scenario and promoting the country’s integration into the Knowledge Society are, in my view, the main undertakings before Anatel. Until recently, the only benefit of broadband in Brazil was the provision of Internet access at speeds higher than those offered by dial-up connections. Nevertheless, the emergence of new on-line services is transforming the demand for high-speed access. In the past several months, there has been an explosion in the development of content specifically intended for broadband applications. The transmission of television programs, video on-demand, games on-line, videoconferencing are but a few examples of the revolution in new services now being offered to Internet users. “Broadband Internet access is concentrated almost exclusively within socioeconomic classes A and B” The economic and social benefits to the country arising from the spread of broadband go far beyond new service offerings. The technology will pave the way for a true revolution in the ability of lower income segments to access information, an essential component in Brazil’s quest to speed up the pace of its race toward development. Similarly, once broadband has been made available in both public and private schools and universities throughout the country, it will turn bold educational projects, such as distance education, into a reality. In spite of the low penetration of broadband access in the Brazilian market, its prospects for growth are significant. While at the end of 2001 there were fewer than 300,000 high-speed Internet access technology users, the estimates for 2002 indicate that this figure now surpasses 600,000. The forecasts for 2003 are more promising still, with the most optimistic projections pointing to a total of more than one million users. As with other telecommunications services, the penetration of high-speed Internet services among the different consumer segments is not uniform. Recent studies show that, in the residential market, broadband Internet access is concentrated almost exclusively within socioeconomic classes A and B. For example, among heavy users (users who access the worldwide computer network for several hours a day), estimates indicate that the penetration rate has reached approximately 60%. Currently, dial-up connections accomplished using the public telephone network represent the primary method of Internet access in the residential and Small Office and Home Office (SoHo) markets. The low penetration rates among those segments stem primarily from the cost of the service and the unequal distribution of income in the country. In spite of the reduction in prices in the last several years, broadband access is still beyond the reach of a majority of the population. More efficient use of the communication networks will open the way for promoting even more significant reductions in the cost of broadband, thereby enabling the universalization of the service. Currently, broadband access in Brazil is achieved mainly by means of ADSL technology, which is dominated by the local telephone operators, that is, the incumbents. These companies control the telephone network, a fact that confers on them a virtual monopoly over the provision of ADSL service. Anatel is firmly committed to adopting measures that foster competition that will allow for price reductions and the continued improvement in the quality of broadband services. One of the alternatives being studied to increase competition in the Brazilian market is unbundling. The General Law of Telecommunications (Lei Geral de Telecomunicações), enacted in 1997, establishes that for purposes of developing competition the telecommunications service providers of collective interest must, in the cases and on the conditions established by the regulatory agency, make their networks available to other telecommunications service providers. “There are nearly 11.6 million residential Cable TV subscribers and 2.3 million pay-TV users connected through MMDS technology in Brazil today” We believe that an effective unbundling could be a step towards the development of the competition in residential and SoHo markets. Clearly, then, the principles associated with local network unbundling are already enshrined in Brazilian law. It is Anatel’s understanding that the operators should implement network sharing, thereby stimulating competition and, by extension, guaranteeing lower prices for users. Nevertheless, the operators that control the telecommunications networks continue to exercise a dominant position in the broadband access market. It is the responsibility of Anatel, in its role as regulatory agent, to determine those technical and financial conditions needed to improve the effectiveness of unbundling as an instrument of competition. However, the economic incentives earmarked for network construction and modernization must be preserved so as to ensure the continuity and quality of service provision in the long term. Although alternative technologies to ADSL currently provide only an incipient form of broadband access, they may, in the medium term, become an important vehicle for competition within SoHo markets. The licensed pay-TV operators have great potential for increasing competition in the country’s metropolitan centers, areas in which their fibre optic networks are already in place. “It is the responsibility of Anatel, in its role as regulatory agent, to determine those technical and financial conditions needed to improve the effectiveness of unbundling as an instrument of competition.” These operators, whose primary market consists of residential access at 128 Kbps, remain, however, a long way from achieving reasonable levels of penetration. To illustrate this point, there are nearly 11.6 million residential Cable TV subscribers and 2.3 million pay-TV users connected through MMDS technology in Brazil today. However, there are fewer than 100,000 cable modem Internet users, demonstrating that there is still a vast market waiting to be tapped by the operators. The Multimedia Communication Service (Serviço de Comuncação Multimídia – SCM) providers have become, through the development of private high-capacity transmission networks intended to provide customized solutions to their voice, data, and image communication users, the primary broadband access providers for the corporate market. In addition to the process of unbundling discussed above, these operators are able to serve small-business markets through the use of wireless local access technology. Various radio-frequency bands are available for these applications, the most noteworthy of which is the 2.4 GHz band, which does not involve frequency assignment because of the use of spread spectrum equipment. Additionally, competitive bidding procedures are underway for the 3.5 and 10.5 GHz bands, which will primarily be employed by corporate networks and the Local Area Networks (LANs). Further promising advances in high-speed access are taking place in mobile telephony. The entry of new operators that employ GSM technology and the adoption of innovations by operators that already work with CDMA and TDMA technology have firmly placed Brazilian cellular telephony in the 2.5 G era. Significant rate reductions will be evident to end users in the near future, given the fact that the sector is entering into a period of increasingly vigorous competition. In its publication, “Broadband: Bringing Home the Bits,” published in 2002, the National Academy of Sciences of the United States emphasizes the importance of government action to disseminate and develop broadband applications. According to the institute, the Government should foster research and experiments that stimulate competition, promote a better understanding of the relevant social and economic factors, in addition to providing incentives for the development of new applications and content that expand demand for broadband access technology. This should be achieved while taking into account unique local conditions. “Anatel is aware of its responsibility in supporting Brazilian Government to develop public policies that promote the dissemination and universalization of broadband Internet access in Brazil.” Of course, we intend these actions to penetrate residential and SoHo markets, which still have low levels of broadband penetration. Far beyond enacting changes in the regulatory structure, strategies must be established. In other words, tapping into broadband’s enormous potential in Brazil, an effort that must be carried out in a manner that opens new horizons for the digital inclusion of the disadvantaged segments of society as well as small- and medium-sized businesses, depends on initiatives that: promote investments in the construction of telecommunications networks, while considering all of the available technologies – ADSL, cable, wireless, and satellite; take into account regional and local specificities, both in terms of adapting the technologies as well as promoting competition; encourage interaction between the public sector and other sectors of society with respect to research and the search for solutions that are appropriate for residential and SoHo businesses; review those regulatory provisions that may create barriers to the entry of new competitors and discourage investments; encourage research and experimentation, not only technological but also economic, that could offer alternatives to the industry and the broadband market, while also reaching small- and medium-sized businesses so as to improve their productivity and ability to do business and expand their opportunities within the existing economic environment. None of these factors has escaped Anatel’s attention, nor have they been omitted when implementing the actions that depend on the exercise of its regulatory role.