|Latin America I 1997
|Telecommunications Trends and Developments in Brazil
|Senior Assistant Vice President
|Delta National Bank, USA
The Brazilian economy looks bright as the confidence in the country is increasing and consequently so is direct investment. The continuing privatisation process, though still facing difficulties, is positively affecting major public sectors like telecommunications. It will generate further economic development and new products and services thereby benefiting customers and investors.
To better understand the trends and developments of the sector, we must first consider the country’s political situation and economy. Politics and Economics Firstly the Re-election Bill: In the last week of January, the Government passed a critical first vote on the constitutional amendment that allows the Executive’s re-election. Although a second vote will still occur in the Lower House, Mr. Cardoso, the Brazilian President, has gained strong political support in his favour, not just for the re-election bill, but also for other pending constitutional reforms. Furthermore, monthly inflation and interest rates are continuing their downward trend. Expectations for 1997 are around 8% p.a. and 20% p.a. respectively in Brazilian Real terms, which means that the country is gearing towards stabilising these two important macro-economic parameters. According to the current monetary and foreign exchange policy, the Real will continue its devaluation of 0.6% p.m., despite any major deficit number that may come up in the trade balance. As a result of the above factors and further expectations regarding Brazil’s growth potential, the confidence in the country is increasing and consequently so is direct investment. The privatisation programme is picking up, positively affecting all major public sectors like telecommunications, electric utilities, oil and mining. Telecommunications Outlook Now let us focus on the prominent trends of the telecommunications sector. There is no question that this sector has tremendous growth potential for the following years. The pent-up demand for services and fixed lines is huge, and the Government has no structure to support the kind of investment the sector needs – estimations for investments run round US$10 billion per year. This is one of the reasons the Government is committed to the sector’s privatisation. Basically, the trend in the telecommunications sector is characterised by the development of the market and of new technologies, its opening-up and its privatisation. Brazil still has one of the lowest domestic tariffs compared to other countries around the world, so the expected rebalance of these tariffs in 1997 should benefit the telecommunications companies, adding to this sector’s attractiveness. However the sector is faced with some privatisation difficulties. Regarding the privatisation of the cellular business, the Government will start first with opening the industry to the private sector and to foreign investors by giving them concessions to explore this area for a certain period. Initially, some limitations will fall upon the participation of the foreign investors. The important fact to point out is that the Government is not completely prepared to regulate and legally open the sector, and may have some legal problems to bypass before the process starts definitely. Also, the Government still has to define the privatisation plan regarding the other non-cellular services, which may cause some delay in the process. In its attempt to improve this situation, the Government created the General Telecommunication Law, responsible for almost all regulatory decisions regarding the sector, but still there are some points to be reviewed. Development and New Business So what will the future bring? Development and New Businesses for sure. But Brazil does have a long way to go to meet the level of technology found in the first world’s telecommunication products. Conclusion Improvements have to occur, not just to create new services, but also to increase quality. With globalisation, new technologies and products are being created at a high speed, and the new investments (due to privatisation and foreign capital) will help the implementation of these technologies and services, which will benefit customers and investors. New businesses will generate economic development and a whole amount of new products and services like: PCS (Personal Communication System), Satellite Communication, Fixed-Cellular System, Internet, Cable, and data communication in general.