 | Issue: | Latin America IV 2001 |
| Article no.: | 8 | |
| Topic: | The Economic Impact of Regulatory Decisions upon the Telecommunications Sector in Brazil | |
| Author: | Marco Aurelio Rodrigues | |
| Title: | President | |
| Organisation: | Qualcomm do Brasil | |
| PDF size: | 20KB |
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Article abstract
From conception to implementation, the Brazilian privatisation programme has been an undeniable success, especially for telecommunications. Telebrás, the state-run telecom company, used to pump between US$5 and US$7 billion per year into investment in telecommunications infrastructure. Today the private sector invests between US$25 and 30 billion per year. The number of fixed and mobile terminals has grown to record levels; 47 million fixed and 27 million mobile terminals are in place at the end of 2001. Mobile systems have become so popular over the last few years that what was first imagined to be a service for the elite is now an important element in the drive to provide wider telephone coverage. Mobile telephones now play a major role, not only in large and small companies but in the lives of taxi drivers, maids, dressmakers, masons and the like. This growth, however, especially of mobile telephones, has brought with it a worrying problem of scale. I am referring here to the negative pressure it puts on our balance of payments. The implementation of new technologies has traditionally driven demand for imported products. Now that the market has matured somewhat, the country is starting to produce equipment locally. Handsets have an important role in this industry as not only new subscribers need them. The rate of replacement of existing mobile phones is significant, reaching more than 30 per cent in some countries. This is not a secondary issue. The government cannot fail to take it into account when taking decisions which change the course of our industry. Brazil, after the initial wave of imports, has now begun to export mobile phones and radio base stations. Although not sufficient to eliminate the balance of payments deficit in the electrical-electronic sector, it is fundamental to ease the balance of payments deficit.
Full Article
With mobile phones topping the list, telecommunications equipment is the fourth most important manufacturing export. Our exports, even with the current crisis, stand at around US$1 billion, and the United States is currently the largest market. Brazil reached the following export levels of mobile terminals: o in 1999, US$161 million o in 2000, US$718 million o in 2001, US$540 million (from January to September) Base station equipment exports have also performed well: o in 1999, US$39 million o in 2000, US$162 million o in 2001, US$140 million (from January to December) The level of domestic demand and incentives under the Information Technology Law, allied with lower direct costs, have given Brazilian companies the edge in certain foreign markets. These markets opened as a result of the choice made by Telebrás to adopt the 800 MHz frequency band and the American AMPS (analogue cellular mobile telephony system) standard and then, later, the TDMA and CDMA (digital cellular mobile telephony systems), which were the digital standards the analogue systems migrated to. Both TDMA and CDMA are American standards and are allocated in the same frequency band. The universe of existing cellular mobile subscribers is divided into these three technologies, tending to reach 58 million users in 2005, according to market forecasts. Consequently, in the coming years, the demand for terminals and base stations-either by the expansion of the installed base or by the replacement of mobile terminals-is expected to be more 31 million new users. In order to increase competition between mobile service operators, ANATEL, the Brazilian regulatory organ, decided to grant concessions to more operators, to introduce the SMP service (Serviço Móvel Pessoal-Personal Mobile Service) and to allocate the 1.8 GHz frequency band for the service. This decision changed the evolutionary direction of the country’s technology and introduced, in the country’s so-called Region 2, a frequency band in conflict with the standards for the North, Central and South American regions. The decision raised a number of issues: o The new SMP operators are doomed to use the European GSM technology, the only technology available in the 1.8 GHz frequency band. o The GSM systems are not operationally compatible with the systems currently operating in Brazil (AMPS, TDMA, CDMA). o Until the end of 2001, there was no scale manufacturing of GSM base stations or terminals in Brazil. o The technology and the GSM system is ‘phasing out’ and will start being replaced by third generation systems in a 2-3 year time frame. This decision clearly failed to take into account the fact that the country has a competent CDMA and TDMA industry, and that there was no GSM equipment manufacturer in the country. The decision will certainly lead to large-scale imports of terminals and base stations during GSM’s working life. This technology is set to be replaced by third-generation technology which will arrive here at the end of 2003 or beginning of 2004. Third generation systems will be allocated to the 1.9 GHz band in Europe and possibly in Brazil as well. It is, therefore, evident that the GSM systems installed by the SMP carriers in Brazil will have short working lives and will probably not lead to the growth of a significant local manufacturing base or to exports to other markets. In defining the 1.8 GHz system, we will be implementing a system that is out of step with the rest of Latin America. Since the standards or frequencies will be different from other countries, we will be unable to trade products designed for Brazil in the rest of the region. The United States’ market for mobile equipment produced in Brazil will practically disappear since the US allocated the 1.9 GHz frequency band, not 1.8 GHz, for GSM systems. As a result of the introduction of 1.8 GHz GSM technology, Anatel, the Brazilian regulator, is already being strongly lobbied to give existing A and B Band (800 MHz) cellular operators additional frequencies in the 1.8 GHz band. This, once more, will favour GSM technology, despite the harm to local industries already installed in the country and to the country’s trade balance. There is a strong probability that operators will be forced to adopt the GSM technology-even temporarily-to protect themselves from the competition of new SMP operators. This will increase, even more, the need to import base stations and terminals. It does not seem realistic to assume that Brazil will create a GSM equipment industry, just to satisfy the demand momentarily. Nor does it seem realistic to assume that Brazilian industries will be able to export GSM products to Europe, an already saturated market, or to the US, where a different frequency band is used for GSM. In addition, Brazil needs to evolve towards the third-generation mobile systems. These systems optimise the efficiency of spectrum usage and permit high-speed transmission of packet data -important innovations that operators will have to adopt to remain competitive. Brazilian operators face a complex situation when deciding how to evolve to third-generation systems: TDMA operators-There is no direct evolutionary path to the third generation. Operators have three options: o Do not make new investments-wait for the availability of 3G equipment. o Migrate to CDMA and evolve to 3G following the ITU’s specifications, or migrate to CDMA 2000-an American standard, available today. o Migrate to GSM, and prepare for additional investments in 2 or 3 years and then migrate again to 3G following either the ITU’s specifications or the W-CDMA standard (the UMTS European standard, to be available by end of 2003). GSM operators-There is no direct evolutionary path to the third generation. Operators have only one option-to wait for the availability of W-CDMA equipment. CDMA operators-This is the only technology that allows operators to evolve, today, directly to 3G by using CDMA 2000. The many types of technologies and multiple frequency bands create additional difficulties for operators and vendors: o There are no commercially available GSM base stations and terminals in the 800 MHz band. Thus, TDMA operators choosing the GSM path need two independent, non-compatible, systems and must do without roaming facilities outside their coverage area. o There are no commercially available GSM terminals operating in both the 1.8 GHz and 800 MHz (CDMA or TDMA) ranges so roaming between the new SMP operators’ networks and 800 MHz networks will not be possible. o Should such terminals and systems become available in the future, the production volumes will be not be sufficient to obtain significant economies of scale. That means these products will be expensive and will, possibly, have to be imported. There is a need to renovate Brazil’s mobile technology, to provide new services and to migrate to newer systems, but the change in direction signalled by Anatel’s decision in favour of 1.8 GHz GSM technology has left local industry with little opportunity to gear itself not only to meet local demand but to continue to export. As a result, during the short and transitory GSM technology phase Brazil we will, most likely, have to import equipment to grow and remain competitive. If bandwidth in the 1.8 GHz range is granted to existing cellular operators, there will be grave consequences for the Brazilian equipment and terminal industry and, as well, for its trade balance. Conclusion The world economic recession, the difficulty in attracting new investment to up-date recently installed networks, and the political and economic pressure to reduce Brazil’s trade deficit add to the difficulty of analysing an already complicated scenario in order to make the critical decisions the sector depends upon.
