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Foreign firms sink teeth into Brazil mobile market

July 30th, 2010

Multi-billion-dollar deals by Spain’s Telefonica and Portugal Telecom in Brazil’s booming cellphone market this week underline the growth potential of Latin America’s biggest economy, analysts say.

They also point the way to perhaps further consolidation in a country where 185 million people out of a population of 193 million have mobile telephones.

Wednesday’s announcement that Telefonica was taking control of Brazil’s biggest cell network operator Vivo by buying out Portugal Telecom’s stake in the investment vehicle they shared for 9.7 billion dollars started the ball rolling.

PT immediately announced it was using around half that bonanza to buy a 22 percent stake in Oi, the fourth-rated operator and the only one controlled by Brazilian interests.

The moves gave Telefonica — which also has a stake in third-ranked Tim, controlled by Telecom Italia — boosted access to Brazil‘s flourishing market, PT a continued Brazilian revenue stream, and Oi badly needed capital to write down debt.

The second-biggest network, Claro, is run by Mexico’s America Movil.

“The big change sweeping through Brazil’s telecommunications sector with Telefonica’s aggressive offer has much to do with the future of seeing the Internet and television on cellular telephones,” said Manfred Back, a business administration professor at University of Industrial Engineering.

“This fight between big companies is affecting the market, it’s a battle not over selling mobile telephones but over selling Internet packets for telephones and, in the future, television. The market is huge.”

Underlining that point was the fact that there were just 65 million Internet users in Brazil — a market that is set to explode when access is made easier through web-ready cellphone handsets.

Brazil is keen to keep a piece of the action. President Luiz Inacio Lula da Silva said he would do his best to ensure Oi remained a Brazilian-controlled company despite PT’s big stake.

“One thing I guarantee as long as I am president is that this company will continue to be a national company. That’s what it was created for,” said Lula, who steps down at the end of this year after serving the maximum allowed two terms.

Camila Saito, an economic analyst at consulting firm Tenedencia, said the moves by Telefonica and PT were “a crucial step” toward consolidating Brazil‘s telecoms sector, including fixed-line and cellular outfits.

While that was giving cheer to corporate investors, Brazilian cellphone users may yet rue the narrowing competition.

Cellphone service quality is often poor in the country, and comes at hefty subscription charges.

Call costs per minute are the second-highest in the world after South Africa, according to the European consulting firm Bernstein Research.

Likewise, Internet access is extraordinarily pricey for speeds just a fraction of those seen in Europe or Asia.

Analysts fear that a concentration of operators could make the situation worse for consumers.

“All of us who use telecommunication services — Internet, cellphones — know that the services are lousy, that they are not getting any better and that they are really expensive,” an editorialist in the Globo newspaper, Miriam Leitao, said.

Back agreed, saying: “This titanic fight is for market position, but I have doubts that the consumer will benefit.”

Copyright © 2010 AFP

By Anella Reta

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