Hanging Up On the State

In Brazil you own a phone like you own your car. And while used car prices fall, used phone prices only rise. To buy a phone is a great investment. You cant get a telephone in Rio or São Paulo very quickly. With $3,000 you can get yourself a cellular in no time at all and, depending on the line location, $3,000-$6,000 will buy a conventional telephone line. The alternative is to pay more than $1,000 in monthly installments in the so-called self-financing plans. But then you will have to wait years for an actual line. All of this should change soon.

Emerson Luís

Brazil ranks tenth in Latin America in the number of telephones per capita, with 10 telephones for every 100 people. In São Paulo, South America's largest city, the situation is only slightly better with 15 lines per 100 inhabitants. As a result, there are 10 million hopeful people on waiting lists to get a conventional telephone line in Brazil and seven million more hoping to put their hands on a cellular telephone. After paying hundreds of dollars, their wait could last up to three years. And these are the lucky ones, since there are millions more who were not even able to secure a place in line.

In Brasília, the nation's capital, there are 400,000 residents who have paid for mobile phones and now are waiting to receive them. In the greater Sao Paulo area there are another 460,000 people in the same situation. Since November 1994, in São Paulo itself, people cannot even apply for a telephone line. When Telesp, the São Paulo state phone company, begins selling lines once more, up to three million people are expected to apply for them. To begin solving this chronic lack of telephones, the government would need to invest at least $8 billion a year, but it has not committed more than an average of $3.5 billion for the last few years.

For some time now, privatization of the telecommunications industry has been presented by the government itself as the only solution to this predicament. But the process has been slow and much depends on the political will of Congress, which has the last word on the matter. Telebrás, the federal agency that monopolizes communications in Brazil, has been a national and inexhaustible pork barrel for politicians seeking to reward their protégés. There is much hope, however, that 1997 — the eve of the 21^st century — will witness the start of a process that will usher the telephone service in Brazil into the 20^th century.

The Câmara dos Deputados (House of Representatives) has approved a law that allows the participation of private capital in the telecommunications business since May 1996, but nothing will change for some time. The lengthy process of opening the market is starting with the sale of only the B-Band part of the spectrum for cellular telephones. (The A-Band will continue to be operated by the state for now.) These concessions from the government will be granted for 15 years, and if everything works as planned by the Communications Ministry — and few people believe it will — the first concession contracts should be signed by June and the first private cellular telephone companies should be operating at the end of this year.

The overly optimistic minister of communications, Sérgio Motta, believes that private telecommunications companies will invest at least $8 billion by the end of 1997 and that, by December, 5.5 million Brazilians will have their cellular telephones, a number double that of cellular phones now available. Motta is working with these unrealistic deadlines in an apparent attempt to pressure Congress to approve additional laws that will facilitate a broader privatization of the communications sector. He wants, for example, the Lei Geral (General Law) which would establish the ground rules for privatization, to be ready by April. No one believes this to be even a remote possibility.

One of the skeptics, Boavista bank director Graça Paiva, declared to the daily newspaper O Estado de São Paulo: "In 1996, we wasted time with endless postponements. This year has to be one of definitions. The investor who wants to apply in the sector will not be waiting until Brazil decides for privatization. To not make a decision fast is to miss the appreciation jump." Responding to the critics, the Communications Ministry's executive secretary, Renato Guerreiro, declared: "Brazil is getting into the train of history as a locomotive and not as a wagon."

Minister Motta also would like to start privatization of the communications sector before the end of the year, "and by the end of 1998, complete the privatization of the system, or at least make it irreversible," as he declares in a document called "The Changes in the Communications Sector."

Communications in Brazil are currently centralized at Telebrás, which serves more than 90 percent of the national telecommunications network (some state and municipal companies do the rest). It is also the holding company for 27 state subsidiaries and Embratel, the long-distance and international carrier also in charge of the Internet service in the country. The privatization will begin with Embratel and São Paulo's Telesp, the largest Telebrás' subsidiary, which represents more than 30 percent of Brazil's 15 million telephone lines.

The sheer size of the industry's potential is causing the world to salivate over the Brazilian telephone market. The biggest names in telecommunications from the United States, Europe, and Asia are lining up in the hope that Brazil will have close to 60 million telephones by the year 2003. According to American Pyramid Research, Brazil will spend $79 billion in the next three years on telecommunication services and equipment. The Communications Ministry has forecast $100 billion in government and private investment in the sector over the next seven years. The government alone expects to receive $15 billion from the sale of the state telephone monopolies and licenses for cellular services. The ten concessions to be sold nationally for cellular networks will bring from $2 to $3 billion to the government coffers.

It is estimated that there will be 350 million cellular phones in the world by the year 2000. Ten million of them will be in Brazil. "Brazil is the biggest market for the cellular phone in Latin America," says Mark Shultz, AT&T's vice-president for international development and operations. According to him, Brazil is the number one priority at the American giant. AT&T, together with its Brazilian partners, Globo and Bradesco, intends to invest $400 million of a total of $1 billion if it wins its bidding for a cellular concession.

Five American telecommunications companies have already joined forces with Brazilian firms in order to get at least a piece of the action. They are, in addition to AT&T, Air Touch (together with Empresa Folha da Manhã, Stelar Telecom, and Unibanco), BellSouth (with O Estado de São Paulo, Rede Brasil Sul, and Safra bank), Southwestern Bell (with AG Telecom, General Electric, Mannesmann, and Monteiro Aranha) and GTE (with Sistema Brasileiro de Televisão and Mitsui). Also joining in the contest are Bell Canada, Telia from Sweden, DDI from Japan, Stet from Italy, Millicon from Luxembourg, Hutchinson from Hong Kong, and Korea Telecom and Korea Mobile Telecom, both from South Korea.

The removal from the state ` s hands of the long-distance and international services now monopolized by Embratel will also generate immense interest. This is a very lucrative sector and Embratel has seen its monopoly eroded by US telephone companies that offer much cheaper service through the so-called "call back." Brazilians call a special number in the US, let the phone ring once, then hang up. The American service returns the call, thus completing the connection as if it were being done in the States. "Our priority is to get more involved with Brazil," said American MCI's senior vice-president for international affairs, Lawrence Codacovi. With offices in Brazil since 1992, Sprint, another US firm, has joined forces with German Deutsche Telekom and French France Telecom to create the Global One company. While Embratel does not share the benefits, Global One is investing $10 million in Internet service. "If there was a long-distance license open for competition in Brazil, we would be investing in it right now," said Francisco Loureiro, president of Global One.

It will take some years before the monopoly of the 27 subsidiaries of Telebras is broken and the companies are reconfigured into several groups across the country. Industry observers are already calling the future entities "baby-brás," since the Brazilian privatization plan is being modeled on the breakup of the AT&T monopoly in the US that produced the seven "Baby Bells." It is not clear, however, how such a division would be made. If a geographic criterion is chosen, it is probable that the companies with the choicest markets — like those from Telesp in São Paulo and Telerj in Rio — will also have to accept less developed regions, so the whole country can be served without regard for market size.