Opening of Brazil's Telecom Market Successful So Far

FORT LAUDERDALE, FLA. (03/27/2000) - The agency that regulates Brazil's telecommunications market gets high marks from credit-rating company Fitch IBCA for its work in overseeing the opening up of Latin America's largest telecommunications market.

Anatel, as the regulatory agency is called, has done a very good job of steering Brazil's telecommunications market from a monopoly to a progressively more open and competitive situation, Fitch IBCA said in a recent report.

Anatel's ability at controlling the incumbent companies in the market and the body's interest in fostering competition "have enabled (it) to create a truly competitive operating environment that has fostered innovative marketing and, so far, achieved competitive market benefits," according to the Fitch IBCA report.

Brazil began opening up its telecommunications market several years ago. The country's most decisive step toward allowing competition to blossom was the US$19 billion privatization of its state telecom, Telebras, which was broken up into 12 companies -- one long-distance carrier, eight cellular providers and three fixed-line operators -- and auctioned off in July 1998. [See "MCI Buys Stake in Brazil's Long Distance Telco," July 29, 1998.]Currently, all 12 of the former Telebras companies face competition, and the result of the state telecom's breakup has been an increase in revenue, services, speed and efficiency in a market that, during its monopoly years, had been marked by utter inefficiency, according to Fitch IBCA.

"The Brazilian telecommunications sector is currently experiencing the greatest growth period in its history. The growth is attributable to reform measures taken by Anatel... and continued consumer demand," the report states.

However, the task is far from finished, Fitch IBCA said. In a couple of years, Brazil's government plans to broaden the competitive framework, which in most markets is currently a duopoly, and this process will have to be properly managed. Furthermore, constant and heavy investments will be needed from carriers in order to continue revamping the country's telecommunications infrastructure.

"A substantial level of capital will be required to complete Phase 1 build-out of the Brazilian telecommunications infrastructure," the report states.

Fitch IBCA forecasts a process of consolidation for the Brazilian telecom market, during which time international players such as Spain's Telefonica SA, AT&T Corp., Telecom Italia and MCI WorldCom Inc. will have the upper hand.

"Given the highly fragmented status of the Brazilian telecommunications sector, full-fledged consolidation is expected once cross-sector consolidation restrictions are lifted beginning in 2005. Obviously, companies that are wholly owned by strong multinational operators... will hold an advantage in an environment of consolidation," the report states.

Brazil, which has a population of about 172 million, is Latin America's largest economy and the eighth-largest economy in the world.

Like Brazil, many other Latin American countries have embarked on journeys to end decades of telecommunications monopolies which left them with archaic telecom infrastructures.

México, Chile, Argentina, Perú and Venezuela are some of the countries who either have reformed or are in the process of reforming their telecom markets.

Industry observers note that the agencies in charge of regulating these markets play a critical role in determining whether the evolution to a competitive, open market will be successful. [See "LatAm Governments Could Choke Telecom Improvements," Sept. 24, 1999.]The telecommunications services market in Latin America is expected to grow from $40 billion in 1998 to $92 billion in 2004, according to market research company Pyramid Research Inc. in Cambridge, Massachusetts.

Fitch IBCA, based in New York City, can be reached at +1-212-908-0500 or at http://www.fitchibca.com/. Anatel is at http://www.anatel.gov.br/.

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