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Summary

Brazilian regulator Anatel took some risks when it decided to auction spectrum for new regional operators. The result may be a fundamental change in Brazil’s broadband market by increasing supply in the underserved countryside, but success is not guaranteed since these new players now need to overcome the challenges of building a viable wireless business.

TD-LTE makes feasible hundreds of new operators in Brazil

An Ovum analysis has shown that 49% of the Brazilian population lives in cities with a Herfindahl-Hirschman Index higher than 50% – in other words, areas with low competition. The same analysis shows that about 42 million Brazilians live in areas with an average fixed broadband household penetration of just 4% as opposed as 37% nationally. In general, the leading operators in Brazil concentrate their investments in the larger urban areas, such as Sao Paulo and Rio de Janeiro, and only slowly invest in other areas.

This situation clearly influenced the design of the latest auction by Anatel. The regulator offered spectrum in the 1900MHz and 2500MHz bands that was left unassigned from previous auctions. In total there were 20,500 city licenses available, the vast majority outside larger metropolitan areas, and existing players were not allowed to bid. Moreover, winners have 18 months to deploy the network, without coverage obligations, and 10 years to pay for the spectrum. In short, Anatel made sure that auction conditions would encourage participation of regional players.

And they did participate. A total of 324 regional players acquired 5,500 licenses in 2,903 cities and are expected to deploy TD-LTE operations in the coming months. The majority of these licenses are located in mid-size and small cities, and most of these operators will have just few thousand customers, so their impact will come not from big gains in subscriber numbers but in the expansion of infrastructure to areas with low competition.

However, there is at least one doubt about the auction and many challenges for the regional operators to overcome. The doubt refers to the real motivations behind some of the companies’ decision to acquire spectrum: a group of them already offer broadband via other technologies and might have bought licenses to prevent the arrival of new competitors. The challenges range from sourcing OSS/BSS equipment as well as TD-LTE customer premises equipment – some of the operators have reported difficulties in finding solutions that suit small-scale networks – to the uncertainty of having a viable business case for a wireless network.

Nonetheless, these entrants will operate in areas with low competition, and Ovum expects that their knowledge of local markets will enable many of them to succeed. Anatel’s initiative has the potential to create an interesting community of fixed wireless broadband providers in the vast areas of Brazil`s countryside.

Appendix

Further reading

Brazil Update, December 2015, TE0001-001010 (January 2016)

Author

Ari Lopes, Principal Analyst, Latin America

ari.lopes@ovum.com

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