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Summary

TIM Brazil has announced its revised industrial plan for the 2017–19 period, the first produced under the supervision of Stefano De Angelis, who was appointed CEO in May 2016. Among the usual pledges of better financial performance and more efficient operations, one aspect of the plan is remarkable: The group has essentially given up on the market-share race and will instead focus on profitability. This reflects the new reality in Brazil, which is now a saturated market. One of TIM Brazil’s first challenges in implementing its new strategy will be to tackle a rise in consumer complaints, which could have an impact on both market share and profitability.

Need to solve quality issues despite decrease in capex

Brazil shed 36.7 million mobile connections in the past two years, with TIM Brazil losing the most: 12.3 million. The company paid the price for focusing on prepaid, which was hit the hardest by the change of fortunes in Brazil. The company’s new industrial plan estimates that TIM will continue to lose connections in 2017 and that its base will stabilize at around 60 million in 2018–19.

It is surprising to see a mobile operator stating that it will lose subscriptions, and probably market share, but TIM is going in the right direction, since the days of high growth for Brazil’s mobile market are over. The change has led TIM to focus on keeping its customers and boosting its profitability via investment in mobile broadband and postpaid customers. TIM expects to see its postpaid share grow from 21% to 35% of total connections and to increase its share of the sector’s revenue by 2%, to 25%.

It will not be easy for TIM to win over postpaid customers, since it has suffered from a perception of poor network quality since 2012, when the operator was the worst hit by regulator Anatel’s decision to block operators from selling new lines if they had a lot of customer complaints. In addition, TIM Brazil’s number of customer complaints increased 18% between 2015 and 2016, according to Anatel. The regulator says that TIM Brazil accounted for 30% of total complaints in Brazil’s mobile market in 2016.

However, TIM Brazil’s need to improve customer satisfaction conflicts with other aspects of its industrial plan, including its aim to reduce capex over the next three years, which will make it tough to invest in improving network quality. TIM Brazil does note that it plans to continue expanding 4G coverage, which could improve network quality for customers as they gain access to 4G services.

While investment in 4G will help TIM improve network quality and reduce the number of customer complaints, the question is whether it will be enough given TIM’s goal of reducing overall capex over the next three years. TIM will need to be extremely efficient and do more with less to address its customer satisfaction problems and achieve the goals of its new strategy.

Appendix

Further reading

Brazil Update, December 2016, TE0001-001069 (February 2017)

“Brazil’s telcos could be up for sale, but who will buy them?,” TE0001-001071 (January 2017)

Author

Ari Lopes, Principal Analyst, Latin America

ari.lopes@ovum.com

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