Anatel says “No Way” to Telemar

Citing a fixed concession contract clause expressly prohibiting fixed operators from providing cable services in their concession regions, Brazilian telecommunications regulator Anatel has blocked Telemar’s purchase of cable provider Way Brasil nearly eight months after the incumbent originally struck the deal. The agency’s eagerly awaited decision negates what the carriers had viewed as a shortcut to distributing video content in Brazil. The carriers may have lost this battle, but we see a number of short-term solutions available to them, at least until a long-term change in regulation becomes a reality.

Keeping Carriers Away from Content Distribution

Anatel’s decision illustrates the difficult regulatory environment that Brazilian fixed carriers face in obtaining access to content distribution rights. Domestic broadcasting content is a crucial aspect of Brazilian culture and is a must-have for any successful video service in the country. Yet, due to foreign-ownership limitations, fixed carriers are generally forbidden from providing broadcasting services via their broadband networks. Brazil’s broadcasting industry—led by media powerhouse Globo—yields considerable lobbying power in the Legislative and Executive branches of government and is protective of a status quo that allows it to both produce and distribute content. Globo is also a major shareholder of Net Serviços, the country’s leading cable operator, which has successfully captured broadband market share from fixed operators by bundling triple-play services. Thus, two opposing camps have formed in the Brazilian communications industry: the broadcasters and Net Serviços on one side, and the fixed carriers on the other. Anatel’s decision favors the former.

The Fight Isn’t Over, but Telemar’s Options Are Limited

Anatel’s decision is a major blow to the incumbent fixed carriers; it effectively means that the only way they can fully control the provision of attractive video services is by changing their concession contracts. This will take time, and the desired outcome is not guaranteed. While industry stakeholders in Brazil accept the need for more flexible fixed contracts that are both time- and technology-proof, consensus on specific topics (such as the carriers’ ability to provide video and broadcast services) will be hard to reach. The nascent debate is currently framed around a number of major topics, including the potential creation of a Brazilian national champion through a merger between Brasil Telecom and Telemar. Given the size and breadth of these two players, these changes will require significant political will—something not available in the short term. We are also skeptical that Telemar’s current strategy for obtaining the authorization to buy Way Brasil will yield short-term results, as it revolves around appealing to Anatel and threatening judicial action.