Residential VoIP in Brazil

Brazil’s three regional incumbents, Brasil Telecom, Telefonica, and Telemar all have announced plans to launch residential voice over IP (VoIP) solutions by YE2005.  They will join a crowded field in a defensive move that will be more focused on having the product in their portfolio than on actually encouraging adoption.  This is not surprising; the incumbents, after all, must balance the difficult task of protecting their fledgling long-distance revenues while not alienating their best customers.  For now, VoIP’s impact remains small, and the major Brazilian operators do not need to worry.  However, going forward, retail VoIP solutions will have a major impact on their revenues, especially once corporate uptake increases.

The Brazilian market is already full of residential VoIP providers. These range from legitimate and regulated operations to illegal bypass ones; from softphones to convergent solutions.  Not one week has passed without an announcement of a new entrant into the field.  Brazilians have also fully engaged in the Skype craze, with 4 million downloads having originated in the country.  Small VoIP operators, often the “mirror” companies designed to compete against the incumbent giants, are attracted by the market’s large size, its focus on pricing, and a lack of regulatory barriers to entry.

The incumbents’ move is a defensive one and lacks the marketing muscle to make a significant impact.  Brasil Telecom, Telemar, and Telefonica will market their solutions to their own ADSL clients with little fanfare and visibility, both within and outside of their concession areas.  This is a similar approach adopted by incumbent operators all over the world, and is equally cautious. Although details of the plans are not yet clear, we believe that the three regional operators will choose to offer VoIP through broadband adaptors for their customer’s fixed phones instead of PC-to-PC solutions; in the long term, they are more concerned with competitive local carriers and fixed-mobile substitution than they are with competition from Internet competitors such as Skype. 

VoIP will unquestionably have a significant impact on operator revenues, but only when corporate adoption of IP-based solutions increases.  For now, the “mirrors” and small VoIP operators are a mere annoyance, constrained by the lack of last-mile connectivity and low broadband penetration.  The incumbent’s own efforts in the residential segment will not have a major impact until they begin offering commoditized voice services with broadband and video services, creating compelling consumer solutions and winning back the high-end customers currently migrating to cable providers.