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On July 5, 2005, fixed line operator Telefônica (Telesp) announced it will invest R$50m (US$21m) to promote its broadband service, which is marketed under the Speedy brand, by expanding its product range and price choices. Although not an announcement of a new strategy by the company, Speedy’s investment underscores the busy activity of broadband providers in Brazil YTD 2005. With broadband investment gearing up, Brazil will remain a leader in Latin American Internet penetration. Still, the overwhelming presence of fixed-line incumbents in the market may prevent a faster uptake of broadband.
One salient feature of the Brazilian market that may be hampering faster broadband growth is the lack of actual competition in the sector. Currently, the three incumbents control 80 percent of the market, and only one mirror operator, GVT, has been able to establish a meaningful broadband presence. Still, its 38,000 broadband clients pale in comparison to Telemar’s 618,000, Brasil Telecom’s 729,000, and Telefônica’s 1m customers.
Not surprisingly, the incumbents use the near-monopoly control of local access, in their respective regions, to the detriment of their competitors. Brasil Telecom is currently under investigation by the Brazilian antitrust agency for routing ISP-related calls from its service center to BrTurbo without explaining that other services are also available. In June 2005, the antitrust agency forced Telemar to extinguish the cross-discounts it offered to broadband clients who also used its Oi Internet ISP. While the tight connection between broadband access and Internet service providers (who are often one and the same) is worrying, the lack of local access represents a much tougher problem for Anatel, the Brazilian regulator. Without local competition, broadband growth depends on the incumbents’ support, that is something the companies, who must contend with the VoIP threat to their revenues, are only moderately interested in providing.
After a surge of new activations following privatization, fixed-line uptake stalled and is currently flat at 37m lines. While Anatel did establish guidelines for co-location and line-sharing in 2004, local loop unbundling (LLU) crawls at a glacial pace due to the lack of a framework for the implementation and enforcement of rules. Embratel, once the main lobbyer for LLU, no longer presses for it now that it is under Telmex control, along with Net Serviços. Unbundling seems to be at the bottom of Anatel’s priorities as it assembles the new fixed communications regulations, which will come to force in 2006. Broadband competition, it seems, is a long way off.
Read more about Brazil's Broadband market in the latest issue of Pyramid Research's Americas Market Perspectives.
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