June 13, 2012
After much discussion, the 4G spectrum auction finally happened in Brazil. There have been several attempts to head off this auction, from operators threatening not to participate to some of them suing the regulator. Operators believed that this was wrong time-to-market for LTE in Brazil. However, the government had a different opinion, and it gave clear signs it won't give up on this project: Brazil will have LTE and it will happen by 2013.
For the operators, the problem started in 2009, when they jointly invested an estimated US$5bn in spectrum and infrastructure for 3G. Now, three years after 3G started being massively implemented, many of them claim that there is still much left to explore in the current network, and the new spectrum (sold for U$1.3bn) was too expensive for the type of frequency being offered.
With the 700Mhz band currently being used by open TV channels, the frequency elected for LTE in Brazil was the 2.5-2.69GHz band (with the 450MHz used to cover rural areas). Operators are uncomfortable with the 2.5GHz frequency since there aren't many devices compatible with it yet, thus making these devices more expensive. It is also a frequency band that requires more RBSs for good coverage and more investment from the operators as a result.
When comparing the price for the same spectrum in Brazil with that in some countries in Europe, we find that Brazil's price per megahertz per capita ended up on the low end of what this same spectrum costs on the other side of the Atlantic, but it is still somewhat expensive. However, it is not so expensive that it would justify operators delaying their investments in the LTE network. When doing this comparison, consider too that the 2.6GHz band is a second-class frequency in Europe, since they have other frequencies available for LTE. In Brazil, it is the only frequency available for LTE, so it's not second-class.
2.6GHz LTE Spectrum Pricing per MHz per Capita (US$)
Source: Pyramid Research
The government does make a strong case for the deployment of LTE service by 2013: The country has a national broadband plan to fulfill, and Brazil needs to be ready to host FIFA's World Cup in 2014.
Under the national broadband plan, the government is aiming for a milestone of 40m households connected by 2014, which is virtually impossible to achieve with fixed service alone, since it accounts for only about 19m access lines today. For the World Cup, Brazil wants make sure it is providing the needed connectivity and prove it is no longer an underdeveloped country offering poor services at high prices. The country wants to project the image of being a trendsetter.
Vivo and Claro acquired the larger bands of spectrum available, which reinforces the premium positioning that these companies want to maintain. TIM and Oi acquired smaller bands, which will be sufficient for the low-cost services available in their portfolio, but won't allow for these companies to change their positioning and fight for premium users, which sets in stone the positioning all operators will have in the next years.
For those who believe LTE plans won't leave the drawing board, the regulator has a firm response: All 4G spectrum was sold with a minimum coverage requirement. By the end of 2013, all cities hosting the World Cup must have the network in place. For 2014, all cities of 500,000 inhabitants or more must be covered.
LTE Coverage Plan, Brazil, 2012-2014
Source: Pyramid Research
Another requirement of the government is that 60% of all equipment used for the LTE service should be made in Brazil, a percentage that will gradually escalate to 70% until 2022. From this amount, 10% of the technology must be actually developed in Brazil, a percentage that will escalate to 20% in the same period. On these requirements however, we believe that the government is able to compromise since this could harm a fast deployment of the network due to the lack of capacity of national manufacturers and international manufacturers with plants in Brazil.
National Equipment Requirements for LTE Networks in Brazil
Source: Pyramid Research
Pyramid estimates that, by the end of 2015, Brazil will have more than 18m LTE users.
-- Includes contributions from Badii Kechiche and Kerem Arsal
— Vinicius Caetano, Senior Analyst
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In this Insider we will discuss the reasons behind the development of many of the telecom services Brazilians now enjoy. The focus will be on mobile and pay-TV services, as well as on government initiatives to modernize and liberalize the nationâ€™s telecom networks. The report closes with a series of case studies on TIM Brazil and TelefÃ´nica, two operators at the center of the telecom transformation in Brazil.
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Forecasts published quarterly
Long Term Evolution (LTE) is a next-generation cellular network technology, sometimes referred to as 4G. As described in this report, LTE is the technology of choice for most mobile operators, and with strong momentum, we expect it to be the long-term, next-generation network technology of choice. LTE has already overtaken WiMAX subscriptions in 2011, and the range of LTE devices has increased elevenfold in the past year. The largest LTE device segment will be PCs through 2014, as operators initially focus on mobile broadband access for PCs. But after 2014, the PC segment will be replaced by smartphones, with operators announcing more and more LTE models. The heavy emphasis on videos will drive mobile data usage for operators, as will the fact that LTE is well-suited for cloud-based computing thanks to its high bandwidth. In 2016, Pyramid Research forecasts there will be 592m LTE subscriptions, equivalent to 7.3% of all cellular subscriptions at that time.