Wireless Intelligence: Fast-growing Brazilian operators look ahead to LTE auctions

Brazil reaches a quarter of a billion connections by year-end 2011, growing 20 percent year-on-year

Brazil reached almost 250 million mobile connections by year-end 2011, according to Wireless intelligence data, accounting for over a third of total connections in the Americas region. It is now a larger market than Mexico, Argentina and Colombia combined.

Brazilian connections grew almost 20 percent year-on-year with all the market’s major operators recording double-digit growth. 3G connections accounted for 17 percent of the Brazilian total at year-end, slightly ahead of the 15 percent regional average. Mobile penetration stands at 125 percent.

The market is led by Telefonica’s Vivo which had 72 million connections at the end of the year, giving it a 29 percent share, followed by Telecom Italia’s TIM Brasil (64 million/26 percent), America Movil’s Claro (60 million/25 percent) and Oi, the mobile arm of Brazil’s fixed-line incumbent Telemar Norte Leste (45 million/18 percent). Although there are a number of smaller and regional operators in the market, these ‘big four’ account for 98 percent of the country’s mobile subscriber base.

At Telefonica Group, the organic revenue contribution from its Latin American division increased by 5 percentage points between Q3 2010 and Q3 2011, offsetting the declining contributions from its Spanish (-2.1pp) and European (-0.2pp) units. According to the operator, this was due in part to the “high rates of growth driven by a favourable economic context and acceleration in the adoption of new services” in Brazil.

Telefonica’s Vivo added almost 3 million mobile net additions in Q3, up 72 percent year-on-year and 50 percent on the previous quarter. The operator has been pursuing the higher-value market segments and claims a 37 percent share of Brazil’s contract-based mobile subscribers, and 43 percent in mobile broadband. This focus saw ARPU at Vivo rise 3 percent year-on-year to US$13.21 in Q3.

The Brazilian regulator has been able to support growth in the market via several spectrum auctions in recent years. The most recent swathe – largely spectrum left over from previous tenders – was sold off in December 2011 and netted the government BRL237.8 million (US$132 million). TIM Brasil secured nine blocks of spectrum in the 1800MHz band for BRL109.3 million, with Oi acquiring four blocks in the same band for BRL110.6 million. Sercomtel spent BRL3 million on a single block of 1800MHz spectrum while Claro secured a block in the 800MHz band for BRL14.5 million.

Meanwhile, the government is gearing up to auction-off 4G-suitable spectrum later this year. Auctions for spectrum at 2.5GHz (suitable for LTE) and 450MHz are due to begin in April, while 3.5GHz fixed-wireless spectrum auctions are due to follow. Much sought-after 700MHz spectrum could also be sold before year-end.

In recent years, the main operators have all moved to merge their mobile and fixed-line businesses to provide integrated fixed/mobile service offerings. Telefonica bought out its former partner in Vivo, Portugal Telecom, in 2010 partly in order to more closely integrate the unit with its local fixed arm, Telesp. Meanwhile, America Movil brought Claro and its fixed-line arm, Embratel, under one roof last year and recently added cable firm Net Servicos de Comunicacao to its Brazilian portfolio. Telecom Italia acquired the long-distance fibre player, Intelig, in 2009.

However, the fixed businesses of the foreign-owned operators continue to trail that of Oi, which remains Brazil’s largest fixed-line provider by some distance. Oi has concentrated in recent years on integrating its 2008 acquisition of rival fixed-line firm Brasil Telecom, with all its services – both mobile and fixed – now under the Oi brand.

Joss Gillet, Senior Analyst, Wireless Intelligence:

Mobile growth in Brazil has rapidly spread throughout the country’s geographically challenging territory. The north of the country – including Rio de Janeiro – reached 113 percent penetration in Q4 2011, compared to 131 percent in the mid-west and south and 142 percent in the state of Sao Paulo. Overall, the north region, as segmented by the regulator, comprised 120 million connections by year-end, half of the country’s total connections and twice that of the two other sub-regions. However, as is the case in other BRIC countries, multiple SIM ownership is inflating penetration rates and diluting real growth. With penetration rates on course to reach increasingly distorted levels (173 percent in 2016), Anatel could look to replicate methods used by the TRAI in India, which collects active user figures and recently showed that real penetration in the country was closer to 58 percent in 2011 rather than the 82 percent reported by operators. Compared to other BRIC countries, Brazil is closer to Russia, which has reached 213 percent penetration on average in Moscow and St Petersburg, and 146 percent in the rest of the country. In both markets, mobile operators have clearly moved from a customer acquisition phase focused on 2G network expansion (as is still the case in India) to a customer retention phase focused on technology migration. Operators in Brazil are investing in 3G network deployments throughout the country, with Vivo’s 3G coverage reaching 2,516 municipalities in 2011 (of which 1,310 were added last year) giving it 82 percent 3G population coverage. Meanwhile, TIM claims 67 percent 3G coverage of the urban population with 3G services present in 488 cities. Similarly, Claro claimed to have increased its 3G footprint in Q4 2011 (without providing specific figures) while upgrading its network to HSPA+, which has been instrumental in its 9.1 percent year-on-year growth in data ARPU. Overall, such investments in data networks will help the BRIC countries overtake the US in terms of total mobile revenue in 2012, by which time we expect them to account for over 40 percent of total revenue in the developing world.

Brazil mobile connections, Q4 2011
Source: Wireless Intelligence