BMI's Executive Summary

[TOP]

The Sector At A Glance

Key Insights On The Telecomunications Sector of Brazil

Brazil overtook Japan as the world's fifth largest mobile market in 2006 and, with penetration at just 56% as of H107 there are still plenty of opportunities for growth. Growth rates have slowed considerably, from 31.4% in 2005 to just 15.9% in 2006, as operators cut handset subsidies for prepaid services to improve profitability and help recoup network roll-out costs. The trend of slowing mobile growth continued in H107, but Q2 was better than expected with over 4.5mn net additions the highest quarterly rate since Q405.

The market was led by Claro, which accounted for 36.4% of net additions, but it was Vivo that surprised with its best quarterly performance by far in two years. The company reported over 1.2mn net additions, equivalent to 26.8% of the total. Overall, the market expanded by 4.4% q-o-q and 16.2% y-o-y and, as a result, we have revised our forecasts for the market upwards. However, we are making only conservative adjustments at this time. We do not anticipate a return to net disconnections for Vivo as it has made good progress in improving customer care, reducing fraud and cloning, network enhancements and – most importantly – the commercial launch of GSM services for both prepaid and postpaid customers. But it is not yet known how heavily Vivo relied on prepaid customers to drive net additions in Q2 and it is too early to tell whether the company can repeat the performance. We now forecast the market will grow by 13-14% in 2007 to around 113mn customers, penetration of just under 60%, and that penetration will reach 75% in 2011.

Rumours continue to abound regarding the future ownership of Vivo. The Financial Times has quoted Telefónica chairman César Alierta saying that the group has offered Portugal Telecom at least EUR3bn for its 50% stake in Vivo, an offer that will remain open until August. However, other sources say Portugal Telecom has denied having received any offer from Telefónica and that it is not interested in selling the stake. The reports could simply be smokescreen from Telefónica as it tries to demonstrate that gaining control of Vivo is more important to it than its proposed indirect investment in second-ranked TIM Brasil. Telefónica is part of a consortium that has agreed to acquire a 23.6% indirect stake in Telecom Italia, which controls TIM Brasil, for EUR4.1bn. Once the deal closes, it is expected that Telefónica will be allowed to keep its holdings in Vivo and TIM Brasil as long as they are managed separately. However, the two companies could partner to rollout 3G services, share infrastructure and achieve savings through joint purchasing of equipment, and it seems likely that the longer term aim for Telefónica will be either to merge the two companies or dispose of one of them.

Regulator Anatel is expected to issue bidding rules for the auction of 3G mobile licences in October, with the auction likely to take place in November. Rather than a pure price-based auction, the payment will also include 'social obligations', so that companies bidding for a licence in a wealthy region will be obliged to provide 3G services in poorer areas of the country. Four licences will be made available in each of 11 regions. How soon operators will be required to roll out 3G services to lesser developed areas is not yet clear, but BMI is concerned that forcing operators to deploy 3G infrastructure in areas where demand is likely to be low before they have been able to recoup costs elsewhere could artificially constrain the market. Several operators have already begun to deploy 3G infrastructure but, given the economic slowdown and relative poverty among much of Brazil's population, we do not expect widespread takeup of 3G services as even basic mobile services remain out of the reach of many Brazilians now handset subsidies have been withdrawn.

Contents

[TOP]

Chapter 1 - Executive Summary

Chapter 2 - Industry Forecast Scenario

Fixed-Line

Table: Brazil Telecoms Sector – Mobiles – Historical Data & Forecasts

Internet

Table: Brazil Telecoms Sector – Internet – Historical Data & Forecasts

Mobile

Table: Brazil Telecoms Sector – Mobiles – Historical Data & Forecasts

Chapter 3 - Macroeconomic Climate

Waiting For Growth

The Importance Of Declining Rates

Risks To Outlook

Table: Economic Activity - Historical Data And Forecasts

Chapter 4 - Country Snapshot: Brazil Demographic Data

Section 1: Population:

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education & Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption and Stratification

Table: Wages per year

Chapter 5 - Business Environment

Latin America

Brazil

Brazil Telecoms Industry SWOT Analysis

Chapter 6 - Competitive Landscape

Market Overview

Competitor Analysis

Table: Key Players: Brazil Fixed-Line Sector

Table: Key Players: Brazil Mobile Sector

Table: Key Players: Brazil Media Sector

Table: Brazil's Key Operators Financial Indicators

Key Players

Fixed-Line

Table: Regional Fixed-Line Penetration Overview

Internet

Table: Regional Internet Penetration Overview

Table: Regional Broadband Penetration Overview

Mobile

Table: Regional Mobile Penetration Overview

Market Data

Fixed-Line

Table: Brazilian Local Fixed- Market, Q206

Internet

Table: Brazilian Broadband Market, Q206

Mobile

Table: Brazilian Wireless Market, Net Additions, 2005-2006

Table: Brazilian Wireless Market, Q306

Table: Brazilian Mobile Subscriber Mix, 2004-2006

Table: Brazilian Mobile Blended ARPU, 2005-2006

Industry Developments

Chapter 7 - Company Profiles

Selected Profiles – Operators

Telemar

TELESP

Brasil Telecom

Embratel

Vivo (Brasilcel)

TIM Brasil

Claro (America Móvil)

Selected Profiles – Manufacturers

Nortel Networks

Nokia

Siemens

Motorola

Chapter 8 - BMI Forecast Modelling

How we generate our industry forecasts

Telecommunications Industry

Sources

Chapter 9 - Appendix: Regional Demographic Data

Wages (ave per annum), US$

Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Latin America Telecommunications Reports: Sample of Companies Ranked

[TOP]

Commentary on key operators highlighting ownership structures, latest available revenue figures, market share analysis and ARPU counts. BMI forecasts for all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt. Company SWOTS Covering all leading telecommunications operators and manufacturers operating in each market, including competitive intelligence on geographic presence and competitive positioning against local companies; local market share; leading products, services and technologies; foreign direct investments, projects, merger and acquisition strategies.

Network of Latin American Telecommunications Sources

[TOP]

BMI's Latin American Telecommunications Reports are based on an extensive network of multilateral organisations, government departments, telecommunications industry associations, chambers of commerce and company reports. Information sources include: