ANALYSIS: Brazil's telecom reform proposal

By
Thursday, December 1, 2016

Brazil's congress is getting ready to vote on a bill that seeks to profoundly change telecom legislation, and BNamericas talked to multiple sources to understand what is at stake.

The law would enable the end of the public concession model used in recent years for telecom services and the migration of licenses to the private model. Fixed telephony concession-holders would pay a fee and commit investments to expand broadband services in order to migrate to the private model, which is less strict about coverage and price controls.

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Only fixed-telephony service is provided under the concession model in Brazil's telecom sector. This is because of the privatization of the country's communications system in 1998, a time when landlines and payphones were still relevant. The concession holders are Oi (nationwide concession), TelefônicaAlgar and Sercomtel, and most of the contracts expire in 2025.

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Leandro Bissoli, a lawyer specializing in digital rights and telecom at the Patricia Peck Pinheiro firm, says the bill encourages needed investments – though is unclear as to how the licenses migration process will take place – and that the private model is "more adequate" for telecom investment,.

A controversial aspect of the bill is that it foresees the incorporation by concession holders of physical assets, also known as reversible assets, in exchange for investments. These assets, in general fixed-line and real-estate infrastructure, were inherited in the 1998 privatization and would have to return to federal government by the end of the concession contracts, which would therefore discourage private investments in maintaining and expanding the network.

"The more time we take to solve the reversible assets issue, the more these assets depreciate, and the more they depreciate, the more it will affect how much needs to be invested in broadband," Pedro Antonio Gonçalves, legal advisor of lawmaker Daniel Vilela, the author of the bill, told BNamericas.

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Lawmaker Daniel Vilela, author of the bill (SOURCE: Congress).

The bill is openly backed by the federal government – including science, tech, innovation and communication minister Gilberto Kassab and officials from telecom regulator Anatel – and especially by telecom operators, which claim that the general telecom law is outdated and chokes investments.

The project is seen as decisive for bankruptcy-struggling Oi, the country's largest telecom concessionaire, with about US$19bn in debts. Oi is seen as spending around 380mn reais (US$111mn) a year only on maintenance of public payphones, which is required by the public concession model.

Gonçalves denies that the push to approve the bill is related to the company's situation. "We had never talked to anyone from Oi when this bill was proposed."

CONSUMERS

Critics of the bill include consumer and civil society associations, which claim that the private model undermines the government's capacity to ensure connectivity in underserved and remote areas, or in regions with low commercial appeal.

Currently, because of the strict concession targets, the telecom traffic of nearly half of Brazil municipalities is offloaded through Oi's network. Further competition in the telecom sector is needed and the project could foster a monopoly, critics add.

"There is obvious, strong interest on the part of operators in ending the public regime. We understand this should not take place at this moment," said Maria Inês Dolci, president of consumer protection association Proteste.

Gonçalves says that most telecom services (mobile telephony, pay TV, broadband) are provided in the private regime. In case of fixed-telephony, he says the bill foresees the current infrastructure being kept where it is needed.

Dolci says it should be up to the ministry of science, technology, innovation and communications – and not to the lower house of congress – to champion the telecom revision and set guidelines and policies for the sector. She adds that changes proposed in the general telecom law are insufficient, while also criticizing the transfer of public assets to private companies.

"These assets are theirs [the operators]. When privatization occurred, what was sold was about 20% of the public capital. The vast majority was already not public anymore. The interpretation that all assets are reversible is contrary to very spirit of the law. What would be the assets necessary to continue providing fixed-telephony services nowadays? These are the true reversible assets, not any broadband asset," said telecom analyst Eduardo Tude, head of consultancy Teleco.

Critics of the bill also argue that while fixed-telephony might no longer be essential, its copper cable infrastructure is still used to provide internet services.

According to Tude, there is no obligation to deliver internet from telephony lines, and the use of landline infrastructure to provide broadband service is declining. He notes that 6,500 companies have private regime licenses to deliver broadband across Brazil. The analyst declares himself "totally" in favor of doing away with the public concession model for telecom services.

All sources BNamericas spoke with agree that regulator Anatel has been negligent by not coming up with an inventory of the reversible assets and their value, generating legal uncertainty.

WHAT'S NEXT?

While Brazil's reform is not as far-reaching as Mexico's, it does tackle local telecom legislation at its root. It is also part of a set of pro-market measures, including proposals to review Anatel's governance model, being pushed by the administration of President Michel Temer.

After passing in lower house commissions, the text was labeled 'urgent' and went directly to the senate for appraisal. Senate president Renan Calheiros expects to put it for vote until the end of the year.

In a statement last week, Calheiros said that the senate's year-end agenda has several bills "aimed at restoring the country's credibility and attracting investments," which include the new telecommunications framework.

Considering Temer's vast congressional support, the bill is expected to pass.