Operator Series: Telebras at 45, a critical juncture

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Thursday, November 2, 2017

In the year of its 45th anniversary, Brazil's state-controlled telco Telebras faces a pivotal moment as it looks to the future.

More than any other telco, Telebras deploys Brazil's critical telecom infrastructure, but its role as the 'carrier of carriers' is hampered by the government's belt-tightening efforts as it pushes for fiscal reforms to tame a rising fiscal deficit. To make matters worse, Telebras is not profitable. The company has been in the red since 2010.

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Eduardo Tude, who heads Brazil's main telecom consulting firm, Teleco, says the company has very high costs and needs to become "smaller" by reducing its administrative and operational structure. "The problem of the company's sustainability is directly tied to not having a lean structure that makes this possible. We can't imagine Telebras continuing to live on the taxpayers' dime," Tude told BNamericas.

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Nevertheless, its net operating revenue grew 24.3% in 2016 to 56mn reais (US$17.1mn) driven by a 63% increase in its customer base (private providers and government entities). The company also cited growth in capacity sold, which rose 94.4% to reach 191,625Mbps by end of last year.

Linked to the ministry of science, technology, innovation and communications (MCTIC), Telebras is a mixed capital, publicly-traded company subject to the rules of securities regulator CVM and listed on São Paulo stock market B3.

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The government's cash woes have left Telebras with budget freezes and a low investment execution rate. Only 17% of the telco's nearly 607mn-real budget for 2017 had been invested by the end of the first half, according to data from the planning and budget ministry.

At stake is the company's capacity to deliver planned projects such as new satellite communications, submarine cable connections and the expansion of the country's 22,000km fiber 1.6Tbps backbone, which the telco began to deploy in 2010.

Among Telebras' priority projects are the Brazil-Europe submarine cable route and the geostationary satellite for defense and communications (SGDC) launched in May. 

Telebras planned to auction 57% of the capacity of the geostationary satellite. But the auction, held on October 31 after repeated delays, failed to attract bids. Reached by BNamericas, CEO Maximiliano Martinhão, who took over the company in October, declined to comment on whether a new auction will be held. 

In a statement, the company said that "all measures to maintain the timetable of projects and commercial activities related to the SGDC will be adopted."

In another attempt to respond to its financial situation, Telebras is planning a capital increase. The proposal foresees a capital boost of 1.33bn reais, with the issuance of 37.7mn new preferred and common shares for a total of 49.6mn shares. The company's capital stock would go up to 1.59bn reais, from 1.33bn reais at end of June.

PRIVATIZATION, THEN AND NOW

Telebras is the last piece standing of Brazil's formerly state-controlled telecommunication system, which was privatized in 1998. Created in 1972, it was the holding company of the 27 public telephone utilities of the Brazilian states, as well as of long-distance operator Embratel. Its chief mission was to expand urban telephony. Over time, it became responsible for the operation of over 95% of the telephone terminals.

With the approval of the general telecommunications law in 1997 to provide universal coverage and open up the telecom market, Telebras went on the selling block in a highly controversial privatization process that opened up the industry to foreign players. Critics say companies got valuable Telebras assets on the cheap.

In 2010, through a decree creating the national broadband plan (PNBL), Telebras was brought back to life with the exclusive goal of implementing the communications network of the federal administration and supporting public broadband policies, as well as providing infrastructure and telecom service support networks for private companies, states, the federal district, municipalities and NGOs.

Recently, voices calling for the "re-privatization" of what remains of Telebras have grown louder, although CEO Martinhão says the issue is "out of the question" for the moment.  

A former  MCTIC official, CEO Maximiliano Martinhão was recently named Telebras CEO by minister  Gilberto Kassab. (Credit: Telebras)