Concessions, funds, BNDES: What to expect for Brazil's telecoms agenda

Brazil's telecoms sector has a busy regulatory agenda for 2023, filled with crucial items that are likely to set the scene for investment in the industry.

For telecoms watchdog Anatel, these include outlining a tender for fixed telephony capable of attracting interest from investors, as the current concessions are set to expire in 2025 and the concession-holders may choose not to migrate to a new regime. That would force Anatel to retender them. The problem is how, as this service is falling into disuse.

Anatel is also expected to revise the rules for spectrum usage and management, in the so-called RUE regulation, as well as updating its PGMC competition plan and delving into the discussions on sharing electricity poles, among other issues.

Meanwhile, Juscelino Filho, the new communications minister, has started his tenure with the expectation of a greater role for development bank BNDES and more usage of the sector funds Fust and Funttel in financing the sector.

BNamericas speaks with lawyer Mateus Piva Adami, partner at law firm Pereira Neto / Macedo / Rocco, professor at think-tank FGV and expert in antitrust and regulatory affairs, to find out more about the outlook for public policies and regulation in the country's telecom sector this year.

BNamericas: What is your opinion of the first signs of the new government's communication and telecom team and the appointment of Juscelino Filho to head the ministry?

Adami: It's still quite difficult to assess the first signs, and any opinions about the minister or his team would be premature. Some names that have been at the ministry for a long time have gone and others have remained. 

What can be said is that there is a historic challenge in the country that requires the communications ministry to take a leading role, mainly regarding the universalization of services.

BNamericas: Anatel's regulatory agenda for 2023-24 includes some sensitive issues, such as the preparation of a new concession for fixed telephony that is attractive to the market. What is your view of this process, and what are expected to be the most crucial issues for the regulator this year?

Adami: Regarding the new concessions, the main point is that, if they are offered, they'll have to leave aside the fixed telephony service (STFC) itself, which is in steep decline and no longer justifies operation under the public telecommunications regime.

It's necessary to carefully assess the purpose of new concessions and the use of the public regime, so that it doesn't cause distortions in various activities that are already covered in the private regime. 

It's also important to stress that there's no obligation of any kind for there to be a telephony “concession”, the instrument should only be used only if actually necessary. 

As for the other items on the agenda, the recently approved regulatory agenda for 2023 is full of important items. For example, there is the spectrum use regulation (RUE), the revision of which has been on the agenda for some years and which is important to update Anatel's regulation due to legislative changes that occurred in 2019. 

The electricity pole regulation is also important and challenging, as it deals with an intersectoral matter (telecoms and power sectors).

BNamericas: There's a lot of talk about new projects using resources from Fust and Funttel and a more active role by BNDES in financing projects for the sector. What can we expect on this front? What are the challenges?

Adami: Here we have to be careful not to repeat the past [in terms of BNDES' financing role]. There are lots of challenges, ranging from ministerial to federal coordination, but I will just focus on one of the aspects of using Fust resources, considering the most recent developments involving BNDES.

We've had Fust since 2000 and we've never been able to use it, unlike other countries that have similar instruments. The main challenge is to use Fust resources as a lever to attract private investments, which will maximize results. 

For example, it would be possible to make viable a project that requires an investment of 100mn reais [US$19.2mn], but which has a negative NPV [net present value] of 10mn reais, covering only this portion with public funds. 

In other words, with 10mn reais of public resources, it would be possible to attract 90mn reais in private investments.

This could be done by structuring projects that have universal access as their objective, such as connecting schools, low-income communities, locations not served by broadband; identifying the negative NPV in each case and offering the project to the market in the form of reverse auctions. This is a successful model adopted in other developing countries.

The model that has been mulled by the BNDES currently follows a different path. A credit line is offered to operators, subject to compliance with certain universalization obligations. This path doesn't seem to be the most appropriate, both because it's not centered on universal access (but on the supply of credit), and because it doesn't take advantage of the benefit of maximizing the resources of the sectoral fund resulting from the leverage of private investments.

In other words, the resource is consumed at face value and not with its multiplier potential, which is essential to address the enormous challenge of universalization of telecommunications in Brazil.

BNamericas: From a legal point of view, the regulation of big techs and new rules for the virtual environment, with the update of Brazil's Marco Civil da Internet framework, among others, is on the radar of the new government. What are the challenges in this area?

Adami: Both themes have common traits. Both are sensitive issues and are currently being discussed around the world. 

We can point out some difficulties. One of them is implementing a regulatory mechanism that has not yet been fully tested in other jurisdictions. 

Secondly, there's a risk of creating further regulatory distortions and asymmetries between different platforms and means of communication, and in a highly dynamic environment.