1. Competition in Brazilian telecom market: an emerging market experience Paulo Roberto Gião University of Brasilia & José Rogerio Vargens Filho (presenter) Brasil Telecom

2. Summary 1. Brazilian telecom privatization (1996-1998) 2. The process of consolidation (1998-2004) 3. Results after privatization: regulator, users and operators points of view (2004) 4. The Brazilian regulatory reform (2004-2006) 5. Conclusions

3. 1. Brazilian Telecom Privatization 1996 - 1998

4. Privatization main events Privatization of the public mobile companies in 1996. Privatization of the public mobile companies in 1996. Creation of the national telecom agency (ANATEL) in 1997. Creation of the national telecom agency (ANATEL) in 1997. Privatization of the public fixed telephone company TELEBRAS in 1998. Privatization of the public fixed telephone company TELEBRAS in 1998.

5. Brazilian fixed telephone map by 1998 Region II Telemar (incumbent) GVT (newcomer) Region III Telefonica (incumbent) Vesper (newcomer) Region I Telemar (incumbent) Vesper (newcomer) Region IV: LD in all Brazil Embratel (incumbent) Intelig (newcomer)

6. Brazilian cellular map by 1998 Region 10 Region 7 Region 2 Region 5 Region 6 Region 1 Region 3 Region 4 Region 9 Region 8 2 operators per region.

7. Telecom policy after privatization Competition Competition Universal service Universal service

8. Asymmetric rules for fixed telephony

9. 2. The process of market consolidation 1998 - 2004

10. Mergers and acquisitions The Brazilian market did not hold the number of players that got into by the time of privatization. The Brazilian market did not hold the number of players that got into by the time of privatization. Some players sold their participations and left the country. Some players sold their participations and left the country. Others restructured themselves and bought the participations from the players that left. Others restructured themselves and bought the participations from the players that left. As a result, 5 big telecom groups emerged in Brazil. As a result, 5 big telecom groups emerged in Brazil.

11. Brazilian fixed map by 2004 Region II Telemar (incumbent) GVT Region III Telefonica (incumbent) Vesper/Telmex Region I Telemar (incumbent) Vesper/Telmex Region IV: LD in all Brazil Embratel/Telmex (incumbent) Intelig

12. Brazilian cellular map by 2004

13. The 5 biggest telecom groups in Brazil 1) TELEFONICA (Spain): the 2 nd local telephone incumbent and the 1 st mobile operator VIVO. 1) TELEFONICA (Spain): the 2 nd local telephone incumbent and the 1 st mobile operator VIVO. 2) TELEMAR (Brazilian): the 1 st local telephone incumbent with its mobile operator OI. 2) TELEMAR (Brazilian): the 1 st local telephone incumbent with its mobile operator OI. 3) TELMEX (Mexican), the 1 st long distance carrier EMBRATEL; the 2 nd mobile operator CLARO; the fixed local entrant VESPER; and the 1 st Cable TV operator NET. 4) BRASIL TELECOM/OPPORTUNITY (Brazilian): the 2 nd local telephone incumbent that is also launching mobile operation and TELEMIG/AMAZONIA CELULAR. 4) BRASIL TELECOM/OPPORTUNITY (Brazilian): the 2 nd local telephone incumbent that is also launching mobile operation and TELEMIG/AMAZONIA CELULAR. 5) TELECOM ITALIA (Italian): the 3 rd mobile operator that covers all Brazil, Telecom Italia Mobile or TIM.

14. 3. Results of privatization 2004

15. Regulator´s point of view

16. User benefits Availability of wire and wireless lines Availability of wire and wireless lines Decrease of tariffs Decrease of tariffs Options among providers Options among providers

17. Operator´s point of view Investors bid on Brazilian privatizing companies and licenses based on two premises: the Brazilian economic growth and the world´s telecom boom. Investors bid on Brazilian privatizing companies and licenses based on two premises: the Brazilian economic growth and the world´s telecom boom. The Brazilian economy did not grow and the telecom boom turned into a crisis in 2000. The Brazilian economy did not grow and the telecom boom turned into a crisis in 2000. As a result, most companies have not yet gotten a return above their cost of capital. As a result, most companies have not yet gotten a return above their cost of capital.

18. 4. The Brazilian regulatory reform 2004 - 2006

19. Some new rules Unbundling Unbundling Interconnection (cost-based access prices) Interconnection (cost-based access prices) New universal obligations 2006-2025 New universal obligations 2006-2025 New price cap definitions New price cap definitions Other competition rules Other competition rules Internet access rules Internet access rules

20. Monopoly and competition policies in the same reform Unbundling and cost-based access price New universal obligations supported by incumbents Monopoly policy Competition policy

21. Risks The introduction of policies like unbundling and cost based pricing and, at the same time, universal obligations can harm telecom operators. The introduction of policies like unbundling and cost based pricing and, at the same time, universal obligations can harm telecom operators. The regulator should measure these policies in a balanced way to improve the Brazilian telecom model. The regulator should measure these policies in a balanced way to improve the Brazilian telecom model. The costs to implement universal obligations should be took in account to the definitions of telephone´s tariffs, interconnection´s fees and unbunlding´s prices. The costs to implement universal obligations should be took in account to the definitions of telephone´s tariffs, interconnection´s fees and unbunlding´s prices.

22. 5. Conclusions The privatization in Brazil succeeded because it improved all telecom indicators and benefited users in many ways. The privatization in Brazil succeeded because it improved all telecom indicators and benefited users in many ways. Five big telecom groups emerged in Brazil after a long process of market consolidation. Five big telecom groups emerged in Brazil after a long process of market consolidation. The Brazilian telecom model is being revised. The Brazilian telecom model is being revised. The regulator should issue the new rules with some cautions to not harm telecom operators nor treat the successfully telecom model built in Brazil. The regulator should issue the new rules with some cautions to not harm telecom operators nor treat the successfully telecom model built in Brazil.

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