1. 1 An account of Brazilian telecommunications industrial and technological developments in past decades Claudio de A. Loural Romulo A. Zanco Filho Antonio Carlos G. Bordeaux Rego Rogério C. de Oliveira Fundação CPqD - Centro de Pesquisa e Desenvolvimento em Telecomunicações Campinas, SP - BRAZIL ITS 15 th Biennial Conference Berlin, Germany September, 4-7, 2004

2. 2 Reforms and institutional framework: 1962-1972 n Federal Law 4.117 (1962) - “Brazilian Telecommunications Act” o clear definition of authorization issuance powers o basic technical requirements o supervision and control authority o provisions for creation of a state-owned company (later, EMBRATEL) o financing fund (30% tax over regular tariffs) n Creation of Ministry of Communications (1967) n Creation of TELEBRÁS holding company (1972)

3. 3 Development phase: industrial policy n Mid-70’s scenario in world telecommunications o Technological transformation: digitalization n Meanwhile, in Brazil o Ambitious economic development program (II PND) -import substitution strategy o Telecom state monopoly consolidation o De facto market division among a few foreign suppliers n Industrial policy by Administrative Directives (“Portarias”) o Directive no.622 (1978), aimed at -developing competence; generating endogenous technology -increasing “nationalization index” -developing Brazilian telecom equipment manufacturers o Further directives led to artificial joint ventures between multinational and local companies

4. 4 Universities Telecom. operators (TELEBRÁS subsidiaries) Telecom. operators (TELEBRÁS subsidiaries) Brazilian manufacturing companies Brazilian manufacturing companies R&D contracts Demands Requirements Products Min. Communications TELEBRÁS Min. Communications TELEBRÁS CPqD Tecnologia Policies Financial resources Development phase: technological policy CPqD (b.1976) pivotal rule in innovation model

5. 5 Development model: apogee 800 850 950 1000 1100 1000 400 330 300 250 200 0 400 600 800 1000 1200 Dec 87 Jun 88 Dec 88 Jun 89 Dec 89 Jun 90 Dec 90 Jun 91 Dec 91 Jun 92 Dec 92 Jun 93 Dec 93 Price of terminal (US$) TRÓPICO RA enters the market Brazilian technology (CPqD) Brazilian manufacturers

6. 6 Decline and dismantling n International picture changes: 80’s o Accelerated technology evolution o market and trade liberalization -introduction of competition in telecoms n Brazil’s economic difficulties o hyperinflation (1972% in 1990) o no long-term credit o reduction of TELEBRÁS expansion n Pressures to relieve restrictions on foreign capital and to privatize state controlled companies o Real (R$) stabilization plan in 1994 n New Telecommunications Act - Law 9.472 (1997) o provisions to divide and to sell TELEBRÁS o introduction of competition o creation of a regulatory agency, ANATEL

7. 7 Decline and dismantling (cont.) n TELEBRÁS companies auction (July 1998) o foreign operators enter the market n Dismantling of the national manufacturing effort (since early 90’s) o “joint ventures” turned back to full control of original owners o extinction of TELEBRÁS procurement protective policy o increasing international competition, new inflow of multinationals o poor capitalization of local companies n Former innovation model disappeared o CPqD turned into a private foundation, forced to develop its own survival strategy -software development and deployment / support -services (consulting, training, lab testing) -opening of other markets besides telecom

8. 8 Time Degree of maturity Phase I Technology introduction Phase II Technology improvement Phase III Product quality Process productivity Phase IV Technology maturity Investments costs increase Technology evolution A critical discussion

9. 9 Conclusions n The technological development model adopted by Brazil was successful while a protectionist policy existed. n This policy was executed mainly by means of the procurement practices of TELEBRÁS n When economic and political circumstances could not anymore sustain an import substitution approach, in the 1990-decade, model fell apart and has not been replaced by any other sectoral policy. n Other causes of model’s failure at the moment of economic liberalization: o too much focus on manufacturing and production rather than on technology generation o insufficient exploration of the synergies propitiated by digital revolution o not enough input capital and qualified human resources to let the innovation system follow the technology trajectory o managerial practices may have been inadequate