COMMUNICATIONS: Privatisation Will Revolutionise Brazil Telecomms

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jun 9 1997 (IPS) - A privatisation programme that promises to revolutionise Brazil’s telecommunications sector aims at tripling the number of telephones in four years and will enhance state coffers by around 30 billion dollars, say government economists.

A large part of the investment – expected to total more than 80 billion dollars by the year 2003 – will come from abroad, because the Brazilian telecoms market is considered one of the world’s most promising and profitable, according to the officials at the Ministry of Communications. Not only will the privatisation bring a major new wave of investment, but it will cut costs and improve the country’s telecoms services.

The privatisation process, which reflects a worldwide trend, was launched last week with the qualification of 10 consortiums that are disputing the concessions for the country’s mobile telephone sector.

The 14.5 million conventional telephones and 2.6 million cellular phones in use in Brazil at the last count – in late 1996 – could mushroom to 40 and 17 million, respectively, by the year 2000, according to Telebras, the state company that coordinates telecoms in Brazil.

That will take place through opening the sector – starting with the cell-phone service – to private companies and foreign capital. The concessions currently being bid for should bring the country’s total to 11.1 million terminals by 2003. They should also bring state coffers six billion dollars, predicts Communications Minister Sergio Motta.

The minimum price set for the 10 areas in which the country is divided for the concessions amounts to 3.69 billion dollars, but the amounts bid are expected to be much higher. That expectation was confirmed in the first area whose concession was awarded, which includes Brasilia and six western states.

The consortium Americel, which includes the Canadian firms Telesystem and Bell Canada, was left alone in the dispute for the area when all other contenders were disqualified. Its offer was 25.3 percent higher than the minimum of 252 million dollars set by the government.

In the most hotly disputed areas, which include big cities like Sao Paulo and Rio de Janeiro, the final price is expected to be double the 600 million dollar mimimum.

Nearly completely state-owned up to now, the face of Brazil’s telecoms sector – characterised by unsatisfied demand – will change with privatisation. Previous mechanisms of expansion, based on public savings and self-financing, have already collapsed.

Millions of Brazilians are still waiting for a telephone line, after having already paid more than 1,000 dollars. Payment in advance for a telephone as property, rather than a service, was one of the mechanisms used by state-run enterprises – one for each Brazilian state – to finance the expansion of their grids.

But the scarcity of telephones, aggravated by a shortage of public funds since last decade, gave rise to a black market which was tolerated in Brazil’s larger cities, where telephone lines were sold for up to five times the official price.

With the privatisation, telephones will no longer be a marketable product, but a service. Users will pay much less – around 280 dollars – for installation, Minister Motta announced. Those who had previously acquired telephones will not suffer losses, because what they paid will be converted into shares in the new companeis, which are rising on the market. But that is the plan for the future.

For now, the black market of purchases, sales and rental of telephone lines will continue to survive – although prices have already started to fall – due to the continued scarcity of telephones, anaylts opined. Approval of a new telecommunications law, to be voted on in Congress in the next few weeks, is necessary in order to privatise conventional telephone companies.

For now, the private sector can operate part of the cellular telephone services, the “B band”, which will compete with the “A band”, operated by public enterprises until their future privatisation.

That competition should go a long way toward deflating the cost of telephone services. In Brasilia, Americel will be able to initiate its operations offering 50,000 lines as of November, at a cost 52 percent lower than that offered by the state-run Telebrasilia, the president of the consortium has promised.

The expansion of the country’s telephone grid will also boost imports of equipment, as well as national production. The government has decided to eliminate tariffs for imports of more than 100 components of cellular telephones, and to stimulate the sector’s industries with low-cost financing and facilities for importing inputs.