October I 2007

12 October 2007

Fredric Morris, Editor-In-Chief, Connect-World
Fredric Morris

The future of FutureCom and the future of telecom in Brazil

FutureCom is the highlight of the telecom year in Brazil. It has always been held away from the biggest cities in Brazil – in recent years in FlorianÛpolis a lovely beach city in southern Brazil. Away from the major cities and the hordes of technicians, FutureCom is a show reserved for the real leaders of the sector. The show is running out of space, so next year it moves to S„o Paulo – much to the dismay of many who fear the dilution of its high-level networking.

Every year for the last ten years the Brazilian telecom community has come together at FutureComís annual love-hate industry fest. Prior to FutureCom, that is prior to the privatization of Brazilís telecom sector, the event was run by the government and called Semint. From the beginning, the event attracted the top decision makers, the wielders of contract-signing pens from the telcos, and all those seeking to sell them something. Even today, the Minister of Communications and the President of Anatel, Brazilís telecom regulatory agency and the chief telecom advisors from the President of Brazilís staff are always at the event.

The event, by far the best in all Latin America, attracts participants and journalists from throughout the region, but the focus of the show is Brazil. The conference sessions are among the finest and best attended of any I have seen in any part of the world. The Presidents of all of Brazilís major telco operators speak at the conference and everyone, friends and foes alike, listen intently for whatever clues they might get about how the industry giants will behave. Indeed, instead of the sort of institutional speeches one ordinarily expects at conferences, one often feels like an eavesdropper in a private conversation between the keynote speakers; statements made by one will often elicit responses, thinly disguised, in the talks of later speakers.

This year the responses had one target – the Minister of Communications, HÈlio Costa. In his address at the opening ceremonies, the Minister took the mobile operators to task for the high prices charged for mobile services and called for a reduction of the rates. During his address, one could hear the muttering and comments in the audience – a packed house ëguesstimatedí by me at two thousand people, ìWhat about the taxes; are you going to cut the taxes?î The next day, predictably, the presidents of all the mobile operators had speeches and presentations ready that emphasized the impact of taxes – at more than 40 per cent among the very highest in the world. Only Turkey, Tanzania and Uganda have higher taxes on communications. The Minister-bashing, very well disguised as technical presentations that fooled no one, went on throughout the next day and made for lively, if unprintable, discussions during coffee break get-togethers and in the hallways.

The tax burden, which the Minister conveniently forgot to mention, raises prices, pushes costs and depresses earnings – among the lowest in the world, except where operators are still struggling to pay off their 3G spectrum purchases. The low earnings and slow return on investment – amply discussed in some of the presentations – also makes it harder, and more expensive, for local operators to go to the capital markets to finance the growth of broadband and networks or for their migration to 3G.

State budgets depend upon the substantial tax revenues they collect from the telcos. The taxes are easy to collect – auditing the telcos is simple, so collection costs are low – and they arrive on time. Many studies show that dropping taxes would stimulate substantial increases in the use of telecommunications and, as a result, overall economic activity. Other studies show usage would increase so much if rates went down that tax collection would rise. Nevertheless, the states fight to maintain the status quo ñ and the income they know from experience they can count upon.

The other big topic at FutureCom was broadband – as a service, as a tool for digital inclusion, for mobile access, for corporate communications, as a driver of revenues, for IPTV, for and against WiFi or WiMAX as the solution for all the worldís needs, via copper, wireless or fibreÖ

There was no way to escape broadband at the show – or the conclusion that the biggest barrier to broadband rollout in Brazil is the government. Although it was certainly not the governmentís intention, the lack of regulation that deals sensibly with converged technologies instead of separate regulations for each service and medium, obsolescent universalization priorities and counter-productive taxes have slowed broadband rollout considerably.

The President of TelefÙnica in Brazil, Antonio Carlos Valente announced investments of more than a quarter of a billion dollars and plans to offer 1 megabit/second broadband access to 90 per cent of its subscribers in the state of S„o Paulo. He also spoke of their plans to offer IPTV in Brazil.

In Spain, more than 450 thousand TelefÙnica subscribers receive IPTV via optical fibre. A minimum of 2 Mbps is needed for an adequate, if not optimal, IPTV image; in Brazil, only a small percentage of TelefÙnicaís subscribers have service faster than one megabit per second. When high definition TV arrives, the bandwidth will have to be still greater. Nevertheless, according to Valente, TelefÙnica is investing large sums producing exclusive content for its trials. TelefÙnica is assuming a certain risk, though, since the regulatory situation is not quite clear regarding the right of telephone operators to offer subscription TV services to its clients. No one is quite sure, given the somewhat contradictory legal opinions, about the right of a telephony concession holder to offer subscription TV.

Despite IPTVís clouded legal status, Luiz Eduardo Falco, the President of Oi one of Brazilís largest fixed and mobile operators, also announced plans to invest in IPTV starting in Rio de Janeiro.

Ricardo Knopfelmacher, the President of Brasil Telecom, speaking about the cable TV laws, claimed that cable TV only reached 159 of the 1953 towns and cities where Brasil Telecom offers ADSL broadband service. Since the law does not let telcos offer broadcast services these municipalities do not receive the subscription TV services that the telcos might easily provide.

Brasil Telecom already offers IPTV video on demand. They would offer a full range of video programming, but they have not yet been able to get approval from Anatel, the regulatory agency.

Mr Knopfelmacher also spoke of the need to re-evaluate and change the universal service obligations the government has imposed upon the fixed telephony operators. According to Mr Knopfelmacher, 61 per cent of the two thousand telecommunications service posts they maintain as part of their univeralisation obligation have not been visited in over a year. He suggested that the obligation to maintain these posts be substituted for an obligation to bring broadband connections to schools.

Groups promoting digital inclusion, such as eBrasil, have long promoted the substitution of current service obligations for others that benefit society more. It is not a very controversial suggestion; even the Minister favours this and there is a bill under consideration by the Brazilian Congress to substitute existing obligations for others more in line with the needs of the country in the age of the Internet.

Interestingly, a number of speakers and participants spoke of mobile broadband not as a high-end service or a business need, but as a popular service that would soon reach low income and rural populations. The view that mobile broadband is viable not only for mobile applications, but even to connect PCs, especially in remote areas where there are few, if any, alternatives, is increasingly accepted. Considering the low costs and the access it offers to services, Marco AurÈlio Rodrigues, President of Qualcomm do Brasil, expects mobile broadband will not take long to become popular. The service will first be available at 3.6 Mbps, but will gradually grow to 42 Mbps with little additional investment – more than enough bandwidth for any currently contemplated service.


Our next Connect-World: Asia-Pacific issue will be published later this month. The issue will be widely distributed to our reader base and, as well, at shows where we are one of the main media sponsors such as: PT Expo Comm (23-27 Oct, Beijing, China), Connect IT Pakistan, (1-3 Nov, Karachi Expo Centre, Pakistan), 3G Asia (13-15 Nov, Macau), and Mobility World Congress & Exhibition (4-6 Dec, Hong Kong).

The coming issue of Connect-World: Asia-Pacific will look at how the Internet has changed our world and the global economy. We are now entering a new stage in the Internetís growth. Web 2.0, collaboration, virtual worlds, mashups, and the Web as a platform ñ computing ëin the cloudí are all part of it. Also part of the new Web are the evolutionary moves towards the semantic/ intelligent web, the growth in enterprise services that are not mere extensions of existing services and financial services such as mobile cash and credit. The Web is revolutionising education, healthcare, government, and social services in general; and it is also generating new cultures and lifestyles.

The theme of this issue of Connect-World Asia-Pacific will be Internet usage and services.