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Brazil: 5G Auction Success
The auction sale was bigger than the privatization of the telecom sector in the 1990s.
BY LATIN AMERICA ADVISOR
Inter-American Dialogue
Brazil in early November raised $8.5 billion worth of license payments and investment commitments in its long-delayed 5G spectrum auction, making it by far the country’s largest-ever telecommunications tender. Claro Brasil, Telefônica Brasil, or Vivo, and TIM Brasil were among the biggest winners of spectrum. How successful was the auction for Brazil, and what is the significance of which companies had winning bids? What benefits will the spectrum awards and investment bring to Brazilian consumers as the country it rolls out 5G, and what regulatory changes need to be in place in order for Brazil’s digital economy to make the most of new technologies and flourish?
Leandro Gaunszer, managing director of Viasat Brazil: Brazil’s 5G auction paves the way for the deployment of next-generation technology in Brazil and across the region and should be seen as a success for Anatel and the Ministry of Communications. The results of the auction, which echo auctions in other regions, clearly demonstrate that the emphasis for mobile network operators is to achieve high-capacity, wide-area coverage. For that reason, the mid-band spectrum (the 3.5 GHz band) was the most highly sought and therefore expensive spectrum in the auction. Accordingly, the millimeter wave spectrum made available was less prized by operators because the business case for mobile operators’ use of this spectrum is less clear. Because of the requirements to provide nationwide coverage, mobile operators will make sweeping investments in their networks, including in the Brazilian satellite sector, which will be a critical partner to mobile operators for extending their networks to many parts of the country that remain unconnected by terrestrial means. To consolidate Brazil’s regional leadership in 5G and convert the results of this auction to service delivered to end users, regulators should work to further reduce barriers to investment in the sector, including by facilitating the use of satellites to meet coverage obligations of the mobile network operators, and taxes should be reduced for the telecom services sector overall. That is a major barrier to investment.
Roberto Piazza, vice president for Brazil at SBA Communications: The 5G auction in Brazil was very successful. The final terms allowed the entry of new players to stimulate competition and support the development of the innovative new services and business models that 5G enables. Moreover, the auction’s proceeds will largely be devoted to the expansion of coverage, capacity and technological advances to underserved communities—close to 40 billion out of the 47.2 billion reais raised will be invested in upgrading and expanding telecommunications infrastructure throughout the country. For example, auction winners committed to providing 5G coverage to cities with more than 30,000 inhabitants and ensuring 4G coverage on highways, underserved communities and public schools. The potential benefits of 5G-enabled advanced telecommunications technologies are fundamental to Brazil as they have the potential to address some of the most complex challenges the country faces today, including climate change, unemployment and equal access to quality education and health coverage. For example, 5G will facilitate connected sensors and remotely controlled devices for environmental management and health care. In addition, improved broadband services over wireless connections will support sophisticated media and applications for education and remote work. Critical wireless infrastructure such as towers, poles, data centers, reliable energy and both fiber optic and microwave connections are the foundation for 5G-coverage expansion and telecommunication services’ improvement. The towercos’ business model of infrastructure sharing is a key component to support and ensure equitable access to connectivity, through capital and environmental efficiencies. Governments should support regulatory frameworks that incentivize infrastructure sharing and address communities’ concerns about tower proliferation.
Nathalia Foditsch, senior policy and regulatory specialist at the Alliance for Affordable Internet of the World Wide Web Foundation: This has been a big year for spectrum around the world, with the highest number of assignments since 2017, according to the GSMA. Brazil’s 5G tender, hailed as the largest ever according to the OECD, resulted in more than $8 billion for the treasury, which is $3 billion shy of the $11 billion that the ITU and the Alliance for Affordable Internet (A4AI) estimated is needed for required infrastructure investments to connect the whole country by 2030. While the tender’s main goal was reportedly to establish coverage obligations rather than raise funds, civil society groups as well as one of the Federal Court of Accounts’ ministers have raised concerns over its process, arguing, among other things, that tender prices were calculated incorrectly and that higher amounts should have been collected. Although the tender process was mired in controversy, Brazil’s digital economy needs to make the most of the potential presented. Furthermore, various policy and regulatory aspects will need to be addressed to further support the country’s digital development. A good example is the deployment and strategic expansion of fiber networks critical to 5G’s success, especially in the north and northeast regions of the country. Another critical area of attention for the regulator, Anatel, is on access to secondary use of spectrum, which is new in Brazil, and a management system to facilitate this is thus being created. The goal should be to open opportunities for smaller operators and complementary service providers within the sector to get their fair share of this key finite resource.
Lourdes Casanova, senior lecturer and director of the Emerging Markets Institute at the Cornell S.C. Johnson College of Business at Cornell University: The euphoria of the Brazilian communications minister, Fábio Faria, was justified. After more than two years of waiting, the biggest telecom tender by value in Latin America and the second-largest tender in Brazil after the 2019 pre-salt auction was a success. Also, by nominal value, this auction sale was bigger than the privatization of the telecom sector in the 1990s. The winners were the big three: the subsidiaries of Spain’s Telefónica (Telefônica Brasil, or Vivo, with 34 percent of mobile market) Mexico’s América Móvil (Claro, with 27 percent) and Telecom Italia (TIM Brazil, with 23 percent). This will increase the domination that Telefónica and América Móvil have had in Latin America since the privatization wave of the 1990s. Last December, the three big players won an auction to buy Oi’s mobile unit (which has a 16 percent market share), a deal that is still pending regulatory approval. After much controversy around Huawei, and even if the company did not participate in the auction, Brazil’s government decided that the operators would be allowed to continue using equipment from Huawei. This auction will lead to increased and faster rollout of 5G services to Brazilian consumers. While Brazil has seen the rise of several unicorns during the pandemic, more regulatory and policy changes need to be made to support the creation of more innovative start-ups in 5G services, and incentives need to be provided to key Brazilian sectors such as manufacturing, banking and agriculture to adopt innovative 5G solutions.
Jorge Fernando Negrete, president and chairman of Digital Policy & Law Group in Mexico City: The government prepared a powerful digital agenda focused on Brazil’s strengths: the countryside and the mines. For the 3.5 GHz frequency, the auction established specific obligations for the winners, in particular, the expansion of the fiber optic network and the structuring of the 5G private communication network for the federal public administration, with security protocols. The 5G auction defined that the technology should be available in all Brazilian capitals by July 31, 2022. It also established the obligation to connect 503 municipal headquarters with fiber optic backhaul and connectivity for schools. The Brazilian government generated a bid for a value of $8.4 billion for the 5G network, where 90 percent of the bid will be investment, not collection. The result? Spectrum for the three largest operators in Brazil—Vivo, Claro and TIM. But in a phenomenon not seen before in the region, six new operators entered the market: Winity II, Brisanet, Consórcio 5G Sul, Neko, Fly Link and Cloud2U. One of them acquired the 700 Mhz band to provide wholesale service. The Brazilian model sought to consolidate its large telecommunications operators, generated incentives and an appetite to invest, dispersed the benefit of investment in infrastructure and forgot the spirit of tax collection from which the region suffers. The auction will digitize the country’s public administration, and it has a social vocation as well as integrated new operators. It decentralized the effort and benefits of 5G for Brazil’s city governments, as well as in rural areas.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor
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