Mobility Gains a Foothold in Brazil
By Ethevaldo Siqueira, Wed Jul 04 00:00:00 GMT 2001

The Brazilian market grew from roughly zero to twenty-five million subscribers in less than five years.

The development, deployment and success of cellular services in Brazil makes for quite a story.

On July 29, 1998, when state-run operator Telebras was privatized, Brazil had only 5.2 million cellular subscribers. Less than 3 years later, at the end of April 2001, that number had grown dramatically to 25 million, according to an official report released by Anatel, the Brazilian telecomms regulator. The growth rate in 1999 was 110%, while in 2000 it remained high at 65%.

In Sao Paulo, Rio de Janeiro, and Fortaleza, the whole country in a nutshell, people from all walks of life can today be seen chattering away into their mobile phones.

Lots of potential

With a population of 172 million and a territory nearly as large as the United States, Brazil offers a potential market that few countries can match. The initial rollout of cellular services, however, under the Telebras state monopoly, involved tremendous difficulties.

Even Brazilians have trouble remembering those days when, in 1990, Telebras launched the first cellular service in Rio de Janeiro. The state-run operator demanded from subscribers a guarantee deposit of USD$20,000 just to enable a phone line. A surprising fact gleaned from the Rio de Janeiro experience, however, was that even under these conditions the operator managed to sell two-thousand subscriptions.

The winds of change came when, under the inspiration and command of minister Sergio Motta (head of the Brazilian Ministry of Communications from 1995 to 1998) the state-run Telebras was privatized for over USD$19 Billion in July 1998. But the wasn't the first time Brazilians had seen private enterprise gain a footing.

In June 1997, when the first license for a Band B operator was granted to Americel, Brazil had just 3.2 million subscribers. In just 30 months, the total was multiplied four-fold, and grew to over 15 million users. Today there are over 25 million and, according to Anatel's forecasts, the country may achieve as many as 58 million subscribers in 2005.

When competition and the privatization of cellular services began in 1997, the demand for phones was so high that the mobile almost instantly replaced the fixed-line phone - whose price was higher and installation waiting period much longer.

The repressed demand in a city like Sao Paulo - with a population of 18 million in the metropolitan area - was so high that in 1997 the company receiving the first spectrum license, BCP (formed by BellSouth and Bank Safra) paid USD$2.5 Billion for it.

Highlighting the potential of the market, BCP started from zero and garnered over 1 million subscribers in only 9 months of operation.

According to April 2001 data, out of the total of 25 million cellular subscribers in Brazil, 17.5 million subscribe to Band A and 7 million to Band B, in other words, a 70 to 30% ratio.

But even considering the remarkable growth rate we've witnessed thus far, the penetration rate in Brazil is still relatively low, at about 12 cellular phones per 100 inhabitants.

Cultural impact

The introduction of the pre-paid pricing system in Brazil was responsible for the largest expansion in wireless phone services ever seen in Latin America. For the first time, low-income consumers were able to afford the service and adopted the mobile phone, and its associated habits and customs, with ease.

Maria Ursulina da Silva, a maid working for a family in Sao Paulo, is a good example. Each member of her family - Maria Ursulina, her husband and each of her two children - has his or her own pre-paid phone. Since the Ursulina family's monthly income is only around USD$1,200, they find it much easier to cope with a pre-paid system instead of one that allows the charges to get out of hand.

"Now I can speak to my teenage children when they leave night school, locate them during the weekend or warn them of any urban problem at any time. This gives us a feeling of security that the fixed phone, which was linked at about the same time, can not give."

Cases like Maria Ursulina's can be found by the thousands throughout Brazil. Maria Auxiliadora, a lady who delivers vegetables to homes in the Rio Vermelho neighborhood in Salvador, doubled her monthly income after she adopted a cell phone to contact her clients. A doctor in Londrina, in the State of Parana, gave a cell phone to each of his 4 children, with a phone allowance - USD$10 per month - because the boys were spending over USD$200 having long chats on his own cell phone.

Prospects for growth

For those who might suspect the Brazilian market is declining or may soon reach saturation, here are some thoughts about its potential, supplied by a study being led by Sao Paulo Consultants:

The reduction in prices is already significant, both for lines and handsets. Three years ago it would have been impossible to leave a mobile phone dealer's shop speaking on the phone for less than USD$50. Today it's a common occurance through the use of pre-paid phones. The price of a single cellular subscription, in the parallel market in February 1998, including the handset, was around USD$2,800. Today, it's a tiny fraction of that amount.

This does not mean we have reached any sort of market paradise, however. Two essential things are still missing in the Brazilian market: lower rates and more stability in the calls. There are some, however, who believe that the introduction of new competitors, adopting 1.8 GHz GSM technology, can contribute to solving these two problems.

Today, only Internet-use grows at a faster pace than mobile services. In the 1990s, for example, while fixed-line services grew at an annual rate of 7%, mobile phone services increased by 52%. And Internet usage was up by 81%.

In 2003, according to ITU estimates, we'll see the "one billion coincidence," that is, the number of fixed-line users, as well as the number of mobile phone and Web users will each reach one billion in their respective segment. The world has close to 700 million cellular subscribers today, and the industry is set to garner 2 billion by 2010.

Brazil, with its 25 million users, is one of the most rapidly growing market segments in the world. According to the Anatel, the number of Brazilian subscribers in 2005 is expected to reach 58 million. The most optimistic estimates, however, soar beyond 65 million, due to increasing competition and, particularly, to the adoption of GSM technology in the l.8 GHz frequency.

It's Mobile World Week on TheFeature. From mobile developments in Brazil, Africa and Asia to global standardization issues, you'll find it this week on TheFeature.

Ethevaldo Siqueira is a Brazilian journalist who specializes in Information Technology. With more than 30 years of experience, he is also the founder and ex-Director of RNT Magazine (Revista Nacional de Telecomunicacoes) and TelePress Latinoamerica, both published by Advanstar Editora.