Vieira Ceneviva, Almeida, Cagnacci de Oliveira & Costa Advogados Associados

Transcription

1 Vieira Ceneviva, Almeida, Cagnacci de Oliveira & Costa Advogados Associados PCS In Brazil One More Time! On September 11 th Anatel issued a new draft edital in the hopes that the unsold regions that were left from the sale of the D and E band licenses could finally be sold. The concept this time is to split the Regions 1 into areas similar to those that were bid for the A and B Band concessions. If these authorizations could not be sold as Regions, then why may they be saleable as areas? The answer lies in Anatel s realization that the only potential bidders for these licenses are likely to be the existing SMC telecommunications operators and perhaps Telemar, the SMP operator in Region 1, that are trying to expand or complete their networks. New investors to Brazil are unlikely to appear (given the failure of the C band sale to attract even one proposal). There are ten areas being offered for sale as lotes of which five are the E band areas that remained unsold: metropolitan São Paulo ( A and B band Area 1), the interior of the State of São Paulo ( A and B band Area 2), the States of Paraná and Santa Catarina ( A and B band Area 5), the state of Rio Grande do Sul ( A and B band area 6) and, the States of Acre, Goiás, Mato Grosso, Mato Grosso do Sul, Rondônia, Tocantins and Brasilia ( A and B band Area 7). The other five are areas that were returned to Anatel by Telecom Itália Mobile ( TIM ), being (three E band and two D band) areas where TIM already has existing operations. These areas are: the State of Minas Gerais ( A and B band Area 4), the States of Paraná (less those two municipalities where service is provided by Sercomtel) and Santa Catarina ( A and B band Area 5), the States of Alagoas, Ceará, Paraíba, Pernambuco, Piauí, and Rio Grande do Norte ( A and B band Area 10), 1 The terms Region herein refers to the three geographic Regions defined in the Plano Geral de Outorgas ( PGO ), initially for the public regime, fixed wire line operations, but also for the Mirrors and the early SMP bids.

2 the states of Bahia and Sergipe ( A and B band Area 9), and The city and surrounding municipalities of Pelotas in the State of Rio Grande do Sul (included in A band Area 5, and B band Area 6). The Five E band Areas Acre, Goiás, Mato Grosso, Mato Grosso do Sul, Rondônia, Tocantins, and Brasilia (lote 6) Paraná and Santa Catarina (lote 4) Rio Grande do Sul (lote 5) Interior of State of São Paulo (lote 2) Metro São Paulo (lote 1) The Five Areas Returned by TIM Alagoas, Ceará, Paraíba, Pernambuco, Piauí, and Rio Grande do Norte (lote 8) Bahia and Sergipe (lote 7) Paraná and Santa Catarina (lote 9) Minas Gerais (lote 3) City of Pelotas, RS (lote 10) 2

3 This Newsletter will review: 1. the accompanying regulations, 2. the benefits, in terms of additional services that may be offered, that will accrue to the winning bidder, and 3. the most likely bidders for the Areas being offered. 4. other changes to the edital. Technical Issues As the technology of Brazilian telecommunications moves from second generation 2G, (digital voice) to 2.5 generation (digital voice and data) the ability of the potential bidders to adapt their existing systems to the spectrum that is available 2, (1710 MHz 1725 MHz & 1805 MHz 1820 MHz for the D band and 1740 MHz 1755 MHz & 1835 MHz 1850 MHz for the E band) is important in understanding the likelihood of whether potential bidders will participate. TDMA Most of Brazil, with the exception of four Telefonica/ Portugal Telecom 3 ( Ibéria ) systems are TDMA. This is a system that can effectively handle digital voice communications, but has limited capacity to offer data service. Therefore, TDMA operators in the USA are already migrating to the GSM 2.5 G solution known as General Packet Radio Service ( GPRS ). This route to next generation service is well traveled and solutions, using similar spectrum to that being auctioned by Anatel, are well developed. Technological Development of TDMA/ GSM Wireless service from 2 G to 3 G 2 G 2.5 G 2.75 G 3 G TDMA GSM GPRS EDGE UMTS CDMA The route that is confronting Ibéria is more challenging, as the spectrum available is not that used normally for next generation CDMA, and therefore Ibéria will have to decide whether it is worth their while to develop a relatively low cost system i.e. GSM, that is incompatible with their existing CDMA systems and where roaming is not possible. Or to use CDMA technology within the spectrum allocated by Anatel, which is likely to be a much more expensive option. The expense factor and technological issues are additional problems for Ibéria on top of what is already a difficult business case. 2 Particularly for roaming. 3 Already including Global Telecom. 3

4 Technological Development of CDMA wireless service from 2 G to 3 G 2 G 2.5 G 2.75 G 3G CDMA 1 x RTT CDMA 2000 EV. DV. Who Wants What? After the failure to sell the remaining C, D and E band authorizations on a Region basis, Anatel has opted to return to an Area sale in the expectation that the major groups such as Telefonica/ Portugal Telecom and Telecom Americas might buy some areas that they need to expand or complete their networks. The areas are analyzed below by i). percentage of GDP that is contributed by each area to the Brazilian total, and ii). the population contributed by each area to the Brazilian total. Areas GDP % Population % 1 São Paulo Metro 19,3 11,3 2 São Paulo Int. 16,2 10,5 3 Rio/ ES 12,9 10,3 4 Minas Gerais 9,8 10,5 5 Paraná & SC 9,8 8,8 6 RGS 7,7 6,0 7 Centre-West 7,6 8,8 8 Amazonia 4,4 9,2 9 Bahia; Sergipe 4,8 8,7 10 Nordeste 7,5 15,9 Total 100,0 100,0 Source IBGE The table shows the geographically uneven distribution of wealth within Brazil, with the State of São Paulo accounting for 35.5% of the total Gross Domestic Product ( GDP ), with only 21.8% of the population. By contrast, the most populous area is the six State North-East area with 15.9% of the population, (27 million people) accounts for only 7.5% of the GDP. Ibéria Ibéria s current GDP/ population ratio is There are four areas that Telefonica/ Portugal Telecom does not presently have, and we suggest below the priorities they might have for these four areas: 1. Minas Gerais 2. Brasilia and the Centre-West 3. North-East 4. Amazonia. 4

5 Ibéria Existing Areas Areas GDP % Population % 1 São Paulo Metro 19,3 11,3 2 São Paulo Int. 16,2 10,5 3 Rio/ ES 12,9 10,3 5 Paraná/ SC 9,8 8,8 6 RGS 7,7 6,0 9 Bahia/ ES 4,8 8,7 Total 70,7 55,6 As noted above, the addition of Minas Gerais to Ibéria s areas would raise their coverage to over 80% of Brazil s GDP while raising the population covered to 66.1%. This would reduce their GDP/ population ratio to The Centre-West area, which includes Brasilia could also be of interest. At the time of B-band concession sale, and privatization the North-East area was thought to be of great potential. However, the experience of the existing two operators in that Area has been lackluster with significant bad debts. Telecom Americas Telecom Américas is the company owned by Bell Canada International, America Móvil, and SBC Communications. The company has operations in Areas of all three of the Regions, and in attractive properties such as the interior of the State of São Paulo, and Rio de Janeiro. The Areas held by Telecom Américas have a GDP/ population ratio of However, they have shown a propensity for purchasing existing operators, (i.e. not Greenfield) so their attitude to the development of new infrastructure is not clear. Telecom Americas Existing Areas Areas GDP % Population % 2 São Paulo Int. 16,2 10,5 3 Rio/ ES 12,9 10,3 6 RGS 7,7 6,0 7 Centre-West 7,6 8,8 Total 44,4 35,6 Source IBGE Telecom Américas has four Areas, but there is at least one critical area that would seem important to providing them with a network that reaches key Brazilian areas. The missing area is Area 1, metropolitan São Paulo, which would give them an additional 19.3% of the Brazil s GNP, and 11.3% of its population. Aside from São Paulo, Telecom Américas might also be interested in Minas Gerais and Paraná/ Santa Catarina. 5

6 Telecom Itália Mobile TIM has purchased a nationwide footprint by purchasing D and E licenses for those areas where it does not have A and B band licenses. We provide below the GDP/ population analysis to TIM s existing operations. The GDP/ Population ratio for existing properties is As will be seen from the chart below, only in Paraná/ Santa Catarina is the percentage GDP greater than the population. The reason for purchasing the SMP Authorizations was to have coverage in the key markets of the entire State of São Paulo as well as Rio de Janeiro. Bid Competition TIM Existing Areas Areas GDP % Population % 4 Minas Gerais 9,8 10,5 5 Paraná/ SC 9,8 8,8 9 Bahia/ Sergipe 4,8 8,7 10 North East 7,5 15,9 Total 31,9 43,9 If Ibéria and Telecom Américas do bid (and it may be hoped that Anatel has had discussions with operators and is sure that the present package will be more successful than previous attempts) there would likely, only be a competition for Minas Gerais. This analysis assumes that the large existing operators such as Ibéria and Telecom Américas are likely to bid for these areas. This assumption may be incorrect. While it is not expected that large international operators will be interested in the bids, it is possible that the smaller SMC operators such as BCP/ Bell South, Opportunity and Splice could attempt to increase their networks. LD Licenses Article of the Consulta Publica states that any winning bidder will have the right to: a). an Authorization to develop the National Long Distance, Telephone Service starting on January 1 st 2002, and b). an Authorization to develop International Long Distance, Telephone Service. Both Authorizations will allow LD service provision nationwide. The Long Distance market is likely to become crowded shortly as the following operators will have the right to operate starting January 1 st 2002 with the following conditions: All public regime service operators of local fixed wire line service may request national interregional and international LD Authorizations for their Region of operation. If they request an Authorization to offer local service in other PGO Regions, they may then also request an Authorization to offer Long distance services. 6

7 The Mirror, private regime service operators may request national interregional and international LD Authorizations for their Region of local operation and upon requesting Authorization(s) to operate local fixed wire line service in other Regions (I, II and III of PGO or 67 smaller areas the Numbering Areas ), may request national and international LD Authorizations. The small mirror companies may offer LD service only for calls originating in the area they provide local service. All operators of SMC service may request national and international LD Authorizations, in one or more of the 70 areas (I, II and III of PGO and 67 Numbering Areas), provided that they also offer local service. All SMP operators may offer nationwide national and international LD service and are not obliged to offer local service. All winners of the Areas under this Consulta Publica may also request an Authorization to provide nationwide national and international LD service and won t be obliged to offer local service. The Strange Case of Pelotas, RS The municipalities of Pelotas, Morro Agudo, Capão Leão and Tucuruçu were the only ones in the State of Rio Grande do Sul that were provided with telephone service by Telebrás until The rest of the State received service from Companhia Riograndense de Telecomunicações CRT, a company that was controlled by the Sate of Rio Grande do Sul prior to privatization. The company that provided service in the Pelotas area was called Companhia Telefonica de Melhoramento e Resistencia CTMR.. When Telebrás was privatized in 1998, for SMC purposes CTMR was joined with the States of Paraná and Santa Catarina and sold to TIM. Thus, when TIM purchased its PCS licenses it returned the spectrum for the CTMR area. For reasons that are not altogether clear Anatel has chosen not to link the CTMR area to that of Paraná and Santa Catarina (lote9), but has decided to sell it separately. This has the following, interesting side effect: Although the Consult Publica does not define minimum prices, Anatel,in its manchete dated September 6 th 2001 relating to the bidding process, states that the minimum prices will be the result of an equation that takes into account the following considerations: 1. The reference prices adopted during the sale of D and E licenses. 2. The population of the cities of the 10 areas to be bid, and the numbers applied proportionately to the areas. 7

8 This means that in Region 2, the value of US$ 540 million was the minimum price. The population of this region is 40.5 million. The population of Pelotas, Morro Agudo, Capão Leão and Tucuruçu is million. Therefore, the minimum price for the right to operate PCS service in this area, but also to have a nationwide national and international LD license will be: R$ 540 million / 40 million = R$ 13.5 x = R$ 5 million (or at today s exchange rate of R$ 2.7 to US$ 1.00, = US$ 1.85 million). Other Changes There is no right for the a company to renounce its winning bid for an Area (which was the case of the winners of SMC, SMP licences and their controlling economic groups) in the same geographic area. The winner must transfer the original SMC or SMP license or divest in 6 months. (item 4.2 of Edital's Draft) payment in 5 installments (this feature was not included in either of the D or E band bids thus far, but was a feature of the second C band bid). (item of Edital's Draft) right to offer a sole guarantee for lotes 4 and 9 and 5 and 10 (items and of Edital's draft) This is because lotes 4 is the same as 9, and 5 is the same as 10, and the bidder cannot win both, so one guarantee will suffice. limitation of types of guarantees that may be presented, to a pledge of cash or a bank guarantee (item of Edital's draft). Anatel will no longer accept insurance guarantees, Treasury obligations, Foreign obligations or deposits in Reais. auction will be at Anatel and not at the Rio de Janeiro Stock Exchange. (item 8.1 of Edital's Draft) 8

9 OPERATORS AND AREAS A B C D E 1 Ibéria BCP/Splice - TIM - 2 Ibéria Telecom Americas 3 Ibéria Telecom Americas - TIM - - Telemar TIM 4 TIW TIM - Telemar TIM (returned) - 5 TIM Ibéria - TIM (returned) 6 Ibéria Telecom Americas 7 Splice Telecom Americas - TIM - - TIM - 8 TIW Splice - Telemar TIM 9 Ibéria TIM - Telemar TIM (returned) 10 TIM BCP/Splice - Telemar TIM (returned) 9

10 WHO CAN PARTICIPATE Provisioning Area Frequency Band Splice Telemar Telecom Americas Ibéria Nextel Bell South Alumínio, Araçariguama, Arujá, Atibaia, Barueri, Biritiba-Mirim, Bom Jesus dos Perdões, Bragança Paulista, Cabreúva, Caieiras, Cajamar, Campo Limpo Paulista, Carapicuíba, Cotia, Diadema, Embu, Embu-Guaçú, Ferraz de Vasconcelos, Francisco Morato, Franco da Rocha, Guararema, Guarulhos, Igaratá, Itapecerica da Serra, Itapevi, Itaquaquecetuba, Itatiba, Itu, Itupeva, Jandira, Jarinu, Joanópolis, Jundiaí, Juquitiba, Mairinque, Mairiporã, Mauá, Mogi das Cruzes, Morungaba, Nazaré Paulista, Osasco, Pedra Bela, Pinhalzinho, Piracaia, Pirapora do Bom Jesus, Poá, Ribeirão Pires, Rio Grande da Serra, Salesópolis, Salto, Santa Izabel, Santana de Paranaíba, Santo André, São Bernardo do Campo, São Caetano do Sul, São E NO YES YES No Yes NO 10

11 Lourenço da Serra, São Paulo, São Roque, Suzano, Taboão da Serra, Tuiuti, Vargem, Vargem Grande Paulista e Várzea Paulista Estado de São Paulo, excluídos os municípios contidos no Lote 1 Estado de Minas Gerais Estados do Paraná e Santa Catarina Estado do Rio Grande do Sul Estados do Acre, Goiás, Mato Grosso do Sul, Mato Grosso, Rondônia, Tocantins e Distrito Federal Estados da Bahia e Sergipe Estados de Alagoas, Ceará, Paraíba, Pernambuco, Piauí e Rio Grande do Norte Estado do Paraná, excetos os municípios de Londrina, Tamarana e Estado de Santa Catarina Municípios de Pelotas, Morro Agudo, Capão do Leão e Turuçu, no Estado do Rio Grande do Sul E YES YES NO NO YES YES E YES NO YES YES YES YES E YES YES YES NO YES YES E YES YES NO NO YES YES E NO YES NO YES YES NO E YES NO YES NO YES YES E NO NO YES YES YES NO D YES YES YES NO YES YES D YES YES NO YES YES YES 11