Brazil to boost revenue, ease rules in 4G auction

BY LEONARDO GOY

BRASILIA – Brazil is considering ways to push up the cost of wireless broadcast permits in exchange for accepting worse coverage, a government source told Reuters on Thursday, highlighting the tradeoffs that may be required to hit a tough fiscal target.

Treasury officials have pushed regulators to ease coverage requirements or offer fewer permits in an August auction of next-generation (4G) cell spectrum, the source said. New rules could boost the minimum price of permits to between 12 billion and 15 billion reais ($5.2 billion and $6.5 billion) from 6 billion reais.

“When you set requirements the auction price falls, because you swap money that would go to the treasury in exchange for investment in better service. Removing obligations … the auction raises more money,” said the source, who spoke on condition of anonymity because the discussions are ongoing.

Authorities at the treasury and the communications ministry did not immediately respond to requests for comment. Brazil’s telecommunications regulator Anatel declined to comment.

The possible tradeoff underscored the lengths to which President Dilma Rousseff may need to go in order to meet a strict budget target she has set as she prepares to seek re-election in October. Brazil’s looser fiscal policy and reliance on one-time revenues have drawn fire from investors, who also complain about unpredictable rules for concessions.

For the country’s big phone companies, missing out on the next round of permits could hurt the value of 4G investments they have already made and discourage future capital spending.

Brazilian telecom companies are already struggling to sustain profitability in the face of a sluggish economy and heavy investments to roll out 4G coverage and build out pre-existing networks ahead of the soccer World Cup in June.

Telefonica Brasil SA, the local unit of Spain’s Telefonica, is the country’s biggest wireless carrier and leading 4G provider. TIM Participações SA, a unit of Telecom Italia, is Brazil’s second-largest mobile company. Mexican tycoon Carlos Slim’s America Movil and Grupo Oi SA, which is in the process of merging with Portugal Telecom, are also major players in Brazil.

All four of those local carriers paid a combined 2.56 billion reais in 2012 for an initial round of 4G permits tied to covering host cities for the World Cup.

That auction covered the 2.5 GHz broadcast spectrum, which works well for heavy data loads in cities but requires about three times as many towers to cover a given area compared with the 700 MHz spectrum set for auction in August. Several companies assumed they would have access to both frequencies in calculating the profitability of their 4G investments.

Under one of the proposals that officials have considered, however, the government could boost the value of the new 700 MHz permits by issuing them to only two carriers, the source told Reuters. Anatel has resisted that model, citing competitive concerns, the source said.

Another proposal would issue four permits with varying degrees of coverage requirements. One permit would require sharing bandwidth with public safety communications, for example, while another, more expensive permit would be exempt from network neutrality obligations, according to the source.