Innovative Communications: Big changes in Brazil, August 2007

I visited Brazil August 13th-17th to study 3G multimedia services evolution. I saw big changes from my previous visits. In 2002, the big thing was 2G prepaid launches - my job contributed to a large deployment (at TeleSP, now part of Vivo) together with Portugal Telecom Inovacao. Then in 2004 the topic was NGN and VoIP, we shared our experiences with operators such as Brasil Telecom, and their CEO, marathon runner Carla Cico. I was really impressed with her but remained a modest ½ marathon runner. Between 2004 and 2007 I saw the following changes :

2G mobile penetration reaches 60%, and 3G is coming fast
Growth exceeded 20% in recent years, Brazil has now 115 million mobile subscribers, a 58% penetration, 80% on pre-paid plans according to Anatel . I have estimated the monthly ARPU at 13$. All this makes Brazil the 5th largest mobile market (after China, US, Japan, Russia).
On the mobile innovation side, 3G is finally being rolled-out with auctions by Anatel of 1900MHz and 2100MHz bands (announced in 2000 but delayed to 2008). The plan anticipates 80% urban coverage by 2010 at a cost estimated at 3B R$.

Mobile operators are consolidating in a duopoly
The 2nd change is that competition in Latin America with Mexico is leading to a duopoly of mobile operators in Brazil. Telefónica’s is taking control of Telecom Italia and resulting an equity in 53% of Brazil's cellular. This balances América Móvil’s control of Claro led by Mexican billionaire Carlos Slim, who also controls Telmex and is expanding in other Latin American markets. A good measure of market concentration is the HHI index which went down from 3213 to 2257 in 5 years (Herfindahl-Hirschman Index) and should drop further after recent M&A.

Like for my previous visits, I was hosted by excellent colleagues : Jefferson Kishida who has a lot of insight on the network infrastructure in the country and Fausto Dedeschi who has been working with the Latin America telecom industry for years. (in the picture Jefferson Kishida with me at Brazil Telecom in 2004 and in 2007 at Vivo with Fausto) Dedeschi and Carlos Alberto Pinto "Cap") During this visit, I had the opportunity to get feedbacks from major operators on the 3G plans : Vivo and TIM (Telefónica–controlled) and Claro (América Móvil’) who dominate but also Oi who is gaining market share (controlled by Brasilian operator Telemar).

Vivo (Telefónica, Portugal Telecom)
30 million subscribers 1600 M$ revenue 370 % growth, 403 M$ profit
The company is present in 20 Brazilian States or 86% territory coverage. According to their network director Attila Branco, VIVO are consolidating their networks (CDMA/TDMA and GSM/EDGE; deploying HP's HLR solutions). They are also innovating with content services (using CoreMedia DRM with PT’s MMBox/DiNO platforms) and now preparing 3G video services.
TIM Cellular (Telecom Italia, Telefónica)
23 million subscribers, 3400 M$ revenue, 84 % growth, -153 M$ losses
Claro (América Móvil)
22 million subscribers (GSM1800, TDMA800)
3900 M$ revenue 39 % growth, 498 M$ profit
also plan to launch 3G services over existing 850MHz spectrum
Oi Movel (owned by Telemar)
13 million subscribers (GSM1800)
1600 M$ revenue 35 % growth, 64 M$ profit

Brazil's social networking expands into mobile 2.0
The 3rd change is the continued expansion of the Brazilian internet phenomenon . On the infrastructure side there has been visible progress : internet users doubled to 41 million since 2004 [ITU 2007] connected using 51 million fixed lines (26% penetration) and 6 million fixed broadband (3.1% penetration, 11th worldwide). Some new cable companies are challenging the 5 incumbents Telesp, Telemar, Brasil Telecom, Sercomtel, and CTBC Telecom : I noted the cable operator Net Servicios offering a 8Mbps service. Broadband price is still a big inhibitor, the cost ratio to the average income being 10 X that of western Europe. PC penetration is 11% and HP is one of the manufacturers contributing to efforts to lower prices and there are offers in the range of 500$ with 24 month payments.
Brazil leads is social networking usage. The country takes the number 2 position worldwide in Ipsos’ Face of the Web survey. They measured active (30 days) SNS usage in South Korea 55%, Brazil 41%, China 27%, Mexico 26%, and the US 24%.

MSN Messenger and Google's Orkut social network were adopted immediately in Brazil . Google's Orkut claims 12 million monthly visitors in Brazil, that’s 50% of their worldwide traffic and over 30% of Brazil’s internet users. Unfortunately a few of them showing illegal content as Wall Street Journal reported. The settlement of such abuses by peer moderation as well as regulation is unfortunately part of reaching the maturity of services.

In Second Life, Brazilians are the 6th largest group with nearly 5% of worldwide users. I have seen Paulisto SNS users in trendy internet bars such as this one :

The natural evolution of social networking on mobile has already generated a few announcements. Dada Brazil launched a mobile SNS that enables mobile blogs with pictures and video. Dada Mobile has 7 million members worldwide, 3.2 million in the US. Vivo and StreamVerse ran a proof of concept for mojo, which enables mobile blogs, RSS feeds, vote/picture-vote, chat, share images, and status. And .but does not disclose number in Brazil. Focus Films / Conquest, a Brazilian media company together with Korean IntroMobile launched a personal blog solution NetMirror. IntroMobile had previously deployed its mExtendMedia MMS solution at VIVO.

Mobile instant messaging is also being promoted nicely. This add for MSN mobile was posted on You Tube :

Mobile 2.0 must fit with social and economic differences

Brazil is that is a country with divisions. Sao Paulo state and city account for 3 million of the 5.3 million Brazilian enterprises. A majority of subscribers belong to the poor population but a small part are educated and rich . To deliver the potential of 3G social networking services it’s important to think about services that would have both a high-end western-style (like mobile TV content and video blogging) and a cheaper 2G version (like and group SMS, ringtones, cards, notifications). Brazil’s economic position is however in the top tier within BRIC countries (GDP per capita at