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Brazil Broadband? Yes. Telebras? No

Brazil's ambitious aim to boost broadband usage receives praise, but not its plans to revive Telebras.

Inter-American Dialogue 

In May, the Brazilian government announced the Plano Nacional de Banda Larga (PNBL), which aims to bring broadband Internet access to 40 million households by 2014, more than 70 percent of all the country's households. What are the main barriers to broadband development in Brazil? Does the government have the right plan in place to achieve such an ambitious goal? What steps does the government need to take to make the plan work?

Antônio Carlos Valente, Chairman, Telefônica Brasil: In a country with social inequalities such as Brazil, the issue of income distribution remains a major barrier to the development of broadband services. From this issue derives several other barriers and obstacles, such as low education of the population, low penetration of computers per household and difficulty in paying the price of the service (no matter how low it may be). With an area of over 8.5 million square kilometers, providing services to remote areas is also a very delicate topic in Brazil—particularly in regions like the Amazon and the north, where population density may be below one inhabitant per square kilometer. Regarding the price of broadband access, the high tax burden is one of the main obstacles to service growth: it reaches 42 percent, greatly increasing the final price for the user. In general, a plan to develop broadband in Brazil should be done through public policies for social inclusion, measures to encourage private investment and tax reduction programs. To address social issues, the government should develop initiatives such as: encouraging the learning of computer use through distributing CDs with courses for beginners to access the Internet; providing training in the free public schools for all students, parents and teachers; subsidizing broadband access for NGOs dedicated to teaching computer science; and developing incentive programs for the donation of used computers in these NGOs. In the investment arena, the government should use public sector funds, such as the universal telecommunications fund (FUST), for example, to incentivize the private operators to extend their offers to under-served areas where the demand does not justify the launch of commercial offers. At the same time, it should provide the allocation of radio frequency bands for the construction of low-cost wireless access networks, which will reduce the final price to the consumer. And finally, the government should reduce taxes on both the service and production chain, including: reduction of taxes on broadband modems (both fixed and mobile) and their components; reduction of the tax on components and equipment for broadband infrastructure; and reduction of taxes on broadband services. Among all the barriers that must be overcome for the effective development of broadband in Brazil, only the issue of tax relief is being treated in PNBL. But there is still much more to do, as commented above. However, our understanding is that the government is moving away from its areas of expertise and responsibility—the establishment of public policies—toward the direct involvement in implementing and offering the service. There is no doubt that the government has an important role in the development and expansion of broadband service to overcome all obstacles already in place. However, there are concerns about the efficacy of having a government-owned entity managing backbone capacity and potentially undercutting the efforts of existing operators by providing inexpensive access in the last mile. Some industry analysts have pointed out that it is possible that the pendulum has swung too far toward the interventionist approach.

Wally Swain, senior vice president for emerging markets at The Yankee Group: The Brazilian government has an ambitious program that will almost certainly fail to meet its goals. However, even in failure, the plan is a huge step up in bringing broadband to under-served parts of the country. I don't like the reactivation of Telebras—we have too easily forgotten that state-owned companies are inefficient and distort market forces. But the government is right to focus on long-haul networks as critical enabling investments. High-speed data networks need fiber or other high bandwidth fixed connectivity between access points (like wireless base stations) and the core. Deep fiber strategies permit strategic or economic access choices which might be fiber-to-the-home, fiber-to-the-curb, LTE wireless (Long Term Evolution), WiMax or 3G. The fiber does not have to go all the way—just to the deepest node that makes sense economically. By pushing fiber deep—deeper perhaps than operators with public shareholders were prepared to go on their own—the government opens up more towns and cities for broadband services. For example, in many parts of Brazil, mobile operators are ready to provide 3G connectivity but lack the backhaul facilities to do so. It's easy to forget that mobile only handles access over the last few kilometers or less. Like the rest of the BRICs, Brazil will settle for nothing less than infrastructure equivalent to that of its major competitors, including the United States and Europe.

Scott Andes, research analyst at The Information Technology and Innovation Foundation: President Lula's recent plan to extend broadband to 40 million households by 2014 at face value is a laudable goal. Yet reviving Telebras, the currently defunct state telecom monopoly, is questionable given that private telecom companies operate 200,000 kilometers of fiber cable, nearly 10 times the size of the government's backbone network (23,000 km). Furthermore, the government's network is currently completely dormant. Breathing life into the government's network and Telebras instead of relying on existing infrastructure and incumbent firms may constitute reinventing the wheel. The government argues broadband access dictated alone by market forces have proven too scarce and costly, and they are correct. Brazil pays 10 times more for broadband than most developed countries and only 20 percent of households have access. Yet a better policy prescription to correct this market failure would be to take the 15 billion reais ($8.5 billion) set to go to Telebras and incentivize existing firms to expand coverage—as the U.S. National Broadband Plan aims to do.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter. 


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