There is no doubt that the major macroeconomic reforms to overhaul the pension and tax systems are the hottest topics on the Brazilian political and economic agenda for 2019. However, the ultra-liberal Economy Ministry’s bid to shake up Brazil’s economy and make Brazil “pro-business” goes way beyond these reforms. The process will also require an update to several regulatory frameworks. Among the ongoing battles, Congress has already addressed the possibility of foreigners owning airlines in Brazil—thus spurring competition—but as pension reform debates ramped up, two of the most important sectoral issues were put to one side: new regulatory frameworks for the sanitation and telecom sector. 

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What is at stake?

Brazil’s current telecommunications law is 22 years old. When it was created, it was a key part of the privatization process that ended up exponentially increasing access to telephone services in the country. It also created Anatel, Brazil’s telecom regulator. However, over time, the law has become outdated. It is overly focused on landline telephone assets and does not allow for the extension of companies’ operating contracts—which expire in 2025.

Since 2016, a revamp is being discussed in Congress and was even approved by lawmakers. However, due to protests over a lack of debates, the Supreme Court ordered it to be analyzed again, following the proper proceedings. Since then, the bill has stalled. 

The problem is that time is running out. Considered a pro-business bill, the sector deems it crucial to provide legal security to investments in telecommunications. It will become even more necessary from March 2020 onward, when the country is expected to auction off new 5G frequencies. The technology is crucial to reach the new frontier of communications, including the Internet of Things (IoT), Industry 4.0, and autonomous cars. Essentially, securing the investments for this area may boost the entire Brazilian economy in the future. 

Messy electrical and telecom wires hang above the street
Messy electrical and telecom wires hang above Brazilian streets. Photo: Shutterstock

What are the main changes on the table? 

The bill changes the authorization system for fixed telephony from concessions to permissions, which don’t require traditional public bidding processes. However, Anatel pledged to encourage the continuation of services in more remote (and less profitable) areas. It also allows contracts to be renewed constantly for 20 years at a time, instead of the current limitation of one single renewal—allowing companies the peace of mind to think about long-term investments.

It also determines that operators do not need to return state-owned infrastructure assets which are essential for telecom services (such as cables or public phones) if they invest in broadband instead. However, landline telephone assets must be kept as they are in areas where there is less competition, while investments in broadband should prioritize areas with less coverage (such as the Northeast region) and match the value of the assets.

It also allows companies to sell their radiofrequency blocks to one another, diminishing state interference and making room for smaller players to reach this market by buying spectrum bands from larger companies, for instance.

Another change concerns rules for satellites that are placed in Brazilian orbit, renewing the exploration rights indefinitely for 15 years, instead of the current single renewal.

Finally, the bill changes Fust, a sectoral fund aimed at fostering universal access to telecom services. The bill tries to put an end to an old battle of broadcasters, that have been taxed 1 percent of their revenues even though they are not telecommunication services providers. According to SindiTelebrasil, the association of companies in the sector, Fust amassed BRL 855 million in 2018.

Opposition

A large part of the debate lies in the state losing control over telecom, the risk of companies neglecting to provide services in needier areas if they don’t have to, as well as the idea that the state may be incurring losses by exchanging assets for investments. 

Regarding the last issue, the Federal Accounting Court (TCU) estimates that the infrastructure assets alone are worth BRL 105 billion. However, Anatel and companies believe that a large part of the assets have depreciated over time and, as of 2018, are worth only BRL 20 billion.

Right now, part of these assets’ value is due to the fact that companies, such as Oi, have also used them to deploy broadband equipment, but as technology evolves and the depreciation becomes even larger, there’s a risk these assets will lose even more value when concessions expire in 2025, as highlighted by Senator Otto Alencar, former chairman of the Senate’s Science and Technology Committee.

“There have been debates about giving up our assets, but that’s not the case. What we want is to transform the current burden on exploring landline telephony into an investment commitment, considering broadband’s impact on economic growth”, said Leonardo Euler de Morais, Anatel’s president, to lawmakers.

Also regarding the possibility that the companies won’t provide services if they are not under the strict rules of concessions, the bill determines the change from concession to permission must occur under Anatel’s supervision. Companies will also have to provide services in areas with little competition, making sure the population will have access to them regardless. 

SindiTelebrasil believes that “redirecting investments to broadband offers the required legal security and, as a consequence, creates more direct and indirect jobs, posing a strong impact on GDP’s growth and reducing regional inequalities, promoting more digital inclusion and a better quality of life for citizens”.

Other controversial issues, such as exempting Anatel from checking whether companies have debts with municipal and state authorities, have already been addressed by other versions of the bill during debates in the Senate.

Long overdue

Despite almost four years of back-and-forths, the bill remains a controversial issue and will probably take even more time in Congress. Right now, the ball is in the court of Senator Daniella Ribeiro, the bill’s rapporteur in the Science and Technology Committee. In June, Senate president, Davi Alcolumbre said Ms. Ribeiro was still analyzing it and “news will be heard soon.” 

The Brazilian Report tried to contact Ms. Ribeiro, but did not receive an answer about when she is expected to present her report. When she does, the bill will have to be voted on the Senate floor. If any changes are made, the proposal will be sent back to the House of Representatives. 

BY Natália Tomé Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.