WSJ -- Qualcomm Pumps More Cash Into Brazil To Defend Mkt Share.
November 21, 2002
Qualcomm Pumps More Cash Into Brazil To Defend Mkt Share
By MIKE ESTERL
Of DOW JONES NEWSWIRES
NEW YORK -- Qualcomm Inc. (QCOM) is ramping up its commitment to
troubled Brazil as it scrambles to keep its technology alive in Latin America.
The San Diego-based company surprised many observers by agreeing this
week to spend $85 million for three wireless operating licenses in a bid to
expand its foothold in a potentially lucrative market.
It's the latest sign that foreign investors, after steering clear of Brazil amid
policy uncertainty and solvency concerns ahead of last month's elections,
are again plunking down hard cash following market-friendly assurances
from the country's president-elect.
A lot is at stake in particular for Qualcomm, though, which is trying to
ensure that its patented CDMA or code division multiple access, technology
enjoys a long life in Latin America's biggest nation - and across the rest of
the region.
"As Brazil goes, it determines how the rest of Latin America goes," said
Duane Nelles, Qualcomm's director of finance, adding that his company
only has to pay 10% of the $85 million up front for the concessions.
Wireless carriers around the globe are choosing CDMA or a competing
technology, known as GSM or global system for mobile communications,
as they upgrade capabilities. But while many telecommunications providers
in developed countries have already cast their votes, the battle has barely
begun south of the Rio Grande.
"What is particular to Latin America is that there are a lot of operators that
are still in the decision-making process," said Juliana Abreu, an analyst at
Pyramid Research, a consulting group in Massachusetts.
The number of cellular subscribers in Brazil alone should reach 34 million
by the end of this year, up from less than 15 million three years ago, and is
expected to increase further to 50 million by 2005, according to Pyramid. Wireless penetration in Latin
America's 18 biggest markets, currently at just under 100 million, is seen topping 140 million by 2005.
The struggle for market share has pulled Qualcomm in some unusual directions in Brazil, where it has already
invested $750 million. Its stake in a local carrier, Vesper SA, has ballooned to 86% from 15% since the upstart
was launched in early 2000. The big equity stake is the result of two foreign partners having bailed out, forcing
Qualcomm to ditch its typical business model of providing technology to carriers instead of owning them.
Vesper remains a bit player on the Brazilian scene, with just 500,000 subscribers. Ironically, the company was
only able to provide fixed wireless services in Brazil until it corralled three of nine new operating licenses up
for grabs on Tuesday.
More importantly, though, the regional licenses complement those held by Telefonica SA (TEF) of Spain and
Portugal Telecom SA (PT), the only two major players in Brazil at this time who use CDMA technology. By
snapping up licenses in the Sao Paulo, Minas Gerais and Northeast regions, Qualcomm has mapped out a
CDMA network that almost spans the entire country, something that GSM already boasted through Telecom
Italia Mobile SpA (I.TIM).
That could keep Telefonica and PT in the CMDA camp, and convince other carriers to sign up, according to
Roger Oey, a telecommunications analyst with BBV Brasil in Sao Paulo.
"The important thing is that CMDA is not going to die in South America," he said.
Qualcomm's Nelles confirmed that his company is eager to sell its stake in Vesper and get back to its core
business of selling technology. "Our goal is to seed CDMA," he said.
What isn't clear though, is whether Qualcomm may have to pump more money into Vesper in the interim to
keep GMS from winning the day - and the San Diego company isn't providing any guidance.
"We could be very aggressive, and that would cost several hundred million dollars, or we could be
conservative," said Nelles.
-By Mike Esterl, Dow Jones Newswires; 201-938-4026; mike.esterl@dowjones.com
Updated November 21, 2002 6:36 p.m. EST
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