The Battle Lines Are Drawn; Check Out The Sides>
Brazil's PCS Spectrum Debate Stirs Telecom Equip Makers
By MARGARITA PALATNIK
SAO PAULO -- Brazilian telecommunications regulator Anatel, immersed in a debate over allocation of
radio spectrum for Personal Communications Services, has got more to consider than just the technical
merits of one frequency against another.
Specifically, Anatel has to decide whether the PCS licenses it is about to auction for digital wireless
services that can carry data and voice will operate on the 1,800 Megahertz frequency or on 1,900 Mhz.
But hanging in the balance are supply contracts, investment commitments, consumer pricing - and quite
possibly the future of wireless communications in the standard known as 3G, for Third Generation.
On the industry side, the debate pitches Qualcomm Inc. (QCOM), L.M. Ericsson Telephone Co.
(ERICY), Lucent Technologies Inc. (LU), NEC Corp. (NIPNY) and Nortel Networks Corp. (NT)
against Siemens AG (G.SIE), Alcatel SA (ALA) and Nokia Corp. (NOK), among others.
Just in terms of investment, the new operators are expected to spend some $10 billion to deploy their
networks.
Anatel chief Renato Guerreiro recently joked that announcing his choice during the upcoming Telecom
Americas conference in Rio de Janeiro next week would be raining on the parade of half the attendees.
But industry observers note that Anatel will likely tap the talent and size up participants at the huge
industry gathering to help it make up its mind.
"In order to benefit the end consumer Anatel is looking to guarantee competition in as wide an area as
possible," said Andy Castonguay, an analyst with Pyramid Research. "In many ways the choice of
frequency will determine the scope of competition."
Debate Over Which Frequency Will Boost Competition Most
Estimates on additional penetration of wireless users vary, but some market participants count on PCS
subscribers to make up 20% of wireless customers in two to three years.
Even before the introduction of PCS service, seen by the first half of next year, Brazil is expected to end
2000 with some 23 million cellular subscribers, up from 15 million at the end of 1999.
Currently all cellular operators in Brazil operate on standards known as Code Division Multiple Access,
or CDMA, and Time Division Multiple Access, or TDMA.
The 1,800 Mhz proponents argue that introducing a new communications standard into Brazil - the
frequency only works for the Global System for Mobile communications, or GSM standard - would
spur competition and bring down prices. GSM is the prevalent wireless technology in the rest of the
world, with the exception of the Americas.
Lobbyists on the 1,900 Mhz side argue that operators should have the choice of what technology they
want to use, pointing out that 1,900 Mhz works with GSM, CDMA and TDMA.
Industry observers dismiss quality considerations, saying each of the technologies evolves quickly.
They also say it's too early to say which frequency will get the nod from Brazilian regulators.
One competition-deterrent aspect of the 1,800 Mhz frequency would be the absence of roaming
capabilities for the new operators, as the PCS handsets would be incompatible with the existing cellular
base. The roaming limitations would also extend to neighboring Latin American countries and the U.S.,
the dominant travel destinations for Brazilians.
But some industry participants say that if Brazil issues PCS licenses in the 1,900 Mhz frequency, it
would clog the airwaves and stunt 3G deployment in the country.
This is because 1,900 Mhz is the frequency endorsed for 3G wireless devices by the International
Telecommunications Union, or ITU, with technology under development to carry data at speeds of up
to 2 megabits per second, compared with the current 14.4 kb/s. Defenders point out the U.S. has
already used up the 1,900 Mhz frequency for PCS, and that 3G will nonetheless be developed
somehow, somewhere.
Mix Of National And Regional Concessions Possible
But Anatel has further PCS challenges beyond choosing the frequency: it must also decide how it will
break up the country to award the operating concessions.
After dividing Brazil in eight regions and issuing two wireless concessions per region in the past few
years, the country already had a tough time auctioning some of the licenses for sparsely-populated areas
with low per capita income.
As a third wireless carrier, it is hard to see the new entrant willing to blanket Brazil with PCS coverage.
Rather, bidders are expected to vie for rich, populous metropolitan areas such as Sao Paulo and Rio de
Janeiro.
But competitive long-distance carrier Intelig last week proposed that Anatel award a single license to
cover the entire country. Intelig - a unit of U.K.'s National Grid Company (U.NRG) and of France
Telecom SA (FT) - is lobbying in favor of the 1,800 Mhz frequency.
Pyramid's Castonguay noted that a way out of the frequency tangle under consideration is to offer a
national license on the 1,800 Mhz frequency, and several small concessions on 1,900 Mhz.
"The benefit for certain carriers that prefer 1,800 will be to allow Intelig or Embratel Participacoes SA
(EMT) to put together a national network, and also make it possible for operators who want to focus
on metropolitan areas to do so," Castonguay said. "So depending on how it's played out, they could
have upwards of four operators within a metropolitan area."
-By Margarita Palatnik; Dow Jones Newswires; (5511)813-1988; mpalatnik@aol.com
Briefing Book for: G.SIE | LU | X.ERC | Y.NOK | ERICY | NOK | S.ERC |
