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Telefonica Disconnected in Brazil as Complaints, Fines Mount
Telefonica Disconnected in Brazil as Complaints, Fines Mount
Sao Paulo, April 14 (Bloomberg) -- When Katarina Santos moved apartments in February, she
thought transferring her phone line to her new home would be a simple job for Telecomunicacoes
de Sao Paulo SA, a unit of Spain's Telefonica SA. ''I was changing apartments but staying in the
same block, yet it took me a month to get a new line,'' she said. ''Three times, they came, and
twice they didn't resolve anything. And they charged for two of the visits.''
Katarina, a bank trader, is one of thousands of Brazilians who have been frustrated by phone
service in Sao Paulo since Telefonica bought Telesp for $4.9 billion in July's sale of the country's
state-run telephone system.
The break up and sale of Telebras was heralded as the beginning of a new, efficient era for
Brazilians, accustomed to waiting up to five years for a phone line or paying as much as 4,000
reais ($2,450) in the black market to have one installed instantly.
So far in Sao Paulo it hasn't happened. Spain's largest phone company has been inundated with
complaints, fines and a lawsuit nine months after taking over.
It's gotten so bad for Telefonica, users have set up a ''I Hate Telefonica'' web page on the
Internet for angry customers to vent their rage. ''We knew we would have a critical period to
adapt the phone system,'' said Fernando Xavier Ferreira, Telefonica's president in Brazil, and a
former president of Telebras.
Telesp has received about 400,000 complaints a month -- more than 13,000 a day -- from users
waiting for an installation complaining about a downed line or other problems such as a charge for
a repair not carried out. This compares with 320,000 complaints a month under Telebras.
Last month, the country's Justice Ministry fined Telesp 3 million reais ($1.7 million) for bad service,
including delays in installing lines and repairs. That was followed less than two weeks later by a
second 5 million reais fine from Anatel for similar infractions. Telefonica has appealed the fines.
The Sao Paulo state legislature last week approved an inquiry to investigate the complaints.
''(Telefonica) promised more than we wanted. And now they're having trouble delivering. That's
their problem,'' said President Fernando Henrique Cardoso.
Trading Suspended
Monday, Telesp shares were suspended from trading after a security firm tried to petition Telesp
into bankruptcy, in a dispute over a bill payment. Telesp didn't pay the security company because
it failed to prevent a robbery at Telesp's offices in December. ''It's been a pretty troublesome time
for the company,'' said Sergio Missima, a telecommunication companies analyst at Fator Doria
Atherino CV in Sao Paulo. ''It must feel under a lot of pressure.''
Worse still, Brazil's telecommunications agency, Anatel, is due to announce next week the
winning bidder for a license to compete with Telesp. A group led by Bell Canada International Inc.
and Qualcomm Inc. is among the bidders, which would end Telesp's monopoly by year end on
fixed-line service in Brazil's most populous state, with about 37 million people.
The complaints and fines prompted Telefonica to mount a charm offensive, going to lengths to
make company officials more accessible to the press. Telesp's old duo of press officers has been
boosted to a six-strong team from a publicity agency called 'News Machine' or 'Maquina da
Noticia' in Portuguese.
Their arrival has coincided with a flurry of news conferences, at which journalists have been
provided with details of the company's problems and proposed solutions. At least four have been
held in the past three weeks. Another -- a breakfast to be attended by the president, Ferreira -- is
planned for Thursday.
The company has taken out full-page advertisements in newspapers, and even offered free
calling cards to customers who've suffered from bad service.
Installations
Telefonica's problems are, in part, a legacy of Telesp's operations when it was a state-run
company. The concession contract it signed with Anatel required it to install all lines bought in the
past two years by the end of May.
Last weekend, the company said it achieved that target, installing more than 920,000 lines, some
45 days ahead of schedule. That's more than double the 370,000 installed by Telesp in its most
productive year, Telefonica said.
There are still at least 60,000 on the waiting list for lines. The average wait is now about six
months.
Telefonica's performance could hurt Telesp's earnings if its present difficulties continue, analysts
said. ''If you can't make a call, it means lower minutes of phone usage and that affects billing,''
said Zain Manekia, an analyst at Warburg Dillon Read, who has a ''reduce'' recommendation on
the company. ''Sooner or later that starts to show up.''
Telesp's shares have risen 31 percent since the beginning of the year, less than half the gain in
Brazil's main Bovespa stock index. ''We are entering a new phase,'' said Ivan Campagnoli,
Telefonica's vice-president of operations for Sao Paulo. ''The installation requirement's been met,
which is very important considering all the nuisance we've caused people.''
Campagnoli added that the company aimed to install another 2 million lines in 1999, part of
Telefonica's 2.5 billion reais in planned investments in Brazil this year.
Telefonica's low popularity is a far cry from the days when it took over Telesp's operations last
year. The company trumpeted its arrival with a lavish dinner in Sao Paulo last November where
hundreds of guests were treated to a flamenco show and free silk neck-ties embossed with the
company logo. ''We're going to invest to help the economic and social development of Brazil,''
Juan Villalonga, president of Telefonica, said at the time.''
Grammar Debate
But even the logo, now emblazoned on phone-boxes and advertising billboards across Sao Paulo,
has been a cause for controversy. Brazilians claimed the Telefonica name should have a
circumflex accent over the 'o' to make it adhere to Portuguese grammatical rules. The company
decided to keep the Spanish form, giving it a strange appearance to the Brazilian eye.
Still, Telefonica can take heart from its experience in other Latin American countries, such as
Argentina and Peru, where it turned around state-owned companies and improved service.
In the meantime, damage control has become a full-time job in Brazil. ''It's just a transitory phase,''
said Sergio Massimi, at Fator Doria Atherino. ''The company's not going to change its image
through publicity campaigns. What it has to do is put things in order and provide a better service.''
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