Cisco Systems Inc.
Dow Jones Newswires -- June 25, 1999
DJ Brazilian Telecoms Bet On IP Networks, Value-Added Svcs
By Margarita Palatnik
SAO PAULO (Dow Jones)--Executives from Brazilian telephone service providers setting their strategies and equipment manufacturers pitching their wares are reciting the same mantra: the near future is in value-added services and networks based on Internet Protocol, or IP.
The new strategy would save the day for at least some mobile and fixed telephone operators, who are quickly burning the first stages of their business plans ahead of auctions for wireless Personal Communications Services licenses and other technological developments.
Still in the process of investing hundreds of millions - if not billions - of dollars in the country, operators are fast running out of pent-up demand for basic services as full-fledged competition gets underway.
The price of fixed phone lines in the secondary market is a clear symptom of the industry's pressing need to hawk new wares: a line can now be had for around $350, sharply down from the $2,000 commanded less than a year ago when the state-run monopoly held by Telecomunicacoes Brasileiras SA, known as Telebras, was broken up into 12 units and privatized.
Yet at a time when technological generations come and go in a matter of months, Brazil is well positioned to enjoy the proverbial leap-frogging typical of less developed countries as 23 newly-created competitors fight for market share.
So industry participants had good reason to descend en masse last week on Foz do Iguacu - a remote town on the border with Paraguay and Argentina - to attend Futurecom, a trade fair held every two years.
The fair, which industry participants say attracts a good number of high-level decision makers, grew about 20% from 1997, attracting 3,000 attendees, 140 registered companies and 75 trade booths.
Technology, Services Showcased At Futurecom Show
Throughout the event, foreign and domestic companies showcased their "IP solutions," widely touted as a cure-all for the sector.
For telephone operators, IP promises to turn copper into gold. As the engineers manning the stands didn't tire of reminding visitors, the cost of installing a phone line using an IP digital network - graphically represented by a fluffy cloud on their diagrams - is one twentieth the cost of a traditional, switch-based network.
IP "makes it more efficient, and that's the wave of the future," says telecom specialist Juan Fernandez of consulting group Frost & Sullivan. "And anyway, if they're going to build out (new networks), they're better off doing it that way."
The new network no longer needs different switches at all levels of the calling hierarchy - be it toll calls, domestic long distance or international long distance - which cuts down in time, cost and quality erosion.
That's music to the ears of incumbent operators striving to meet ambitious penetration targets set by regulators. But it also spells opportunities for Competitive Local Exchange Carriers, or CLECs, which are about to start operating in Brazil, where they are referred to as "mirror companies."
IP's technology offers service providers one other essential feature for those who want to survive the next stage of competition in Brazil: the chance to offer a host of value-added services.
"For wireline carriers in the U.S. the revenue they can generate from basic services is constantly decreasing, so value added can play a part in allowing other revenue stream to come in," said Frost & Sullivan's Fernandez, citing intelligent network applications such as 800 numbers and virtual private networks sold to corporations.
From Backwaters To Cutting Edge, Via Privatization
Industry estimates on how quickly the Brazilian value-added market will grow are still cloudy, but the potential is huge in a country of 170 million people.
Since Telebras was privatized last July, Brazil has aleady begun to emerge from the communications backwaters, offering for the first time such developed world staples as caller I.D., call waiting and corporate call centers.
Spain's Telefonica (TEF), a major carrier throughout the region and holder of the choice wireline concession in Sao Paulo state, is setting up an IP network offering such services as faster access for Internet providers, corporate intranets and database warehousing.
Telefonica's Sao Paulo network, in its incipient development stages, currently serves state-owned data processing firms Prodesp and Prodan, according to Marketing Manager Eduardo Akira.
Industry observers are eagerly awaiting the announcement of an equipment supplier for the Telefonica network. The short list, they say, includes Lucent Technologies Inc. (LU), Canada's Nortel Networks, a unit of Northern Telecom Ltd. (NT) and market leader Cisco Systems Inc. (CSCO).
But it's not only the big fish who are taking the plunge - and some of the smaller players are marketing cutting-edge technological possibilities not even fully commercial yet in the U.S.
The operations in Brazil of Finland's Tecnomen are in many ways the embodiment of the new telecommunications landscape revealed at Futurecom. The company, which has annual global sales of around $50 million and has been present in Brazil for little over a year, is pushing a "unified messaging system" currently installed in a handful of northern European countries.
The program allows users to receive, listen, read and reply to voice, fax and e-mail messages in one so-called communications suite in the form of a Web page. Users can also convert and distribute messages from and into any desired mode.
"Operators have gone through the first and second stages (of buildout and meeting pent-up demand), and soon they will need to start offering something more to customers to be able to compete," said Tecnomen Brasil sales director Milton Malkomes.
Tecnomen, whose few but well-heeled customers in the country include the Brazilian ventures of Bell Canada and Telesystem International Wireless Inc., thought the trade show was auspicious.
"I am shocked by the high level of interest," Malkomes said between chats with prospective customers. "I haven't been able to leave the booth to attend any of the presentations."
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