Bell Canada, Telmex Venture May Heat Up Competition in Brazil
Sao Paulo, June 9 (Bloomberg) -- A $3.5 billion venture
between Bell Canada International Inc. and Telefonos de Mexico SA
could boost competition in Brazil's largest fixed-line phone
markets.
The new company said it will invest $1.8 billion to meet
growing demand for Internet and mobile communications services.
The added cash will be a boost to Vesper SA, which provides fixed-
line telecommunications in an area that includes Brazil's three
largest states, and other companies controlled by Bell Canada in
Brazil.
Vesper's direct competitors Telecomunicacoes de Sao Paulo SA,
the Brazilian unit of Spain's Telefonica SA, and Tele Norte Leste
Participacoes SA, or Telemar, may face growing competition in
coming months, though analysts predict their leadership will
remain unchanged until the end of 2001, when Brazilian rules free
fixed-line operators to compete in all regions of the country.
The $1.8 billion to be invested compares with Telefonica's
plans to spend 8.5 billion reais ($4.7 billion) in its Brazilian
telecommunications businesses by the end of 2001. Telemar said it
will invest 3 billion reais ($1.7 billion) to expand its services
in Brazil this year.
``This venture will increase competition with Telemar and
Telefonica, but it is secondary to the competition that will come
up when the market really opens up in a year and a half,'' said
Ricardo Kobayashi, an analyst with Banco Pactual in Rio de
Janeiro.
Competition may also intensify once Telemar sells a minority
stake to a strategic partner. The company hired investment bank
Lazard LLC last month to look for a foreign partner to buy a 20
percent stake from controlling shareholders.
While the added cash will likely help Vesper compete with
Telefonica and Telemar in the local and regional phone markets,
there is already competition for the country's long-distance
services, covered by Embratel Participacoes SA and Intelig
Telecomunicacoes Ltda.
Vesper has about 150,000 subscribers, half of that in the
area operated by Telefonica and half within Telemar's coverage.
The company has had a hard time signing up new customers because
of a high installation price and because its phone lines allow
only for limited data transfer, which hampers use of the Internet.
``The company's first problem is the price of phone lines,
which is higher than what Telefonica and Telemar charge,'' said
Ciro Matuo, an analyst at Credit Agricole Indosuez DTVM in Sao
Paulo.
The company recently cut the installation fee by 87 percent
in Sao Paulo to compete with Telefonica, while prices elsewhere
remained unchanged. Vesper now charges 99 reais to install new
phone lines in Sao Paulo, while Telefonica's set up fee is 76.6
reais.
Vesper's lines, which use a combination of wireless and fixed-
line technology, are almost four times slower than regular phone
lines for data transmission and it only works on newer, digital
fax machines.
The added cash could help Vesper to cut installation prices
further and upgrade its telecommunication network to offer faster
data transmission speeds in hopes of drawing more users.
Wireless, Broadband Operations
The main target of the joint venture, analysts said, may be
to use Vesper's network to offer wireless telecommunications.
Telmex and Bell Canada said they intend to bid for at least one
mobile phone license in Brazil this year to take advantage of
growing demand for cellular technology.
``The technology Vesper uses could offer some synergies for
mobile phone services,'' Matuo said.
Bell Canada holds stakes in mobile operators Americel SA,
which provides mobile services in seven states in Brazil's central
region, and Telet SA, which serves Rio Grande do Sul state, the
country's fourth-most populated. Telmex and SBC Communications
Inc. also own stakes in Algar Telecom Leste SA, a cellular
operator serving Rio de Janeiro state.
Mobile phone usage is expected to grow by 43 percent this
year, with the number of mobile phones rising to 21.5 million
units from about 15 million in 1999, according to Brazil's
telecommunications regulatory agency. That number should jump to
58 million units by 2005, the government said.
Canbras Communications Corp., Bell Canada's cable television
unit, will also benefit from the added investments, as the company
expands its business beyond the greater Sao Paulo area, where it
has 100,000 paid subscribers. Canbras, formed through a venture
with Brazil's Abril Group, recently won concessions to offer cable
services in the interior of Sao Paulo state, Brazil's most
populated and wealthiest.
The focus on broadband access comes as the use of alternative
ways to access the Internet grows. Brazil's government forecasts
cable TV usage will jump to 16.5 million subscribers by 2005, from
2.8 million in 1999. Companies like Bell Canada and Telmex may
also take advantage of cable infrastructure to offer phone
services, similar to what AT&T Corp. sells in the U.S.
Telmex shares rose 2.1 percent to 50 13/16 in New York
yesterday. Montreal-based Bell Canada International rose 8 percent
to C$42.10.
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