re: GSM in Brazil (Oi Launches & Telesp Studies)
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Message 17318184
>> Oi Launches First GSM network in Brazil, as Telesp Conducts GSM Study
Paul Mitchell
EMC Cellular
July 3, 2002
After spending over BRR 14 billion to meet performance targets which would enable it to operate in different telecommunications markets, fixed line operator Telemar has finally received approval from Brazilian regulator ANATEL to begin offering wireless services. TNL-PCS, Telemar's wireless subsidiary, began operating its GSM-1800 network under the brand name Oi on 25 June 2002. The operator originally planned to launch in April 2002, but verification of regulatory targets hit a number of delays. 'The entrance of this new company is symbolic for increasing competition in mobile telephones and represents the arrival of a new technology to the country, which will benefit industry,' said ANATEL councillor Jose Leite Pereira Filho.
Oi's Strategy
Oi will begin offering services in ten states (of the sixteen its licence covers) within its concession area, PCS region 1 - Rio de Janeiro, Minas Gerais, Bahia, Sergipe, Pernambuco, Alagoas, Rio Grande do Norte, Paraíba, Ceará and Pará. Its network covers more than 200 municipalities. 'With Oi we are going to compete in the residential market which we believe in two or three years will migrate from fixed phones to cellular phones. Today, cellular telephones represent 50% of the calls made and 20% of the volume of minutes,' said Jose Fernandes Pauletti, the president of Telemar. Oi will start operations with 3,000 subscribers who have been testing its network and has reported that another 4 million pre-subscribers have signed up to take advantage of a promotion offering 31 years of free local calls at weekends (). With 1,600 sales points, the company expects to have 500,000 subscribers within a year. By 2010, Oi expects this number to reach 10 million, a figure which Oi hopes will give it a 25% market share.
That Oi is to target the residential market is both an indication of how highly penetrated the corporate market is and an admission that it believes its reputation as a fixed operator will serve it well in the mass market. However, Oi could face difficulty generating significant revenues by following this strategy. Offering free local calls at weekends and cheaper handsets (when compared to CDMA and TDMA models) will allow it to attract the country's low-end users, especially as the penetration rate within Oi's concession area is in the region of 13.5% (based on data from EMC World Cellular Database and Instituto Braziliero de Geografia e Estatística), but making returns on investments made will not be easy. Oi is faced with the task of growing as quickly as possible, by tapping into the low-end market, in order to maximise returns.
The alternative, attracting high-end subscribers from other operators, is something which Oi would find difficult to achieve. There is one crucial reason why this is so, and it is the reason why Mr Pauletti stated that his company will compete in the residential market.
The fact that Brazil's other GSM operator, TIM, has not received regulatory approval to launch its GSM service (due to the fixed line company in which it holds a stake, Brasil Telecom, not yet having achieved performance targets) means that Oi is unable to offer coverage throughout those areas for which is does not have a wireless licence (which it plans to do under a roaming agreement with TIM). This fact has hindered Oi's attempt to break into the corporate market, as corporates will no doubt want to be able to use their handsets in the country's financial and industrial heartland of Sao Paulo.
Even if Oi did target corporate users, the fact that TDMA operators BCP and Tess offer coverage within Sao Paulo city and the interior of Sao Paulo State, respectively, corporate users may well choose to remain with their existing provider simply because they will then be able to roam when they travel to the area.
Without TIM, Oi has been left to focus on its residential customers. If the Italian company had launched in April 2002 as was originally planned, Oi's strategy may have been different to that outlined at the launch, but the company has prepared for the eventuality that it would have to launch without TIM.
By modifying its strategy, Oi has lessened the degree in which TIM's delay is a handicap. 'If they want to gain a lot of users, even if they have a low capacity to generate revenue, the lack of roaming in Sao Paulo will not affect anything,' said Humberto Cango, director of Siemens mobile services. If, however, Oi had set its sights on tapping into the high-end market, then the lack of roaming will be a blow.
One way to resolve the problem would be to rent infrastructure from TIM. By allowing Oi to use its GSM network, TIM would be able to reduce some of the losses it has acquired setting up a network but not being able to begin services. However, by allowing Oi to bring GSM to Sao Paulo, TIM could lose some of the high-end users it would like to target. It remains to be seen whether this arrangement will be realised.
Plans and Rates
Oi is offering similar product types to those already offered by other Brazilian operators, but it has included some novelties. For postpaid subscribers, the operator will allow users to carry over unused minutes included in their monthly subscription fee to the following month. According to the operator's calculations, this represents a saving of up to 30% on monthly bills. 'The client does not lose money and remains free to use contracted minutes according to his/her necessity,' said Alberto Blanco, Oi's marketing director.
Oi's four postpaid plans are the following:
- Oi 40 - Provides 40 minutes of calls per month for a monthly charge of BRR 29.90. Phone use above that amount is charged BRR 0.75 per minute
- Oi 80 - Provides 80 minutes of calls per month for a monthly charge of BRR 47.90. Phone use above that amount is charged BRR 0.60 per minute
- Oi 160 - Provides 160 minutes of calls per month for a monthly charge of BRR 79.90. Phone use above that amount is charged BRR 0.50 per minute
- Oi 300 - Provides 300 minutes of calls per month for a monthly charge of BRR 114. Phone use above that amount is charged 0.38 per minute.
1.00 BRL = 0.351452 USD
Postpaid subscribers can choose 10 numbers for which all calls made to them by the subscriber will receive a 30% discount.
Oi's prepaid tariffs are as follows:
Prepaid subscribers have two options, either the NormRed or Flat tariff plans. The Flat plan offers a flat rate of BRR 0.99 for all calls, at all times, whilst the NormRed is set out below:
- Calls Oi-Fixed - BRR 1.39 per minute peak times, BRR 0.34 per minute off-peak times
- Calls Oi-Oi - BRR 1.39 per minute peak times, BRR 0.34 per minute off-peak times
- Calls Oi-Other wireless operator - BRR 1.49 per minute peak times, BRR 0.69 per minute off-peak times.
1.00 BRL = 0.351452 USD
Off-peak calls are those made between 0000-0800, plus an additional four-hour period chosen by the subscriber (which will either be 0800-1200, 1200-1600, 1600-2000 or 2000-2400).
Rates for data services are the same for both postpaid and prepaid subscribers, with SMS costing BRR 0.19, push SMS (including Oi entertainment, Oi astrology, Oi news, Oi banks and Oi purchases) costing BRR 0.15 and ring tones available for BRR 1.99.
For WAP services, the operator is charging BRR 0.60 for prepaid subscribers; postpaid subscribers are charged according to their normal tariff plan. Oi's GPRS network includes the capital cities of Belo Horizonte, Salvador, Recife, Fortaleza and Rio de Janeiro. The service will be free until 30 July 2002 and afterwards will be charged in packages of megabytes. Prices have yet to be announced.
Oi is offering a number of handsets that range in price from BRR 199 to BRR 3,629:
Prepaid Postpaid
Siemens A40 249 199
Nokia 3310 349 249
Siemens C45 449 349
Ericsson R600s 629 599
Siemens S45 899 869
Ericsson T66 979 949
Siemens ME45 1,279 1,249
Ericsson T68 1,379 1,349
Ericsson T68i 1,379 1,349
Siemens SL45i 2,109 2,079
Nokia 9210 3,499 3,469
Siemens SX45 3,659 3,629
Source: Oi - Prices in BRR: 1.00 BRL = 0.351452 USD
What Now for the Brazilian Market?
With GSM having finally arrived in Brazil, the question now is what impact it will have? It has already forced operators to prepare for increased competition, with new services, new promotions and restructuring all in evidence over the past twelve months. Oi's commercial presence has already been felt with its offer of free weekend calls for 31 years attracting a good deal of interest from potential subscribers, and its pricing strategy, together with the handsets offered, seems sure to appeal. New handsets, increased competition and greater ease and attraction of roaming, among other things, mean that wireless services in Latin America's largest country have undergone a major shift, and the success or otherwise of GSM within the market is being closely watched.
Depending on how successful Oi and TIM prove to be, the performance of GSM could heavily influence existing TDMA operators' 3G migration decisions. Should GSM prove successful, then its presence could be significantly strengthened. As of mid-2002 no TDMA operator in Brazil has confirmed its migration commitment. There have been suggestions that the Telecom Americas consortium, which controls four Brazilian operators (and is looking at another two, ) could opt for GSM, but recent news coming from the largest operator in Latin America, Telesp Celular, which operates a CDMA network in Sao Paulo and had over 5 million subscribers at the end of March 2002, could prove to be very significant.
Telesp Celular has conducted a study into the possibility of rolling out GSM infrastructure alongside its existing CDMA network. The move has come as a surprise given that Telesp Celular launched CDMA 1xRTT in December 2001 and has been a strong adherent of CDMA. Whilst observers had expected Telesp Celular to prepare for the increased competition, what they, so far, did not expect is the seriousness of Telesp Celular's proposal to embrace GSM in the way the study outlines.
Why Telesp Celular and GSM?
There are several reasons why Telesp Celular has expressed an interest in rolling out GSM. The new president of the company, Gilson Rondinelli Filho, has commented that Telesp Celular has earmarked BRR 450 million to invest in migrating to Personal Mobile Service (PMS), the same authorisation contracts which will bind TIM and Oi, and to which ANATEL is attempting to persuade all Brazilian operators to move. The fact is that this migration will have to occur at some point in time and the adoption of GSM will enable Telesp Celular to meet these goals. Another plus point to the adoption of GSM is that it will allow Telesp Celular to acquire more bandwidth. ANATEL has broken up the 1.8GHz bandwidth into 2.5MHz parts, allowing operators up to six years to pay for the portions they buy, an attractive package for a growing operator such as Telesp Celular.
Others reasons are brought to the table by GSM itself. Telesp Celular is well aware of the economies of scale GSM enjoys; it has acknowledged the fact that GSM handsets will be cheaper than the CDMA and TDMA models currently offered in Brazil and also realises that if GSM is widely adopted in Brazil and Latin America then the benefits of scale will be even more keenly felt. According to Gilson Rondinelli Filho, 'If all the cellular operators begin using GSM, we will have scale, which means more accessible products.' Clearly, Telesp Celular has realised that if the majority of Brazil's TDMA operators choose to migrate to GSM, then they will be able to benefit economically from the widespread adoption, whilst Telesp Celular, unless it too pursues GSM, will not be able to take advantage of this factor.
A further point Telesp Celular is keen to capitalise on is international roaming. With a GSM network in place, the operator will be able to host GSM subscribers from around the world as well as offering its own customers the ability to use a handset in Brazil and then take the same model away with them for use abroad. With its current CDMA network, Telesp Celular is unable to take advantage of international roaming to the full potential it offers. The fact that it can bring in considerable revenues is a strong argument for rolling out GSM infrastructure.
A fourth point for GSM is the fact that its GSM handsets use SIM cards, enabling subscribers to use different handsets whilst keeping an individual account, a function which may appeal to lower end subscribers (who will be able to share a single handset amongst several users).
Telesp Celular is concerned, above all, with the level of competition TIM and Oi will bring to the market. The operator has confirmed to EMC that whilst economies of scale, cheaper handsets, international roaming and SIM cards are factors which have been highlighted in the study, it also revealed, almost as an add-on point, that it is worried about its subscribers churning to TIM, thus showing that it is concerned that TIM's entrance to the market will impact on its revenues. This last, revealing, point unveils the fundamental reason behind the study, namely that if Telesp Celular does not roll out its own GSM network, its subscribers may jump ship to a company that does.
According to the details of the study, any GSM network built by Telesp Celular would not cover the entire Sao Paulo state, and would only be placed within the metropolitan area. Talks are ongoing with GSM suppliers, though Telesp Celular did indicate to EMC that Siemens would be the most likely vendor to win any GSM contracts.
CDMA to Remain
Despite the detailed study into the possibility of embracing GSM, Gilson Rondinelli Filho has confirmed that if and when the investment is realised, Telesp Celular has no plans to remove its CDMA infrastructure. 'We won't abandon the CDMA standard. On the contrary, we are looking for a complementary solution,' the CEO said. The operator confirmed to EMC that investments would continue to be made in its CDMA infrastructure and services.
It is possible that Telesp Celular will continue to offer CDMA services to its subscribers whilst using GSM to offer international roaming services, a model currently employed by Telstra in Australia. Under this scheme, CDMA will continue to be the focus for its Sao Paulo-based customers, with GSM providing an additional roaming-based model.
How Likely Is It To Go Ahead?
There are a few obstacles that must be overcome before Telesp Celular and others dive into GSM. Operators are still discussing a number of points with ANATEL about the migration rules to next generation technologies. These include interconnection rates between mobile and fixed operators, allowing users to choose a long-distance carrier, and performance targets. Wireless operators would like more flexible rules so that their cash flows are not compromised. 'If ANATEL makes the current demands easier, our group (Telesp Celular and Telefonica Celular) will adhere to the technology that is growing in Brazil,' Rondinelli said, indicating that it is likely Rio de Janerio-based operator Telefonica Celular has also have been examining the business case of adopting GSM. In all likelihood the sticking points between ANATEL and the operators will be resolved in due course, but exactly when is less certain.
Despite all of these considerations, there are some voices within the industry expressing their belief it would be unwise for Telesp Celular to decide to invest in GSM. Lucent, which manufacturers equipment for both CDMA and GSM, does not believe that GSM has much of a future in Latin America and for that reason did not dispute contracts with Oi and TIM. 'First because in these days, no company has the cash to make a big investment like a network overlay. If they did, they would not obtain a return in the medium-term because those members of the public which still do not have a cellular phone belong to lower sectors of society and therefore do not generate enough revenue to make the investment profitable,' said Luiz Claudio Rosa, Lucent's vice-president of technology in Brazil. He also believes that investing in GSM now would be a 'mistake in timing' since 3G is drawing nearer.
However, Telesp Celular's study into GSM raises the question of whether Brazilian operators will wholeheartedly embrace the technology, to the detriment of CDMA. Its partnership with Telefonica raises the possibility that the joint venture as a whole may roll out GSM infrastructure, especially as controlling partners Portugal Telecom and Telefonica both operate GSM networks in their home countries in Europe; but after building up considerable CDMA subscriber bases, it would seem foolish to risk losing these subscribers through any forced migration, thus the assertions that CDMA will not be abandoned. For the moment the company stressed that no definite decision has been made and it is committed to maintaining, and investing in, its CDMA network.
Brazil's operators will be weighing up the impact Oi has on the market, and waiting for TIM's GSM arrival. They will, of course, be considering their migration options, decisions which will be largely affected by the success, or otherwise, of Oi and TIM. The matter had seemed to be in the balance, with there being strong arguments for both CDMA and GSM. News of Telesp Celular's study and Oi's launch may have just tipped the balance slightly towards GSM, but if Telesp Celular was to roll out GSM, the situation might change permanently. <<
- Eric - |
