Analyst Insight by An Hodgson, Technology, Communications and Media Manager at Euromonitor International
Brazil’s telecom regulator Anatel has stated its intention to increase Brazil’s number of mobile phone subscriptions to 1.0 billion by 2022, a four-fold rise over 2011 levels. While high potential growth segments such as machine-to-machine (M2M) could make this goal achievable, Brazil will have to create policies to attract the large investments necessary, and at the same time overhaul its telecommunications tax regime and reduce levels of red tape.
Source: Euromonitor International from International Communications Union, national statistics
Note: Mobile telephone subscriptions do not include machine-to-machine (M2M) connections; 2012-2020 data is forecast
- Brazil’s consumer market for telecom services ranks as the ninth largest at the global level, worth US$27.9 billion in 2011. CLick to tweet! The number of mobile telephone subscriptions reached 213 million by 2011, (Click to tweet!) with the country’s telecom regulator, Anatel, hoping to increase this figure to 1.0 billion by 2022 through new customer connections and a growing M2M business as it stated in September 2011. Click to tweet! Telecom operators and the sector as a whole is set to benefit from greater mobile penetration levels and better-connected consumers;
- However, the continued development of Brazil’s information and communications technology (ICT) landscape could be slowed down by Brazil’s inefficient and high tax burden on telecom businesses, as well as a lack of public and private investment in infrastructure. Low household incomes and widespread poverty also present an obstacle to greater take-up of communications services.
Telecom businesses could benefit from state focus on the sector, although consumer demand for telecom products would need to rise rapidly to meet Anatel’s 2022 goal:
- Rising customer connections is a more realistic method of reaching Anatel’s planned 1.0 billion mobile subscriptions, although this segment shows less expansion potential due to its maturity. According to Euromonitor International forecasts, mobile telephone subscriptions (excluding M2M connections) will rise to 252 million by 2020, representing a penetration rate of 124% of the population; Click to tweet!
- M2M connections – defined as real-time data communication between remote machines and central management applications – have ample growth potential in Brazil due to their incipient development stage. According to industry estimates, M2M connections could potentially expand a country’s mobile telephony penetration rates to around 500% of total population as a result of their wide array of uses in areas such as logistics, utilities and healthcare;
- However, M2M expansion on such a level would entail an extraordinary investment in high-speed Internet expansion. Anatel estimates its investment needs to reach at least US$130 billion during the period 2012-2022. This would be roughly the same amount invested in the Brazilian telecommunications sector since its liberalisation in the late 1990s to 2011, which included hefty sums paid for telecom privatisation;
- High tax rates on telecom services in Brazil also put a barrier to expansion of segments like M2M. According to the Global Mobile Tax Review 2011 published by the GSMA, tax as a proportion of total cost of mobile ownership in Brazil reached 25.2%, one of the highest in the world. This is particularly hurtful for the M2M segment given the generally lower average revenue per user levels that M2M connections command;
Tax as a Proportion of Total Cost of Mobile Ownership for Selected Countries: 2011
Source: Euromonitor International from GSMA
Note: Total cost of mobile ownership includes costs for handset, connection, rental and usage costs.
- The most promising sectors for development of M2M technology in Brazil are transportation and energy, backed by new state regulations implemented in 2011 in these areas. In the former, the government will require all vehicles to feature anti-theft tracking devices while in the latter it will seek to implement smart-grid systems for energy metres;
- However, for these systems to be successful, expansion of telecom network coverage to rural areas of the country is vital. By the end of Q1 2012, 48.2% of Brazilian cities were still not covered by 3G technology, according to data from Brazilian firm Teleco, which would make it impractical to start implementing these government initiatives until further progress is achieved.
- At a global level, the total number of mobile telephone subscriptions (including M2M) is expected to reach 9.7 billion by 2020, according to forecasts from the UMTS Forum. In order to get close to its goal of 1.0 billion subscriptions by 2022, Brazil would have to command a share of around 8.0% of global mobile subscriptions by 2020, from the current 3.6% in 2011, highlighting the massive investment necessary to achieve this goal;
- Auctions for awarding 4G LTE spectrum in Brazil started in December 2011 and will continue throughout 2012. While this is a positive step towards improving the quality of the country’s ICT infrastructure, realising the full growth potential of the M2M segment will require mature infrastructure networks both for 3G and 4G LTE technologies;
- While the government’s aspirations of reaching 1.0 billion mobile subscriptions by 2022 are achievable, doing so would demand significant improvements in areas such as telecom tax regimes and red tape to speed up the technology deployment process. Adequate incentives would have to be created for attracting the large investments needed to achieve this goal. Capital investment in telecoms reached a record-high R$28.2 billion in Brazil in 2011