Brazil Telecommunications Report Q3 2012

Brazil's mobile market continues to grow at a robust pace. Strong growth at the end of 2011 and start of 2012 has led BMI to upgrade forecasts for the market. Expanded networks and new players in the form of MVNOs are expected to maintain growth over our five-year forecast period (2012-2016) along with the continued reduction in the cost of mobile ownership.

The mobile market is by far the most dynamic, although broadband and pay-TV growth are increasingly important to operators.

Three of Brazil's largest telecoms companies, Oi, Vivo (Telefônica) and Claro (América Móvil) consolidated operations over 2010 and 2011, with Oi finalising its new structure in Q112. Merging fixed and wireless operations will offer considerable synergies for the operators and allow cross-selling of products to expand customer bases.

The three operators will be competing on a more equal footing with each holding a different position in the fixed-line, broadband and pay-TV markets respectively. Competition among the three operators and TIM is already fierce in the mobile market and BMI expects this to be transferred to other segments of Brazil's telecoms market.

Encouraging data from operators suggest that growth has not come at the expense of revenues, with ARPU decline slowing. As MVNOs enter and operators begin offering services in more rural areas, price pressures will increase, encouraging greater ARPU decline. Wider economic issues such as slower GDP growth will also add to the downside pressures on ARPU. However, new services and content seem to be generating good revenues for operators and helping to stem the decrease.

While BMI continues to forecast a decline in ARPU between 2012 and 2016, we believe that growing 3G subscriptions and mobile broadband will help prevent ARPUs falling too low. Brazil remains our preferred market in BMI's Risk/Reward Ratings, with its strong market growth forecast and good ARPU rates combining to give the country a strong Industry Rewards score. While we believe that the economy will continue to be a driving force behind regional growth, Brazil's boom appears to be slowing and the knock-on effect on consumer markets such as telecoms will become apparent as operator growth prospects decrease. Nevertheless, weak broadband penetration and low pay-TV take-up outside major cities offer considerable opportunities for companies in Brazil.