Broadband in Brazil

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2011 The International Bank for Reconstruction and Development / The World Bank

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Cover design by infoDev

To cite this publication:Mike Jensen, 2011. Broadband in Brazil: A multipronged public sector approach to digital inclusion.

Washington, D.C: infoDev / World Bank. Available at http://www.broadband-toolkit.org.


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Table of Contents

Executive Summary. 7

1. Demographic, Political and Economic Context. 9

2. Broadband Market Dynamics. 11

2.1 National ICT sector managementpolicy and regulation 11

2.1.1 Broadband licensing. 12

2.1.2 Radio spectrum. 13

2.1.3 Internet governance 13

2.2 The broadband ecosystem 13

2.2.1 Backbone networks 13

2.2.2 Alternative/complementary infrastructure operators 14

2.2.3 Interconnection 15

2.2.4 Broadband providers 15

2.2.5 Access devices 18

2.2.6 Public access facilities 182.2.7 Content and applications 19

2.3 Patterns ofbroadband utilization 19

3. The PNBL. 21

3.1 Price and performance targets. 22

3.2 Coverage targets 23

3.3 Backhaul/backbone network development 23

3.4 Promoting increased broadband competition 23

3.5 Use of satellite 24

3.6 Extension of mobile services to remote areas 243.7 Universal service 24

3.8 Content and applications 25

3.9 Radio spectrum liberation 25

3.10 Subscription/cable TV broadcasting 25

3.11 Fiscal incentives and subsidies 25

3.12 State and municipal efforts 26

4. Lessons Learned. 28

5. Annexes. 31

5.1 A timeline of events related to the PNBL. 315.2 Relevant links 32

5.3 Glossary. 34


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List of Figures

Figure 1-1: Map of Brazil 10Figure 2-1: CGI.br structure 12Figure 2-2: Brazils submarine cable systems 13Figure 2-3: OI/Tele Norte Leste backbone fibre network. 14Figure 2-4: Petrobras and Electronet fibre networks 15

Figure 2-5: Growth in average traffic exchanged on Brazils IXPs. 16Figure 2-6: Mobile coverage in Brazil. 17

List of Tables

Table 1-1: General statistics 9Table 2-1: Broadband users by type of technology, 1000s, February 2011. 17Table 2-2: Fixed broadband subscribers by speed of access, 1000s, February 2011 17Table 2-3: Key features of the broadband market in Brazil. 20


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Acknowledgments

Mike Jensen drafted this report with inputs from Michael Stanton (RNP) and Christian O'Flaherty (ISOC LatinAmerica), and significant contributions by Michael Minges, who directed the case studies for the BroadbandStrategies Toolkit. The supervision of Tim Kelly (infoDev) and Carlo Rossotto (TWICT), for their direction on theoverall project, is also acknowledged, as is Samhir Vasdev for editing and preparing the document for publication.

This case study is one of an initial series of seven that will contribute to the Broadband Strategies Toolkit, an onlineresource for policy-makers and regulators, especially in developing countries (see www.broadband-toolkit.org). The

Toolkit and its case studies are generously funded by the Korean Trust Fund (KTF) on Information andCommunications for Development (IC4D). The KTF is a partnership between the government of the Republic ofKorea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth andreduce poverty in developing countries. The KTF, as well as Philippe Dongier, Sector Manager (TWICT) and ValerieDCosta, Program Manager (infoDev), are owed the authors gratitude for their support and guidance on this project.
http://www.broadband-toolkit.org/http://www.broadband-toolkit.org/


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Executive Summary

Although classed as an emerging economy, Brazilis among the top ten countries worldwide whenranked by total number of broadband users. Atthe end of 2010 Brazil was in 9th position, with

about 15m fixed broadband subscribers, as wellas 20m mobile broadband (3G) subscribers. Thisis not particularly surprising considering thatBrazil is the world's fifth most populous nation,but due to the high levels of wealth disparity andthe relatively large numbers of poor and ruralinhabitants scattered across its vast terrain,broadband penetration in Brazil is lower than inother countries of equivalent income levels(ranked by the World Bank as 57th in the worldby GDP/capita - US$10,710 in 2010).

Regionally, Brazil is slightly above the LatinAmerican average in terms of penetration, butbehind Chile, Argentina, and Uruguay. Speed ofaccess follows a similar pattern Brazil is betterthan the regional average, but below US orEuropean levels. Likewise, Brazil has relativelygood international fibre connectivity, although itis not as well connected as some of itsneighbours. Similarly, prices fortelecommunication and broadband access arelower than other countries in the region yet still

relatively high compared to North America andEurope, especially outside the major cities.Phones, computer and telecommunicationequipment are also significantly higher in cost,partly due to import duties on IT equipment,further reducing affordability of access amongthe lower-income groups.

Large variation in access levels: As reflectedby the wide variation in income levels within thecountry, broadband access is very uneven. At one

end of the spectrum there is a high density ofaccess in the industrialised urban areas, mostly inthe south east of the country. In these areas,Brazil has recorded some of the world's highestlevels of Internet use, and in particular, Brazilianshave been early users of social networkingservices such as Orkut, and now Facebook. Atthe other end of the spectrum, there are the vasthinterlands of unconnected rural and remote

areas, most particularly in the less wealthy northand west part of the country. For example in theNorth-East region, fixed broadband penetrationlanguishes at 1.46%, while it is over 11% in the

more industrialised Sao Paulo region in the south.

The pattern of uneven access also repeats itself atthe local level. Most cities have wealthy areaswith high levels of domestic broadband access,while close by, in the informal townships(favelas), which house most of the country'spoor, there is almost no fixed broadband andresidents mostly depend on cybercafes orrelatively slow and more expensive 3Gconnections.

In the last 10 years, the federal government hashad little success in disbursing its UniversalService Funds to address the digital divide,although a variety of state and municipal levelinitiatives have improved the availability of publicaccess facilities to some extent.

Limited fixed infrastructure:The private sectorhas invested about USD80bn intelecommunications over the last 12 years, butBrazil's vast size and low population density in

the rural areas has resulted in limited nationalpervasion of telecommunication infrastructure.This presents one of the biggest problems inbroadening access to the Internet. The relativelylow level of fixed infrastructure, both in the long-haul, and in the local loop for DSL-basedbroadband services, is one of the key constraints.However the lack of middle-mile infrastructurenecessary to ensure all 5500+ municipalities areconnected to the national backbones probablyrepresents the biggest challenge to ensuring

equitable broadband access across the country.

Competition in the fixed-line sector is low andfixed line penetration has actually been fallingdue to mobile subscriber substitution. With therelatively high level of penetration andcompetition between mobile networks, 3Gservices are expanding rapidly to fill the demandfor broadband, especially among lower income


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households. As a result wireless access is likely tobe the main growth area for broadband in Brazil,especially now that some of the constraints inaccess to radio spectrum have recently beenaddressed.

National broadband initiative launched: In aneffort to help to improve coverage and reducethe cost of broadband access, the governmenthas begun a major broadband infrastructuredevelopment initiative which has set ambitioustargets to triple broadband uptake by 2014. Thelargest ICT infrastructure project ever carried outin Brazil, called the National Broadband Plan(PNBL1), it aims to ensure that broadband accessis available to low-income households, especiallyin areas that have so far been poorly served.

In May 2010, when the project was officiallyannounced, it was initially allocated up to R$1bn(US$600m) a year until 2014 to ensure broadbandreaches the 4000 cities and towns withoutbroadband services, so that at least 40 millionhomes (or 68% of the population) have access tospeeds equal to or greater than 1Mbps, for aboutUSD20 per month.

The new government, under President DilmaRousseff, has re-affirmed its commitment to the

PNBL which was originally developed under theprevious President Lula da Silva's administration.To implement the programme, the dormantformer state-owned monopoly operator,Telecomunicacoes Brasileiras (Telebras), hasbeen resurrected and given the task, workingclosely with the national regulator, Anatel, andthe Ministry of Communications which has alsoset up a special secretariat to co-ordinate thePNBL in concert with the government's otherdigital inclusion programmes.

1Plano Nacional de Banda Largahttp://www.mc.gov.br/plano-nacional-para-banda-largaorhttp://www4.planalto.gov.br/brasilconectado/pnbl

The initial focus of the PNBL has been toaddress the deficiencies in the existingtelecommunication operator backbones bybringing on the oil and electricity networkoperators fibre networks to help fill in the gaps.Local access is now also being addressed througha variety of other measures, such as taxexemptions, reducing broadband license fees,accelerating efforts to make additional radiospectrum available, and other incentives toencourage the provision of broadband in ruralareas. In May this year (2011), Telebras awardedthree operators contracts worth USD43mn toprovide transit, wholesale and broadband servicesin some states.

The Internet sector in Brazil is also supported bya large number of industry, government and civil

society groups, both monitoring and promotingaccess to ICTs. As a result the level of up-to-dateinformation on broadband utilisation is high, andthe debate over strategy is widespread.

The resurrection of the old public monopolyoperator Telebras to compete with the privatesector has not been without controversy, and theextent to which the poorest of the poor getaccess to broadband remains to be seen. Butsteadily rising economic prosperity for the less

wealthy, along with the flurry of ICT investmentmade to prepare for the FIFA World Cup in2014 and the Olympics in 2016, suggests thereare much improved prospects wider adoption ofbroadband in Brazil. The strategies adopted andlessons learned from both public and privateinitiatives will be valuable for other developingcountries planning to promote better access tobroadband, and are likely to have specialrelevance for other large emerging economies, inparticular the BRICS countries - Russia, India,China and South Africa.
http://www.mc.gov.br/plano-nacional-para-banda-largahttp://www.mc.gov.br/plano-nacional-para-banda-largahttp://www.mc.gov.br/plano-nacional-para-banda-largahttp://www.mc.gov.br/plano-nacional-para-banda-largahttp://www4.planalto.gov.br/brasilconectado/pnblhttp://www4.planalto.gov.br/brasilconectado/pnblhttp://www4.planalto.gov.br/brasilconectado/pnblhttp://www.mc.gov.br/plano-nacional-para-banda-largahttp://www.mc.gov.br/plano-nacional-para-banda-larga


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1. Demographic, Political and Economic ContextBrazil is the fifth most populated and fifth largestcountry in the world, with over 190 millionpeople and an area of about 8.5 million sq km.Urbanisation levels are relatively high compared

to many other emerging economies, and a largemajority (84%) live in built-up environments,mostly along the coast. The five largest cities areSo Paulo, Rio de Janeiro, Salvador, BeloHorizonte, and the federal capital, Brasilia. Thereare 44 cities of over 500 000 people, and 5,563municipalities. With almost 30 million people inthe rural areas outside municipal services,provision of affordable broadband to this groupwhich have the lowest average income levels,presents a particularly severe problem.

Constitutionally, Brazil is a federation of 26 states(plus the Federal District - Brasilia), which can bedivided into five regions - the North, North-East,South, South-East, and Centre-West. Eachregion has its own geography, economic activity,

and culture. Emerging from decades of militaryrule in 1985, Brazil has since been governed as ademocratic republic. The president is elected to afour-year term and each state has a governor and

each municipality has a mayor, both being electeddirectly. Similar to other federal republics, theindividual states have a significant degree offinancial and policy-making autonomy, resultingin some significant variations public policysupport for broadband access.

Brazilians are diverse in origin, with just underhalf the population being of European descent,while more than 40% are of mixed African andEuropean ancestry. There are an estimated350,000 to 550,000 indigenous peoples, mainlyfound in the rain forests of the Amazon Riverbasin. Portuguese is the official language and isnearly universal, while English is widely taught asa second language. None of the other countriesin the region speak Portuguese, and the relative

Unit Date

Area 8,514,876 Sq. Km. n/a

Population Density / sq Kms 22 People 2010

Population 190,755,799 People 2010

Annual Population Growth 1 % 2010

Households 67,200,000 2010

Rural Population 29,830,007 People 2010

Urban Population Proportion 84 % 2010

Population of Top 200 Cities 72,409,158 People 2010

Number of cities > 500 000 people 44 2010

Municipal Districts 5,565 2010

GDP (trillion) 2.1 USD 2010

GDP/ capita PPP 11,239 USD 2010

GDP Growth 7.50 % 2010

Unemployment 6.00 % 08/2011

Exchange rate R1 0.6 USD 09/2011

Table 1-1: General statistics

(Source: IBGE 2010 Population Census http://www.censo21.ibge.gov.br)


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size of the diaspora is very small, resulting inminimal demand for access to Internet contentand applications in neighbouring countries oroutside the region, and vice-versa, except for thefew other Portuguese speaking countries (Angola,Cap Verde, Macau, Mozambique, Portugal andSao Tome e Principe).

With the progressive macro-economic, socialsupport and education policies of the centre-leftadministrations of the last decade, Brazil'seconomy has grown steadily, bolstered by the

global demand for commodities and thecountrys relatively advanced industrial exportsector. As a result record numbers of poor haveentered middle class, unemployment is at an all-time low (6%), and population growth is down to1% annually.

Official statistics divide Brazilian society into 5classes, A-E, with E being the poorest. Class C,often called the new middle class by the media,includes people with an individual monthlyincome of US$188-$815 (R$300 to $1,300). Thegrowth of this group is one of the mostimportant trends of the last decade, nowrepresenting just over half of the population, andexpected to reach 60% by 2014.

Part of the increasingly influential BRICS2 group

of large emerging nations, Brazil is now a netcreditor to the US and has over US$300bn incurrency reserves. Since early 2009 the value ofthe Brazilian currency, the Real (R), has beensteadily appreciating against the US dollar, risingfrom about 0.4 to 0.65 USD in August 2011, andby many benchmarks is amongst the mostovervalued currencies in the world. Although itsvalue slid by more than 10% in September 2011,the Real is still seen as overvalued, and as a result,the currency's strength needs to be taken into

account when making broadband costcomparisons with other countries.

2 Brazil, Russia, India, China and South Africa

Figure 1-1: Map of Brazil

(Source: RCRWireless.com)


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2. Broadband Market DynamicsBrazil's broadband market is serviced by a wide rangeof access technologies deployed by the networkoperators. These range from fibre to the home,

copper cable-based DSL, broadband over power linesand cable-TV, to a variety of wireless and satellite-based systems, but mainly 2.5/3G, MMDS and WiFi.

Similarly there are substantial variations in the typesof broadband providers (fixed, mobile and TVnetwork operators, as well as domestic andinternationally based companies), and many do notcompete directly with each other due to geographicmarket segmentation of licensing at the fourgovernment levelsnational, regional, state, and mostrecently, municipal.

In addition, the sector is going through majortransformation, with the merger of a number of thelarge fixed and mobile operators, and the recentopening up of the subscription/cable TV market toforeign owned telecom operators. Mobile operatorClaro, and fixed operator Embratel, are both nowmajority owned by the Mexican businessman CarlosSlim, and Telefonica of Spain controls the countrysleading mobile carrier by subscribers, VivoParticipacoes, as well as Telesp, the incumbentoperator in Sao Paulo state.

This web of technologies, multiple licensing regimes,types of service providers, geographic separation andsupplier consolidation has created a highly complexbroadband market compared with most othercountries.

2.1 National ICT sector management -policy and regulation

The main ICT sector policies are determined at anational level by the Ministry of Communication(known as MiniCom) and regulated by Anatel3, the

national telecommunication agency. Anatel is alsoresponsible for regulating satellite capacity provisionand administering radio frequency channels for use byboth telecommunications service providers andbroadcasting companies.

Brazilian telecommunications services do not have aunified legislation, and policy is implemented through

3 Agncia Nacional de Telecomunicaes

the many fragmented directives that have built upover the years to respond to the evolution of themarket. The telecommunications legal regime is

defined at a high level in the GeneralTelecommunications Law4 (LGT) of 1997 whichprovides the main guidelines on telecommunicationservices, universal service goals and the functions of

Anatel. The licensing regime includes provisions thatif an operator does not provide the services it hasagreed to in its license, the State can take over itsoperations, including its existing infrastructure. TheLGT is supported by a large number of more specificregulations, the major ones of which are outlinedbelow.

In 1998 the General Grant Plan5 (PGO), with a 10-

year scope, identified which telecommunicationservices must be provided as a public service, withconsequent price controls, quality of service anduniversal service obligations. At the time PGO onlyincluded voice services, and this did not change in the2008 updated PGO, however MiniCom has sinceproposed that it be modified to include broadbandservices. The 1998 PGO also established the basis forprivatisation of the state owned monopoly operator

Telebras6, and divided Brazil geographically into fourmajor licensing regions, limiting cross ownership andthe number of players in each of the regions.

In addition, the 1998 PGO also established the basisfor a universal service fund known as the Fund forthe Universalisation of Telecommunication Services(FUST). An additional fund was also established atthe same time, aimed at supporting innovation andcapacity building to make the Brazilian telecom sectormore competitive, called the Fund for

Telecommunications Technological Development(FUNTTEL). There is a third fund, the

Telecommunication Inspection Fund (FISTEL), tocover the cost of managing the telecom sector.

Revenues for the three funds are gathered from theoperators licensed to provide publictelecommunication services (i.e not ISPs currently,

4 Lei Geral de Telecomunicaeshttp://www.planalto.gov.br/ccivil_03/leis/l9472.htm5 Plano Geral de Outorgashttp://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Decreto/D6654.htm6 Of interest is that all telecom services were in private hands until1972, when they were nationalised by the military government


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although this would likely change if broadbandbecomes defined as a public service under the PGO).

Universal service objectives (USOs) and obligationsare defined in more detail in Anatel's General Plan ofUniversalization Goals7 (PGMU). The PGMU hasbeen updated a number of times, and in September2010 the PGMU III was adopted, and is expected tocost participating service providers R1.7 billion forthe network infrastructure and maintenance costsbetween 2011 and 2015. While not directly focussedon broadband development, the infrastructure that

will be required will naturally be used to supportbroadband services.

In 2008 Anatel issued the General Update Plan ofBrazilian Telecommunications8 (PGR) which definedthe 10-year strategic vision for the sector and included

7 Plano Geral de Metas para a Universalizaohttp://www.planalto.gov.br/ccivil_03/_Ato2011-2014/2011/Decreto/D7512.htm8 Plano Geral de Atualizao da Regulamentao das

Telecomunicaeshttp://sistemas.anatel.gov.br/SACP/Contribuicoes/TextoConsulta.asp?CodProcesso=C1169&Tipo=1&Opcao=

goals for improving broadband access andestablishing mobile virtual network operators

(MVNOs). The 1998 PGO restriction whichprecluded the incumbents from operating in morethan one of the authorized regions was also ended atthis time.

In August 2009 the Steering Committee for DigitalInclusion Programmes9 (CGPID) was established,

which laid the groundwork for the NationalBroadband Plan (PNBL), which was subsequentlyannounced in May 2010. The PNBL is described inmore detail in section 5.

2.1.1 Broadband licensing

Anatel requires a license for all entities that providebroadband access, with the most prevalent licensesbeing 3G mobile, cable TV and the MultimediaCommunication Services10 (SCM). The latter is themost common public ISP license, allowing servicedelivery using wireless technologies, and more

9 Comit Gestor do Programa de Incluso Digital10 Servio de Comunicao Multimdia

Figure 2-1: CGI.br structure (Source: http://www.cgi.br)


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recently cable technologies, following Anatel'ssanction of broadband over power lines (BPL) in2009.

In addition, the Limited Private Service11 (SLP)permit is available and mainly used by municipalitiesto provide free access to relevant public information

services (such as for libraries and e-governmentapplications in public spaces). The Private NetworkService12 (SRP) permit is similar, but for corporateentities. The SCM license currently costs R9000annually (but is being revisedsee below), while boththe SLP and SRP permits cost R400 per year.

Voice over IP (VoIP) services are permitted, andunlicensed in Brazil, as they do not qualify as atelecommunications service - rather they are seen as

value added services that are supported by theunderlying telecommunication network.

2.1.2 Radio spectrum

SLP and SRP licensees may use the unlicensed Wifispectrum in the 2.4 and 5.8GHz bands. SCMlicensees may also use these bands, but they can alsooperate in the 2.5GHz band using MMDS typeservices, which are often used for subscription/cable

TV, or sometimes WiMax. Spectrum licenses arerequired for all frequencies in cities larger than 500000 people, including WiFi 2.4 and 5GHz bands. Intowns smaller than 500 000 people, licenses for thesebands are not required.

Spectrum licenses are required for Wimax (available inthe 2.5, 3.5 and 10.5GHz wavebands) and for 3G inthe 800 and 900MHz bands. The auctioning of the1.9/2.1 GHz band with mandatory sharing ofinfrastructure, took place in December 2010, despitesome operator protests against the inclusion ofNextel, a new fifth player (the band was only to beavailable to operators with a mobile voice license).

The mobile operators have a total of about 340MHzof spectrum allocated, with the maximum amountavailable per operator being 85MHz.

2.1.3 Internet governance

Management of key Internet resources, such asdomain names, the CERT13 and Internet exchangepoints (IXPs), is carried out by the Brazil Internet

11 Servio Limitado Privada12 Servio de Rede Privado13 Computer Emergency Response Team

Steering Committee14 (CGI.br) which also monitorsthe uptake of Internet services and helps guide thedevelopment of the Internet in the country. As shownbelow, CGI.br is structured as a multi-stakeholdergroup comprising an equal mix of government andcivil society representatives appointed by Ministerialdecree.

2.2 The broadband ecosystem

2.2.1 Backbone networks

With Oi/Telemar's purchase of Brazil Telecom in2008, the group now operates the largest fibrenetwork in the country, as well as one of the mainsubmarine cable networks linking the country to theglobal backbones. The terrestrial network is about138,000 kilometres of long distance fibre, 30,400kilometres of metropolitan fibre and the 22,000kilometre Globenet submarine cable network whichlinks Brazil to Venezuela, Bermuda and the USA. Asshown in the map below, an indication of thechallenges presented by the vast size of the country,combined with the low income and population levels

14 Comit Gestor da Internet no Brasil

Figure 2-2: Brazils submarine cable systems

(Source: http://www.cablemap.info)


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in the northern region, is that capital of Amazonaswas only connected to the fibre backbone this year,and it was more cost-effective to do this via

Venezuela's network.

While not even close to the same scale as Oi'snetwork, the incumbent long distance operator

Embratel's network is also among the largest in thecountry, running from the extreme south to RioGrande do Sul in the north, totalling about 26,000kilometres of optic fibre.

Aside from Telebras' recently established nationalnetwork of about 31,000 kilometres combining theinfrastructure of the electricity and fuel distributionoperators (see Section 5), the other major backbonesare operated by AES/AES Electropaulo Telecom,GVT, Geodex and CEMIG Telecom. AES/AESElectropaulo Telecom has a network of about 4,700kilometres. GVT (owned by Vivendi) has about25,000 km of optical fibre, while Geodex (owned byUBS, Deutsche Bank and Meridiana Interprises) has anetwork of 11,000 km. CEMIGTelecom, which

changed its name from Infovias in 2010, offers thelargest optical fibre network in the state of MinasGerais.

Internationally, a number of other submarine cablesconnect Brazil to the region and to North Americaand West Africa (Sam-1, SAC, Americas-I, Americas-

II and Atlantis-2). There are also plans for a large(12Tbps) cable called SAex to connect Brazil withAngola, which will also give it an alternative route toEurope and Asia via the west African coastal cablesystems.

2.2.2 Alternative/complementary infrastructureoperators

The operators and owners of overhead electricitypylons and poles, ducts and rights of way forhighways and railways are a major potential resourcefor backbone fibre operators, but are well known forcharging high fees for use of these resources fortelecommunication cabling in Brazil. It is notuncommon to find a charge for overhead poles as

Figure 2-3: OI/Tele Norte Leste backbone fibre network

(Source: http://www.globenet.net/PDF /Network-Map.pdf)


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high as R10 per month per pole, compared to R1 inthe USA.

The current situation also favours the incumbentoperators, which negotiated long-term contractsdecades ago, and there may not be physical spaceavailable for new entrants, or if there is, prices arenow much higher for the much more valuableresource that these rights of way have become.

Considering that much of the new investment inbackbone infrastructure is going into the more remoteand less population-dense areas, where returns arelower, the high costs of access to alternativeinfrastructure is a significant constraint to more rapiddeployment of broadband to the peripheral areas.

There are also a variety of large electrical energygeneration and transmission companies operating ateither the federal or state level that selltelecommunication services directly, usually via asubsidiary. The largest of these are:

Eletronet, a joint venture between theparastatal Eletrobrs and AES. TheEletrobrs group has subsidiaries in differentprovinces - Furnas, Chesf, Eletronorte andEletrosul, with a total of 16,000 kilometres ofoptical fibre drawn. The network runsthrough 18 states, but only reaches the

outskirts of large cities. In the least well-served area, northern Brazil, the Eletronortenetwork is now expanding considerablybecause of plans to distribute hydroelectricenergy to many cities due to the constructionof new hydroelectric schemes in Amazonia.

CEMIGTelecom operates a carrier-to-carriermodel using the infrastructure of its parent

company, electrical energy provider CEMIGin Minas Gerais.

Petrobras has an extensive fuel distributionnetwork across the country

2.2.3 Interconnection

There is a well-developed Internet traffic exchangeinfrastructure in Brazil, with 16 exchange points15(IXPs) in different cities around the country. Theseimprove performance for customers and applications

located on the networks of different providers andsave on transit fees for broadband providers byreducing the amount of local data that transitsexternally. The IXP model in Brazil is independentnon-commercial, with NIC.br providing financial andcapacity building support for establishing IXPs whereneeded.

15 Ponto de Troca de Trafego (PTT)

Figure 2-4: Petrobras and Electronet fibre networks

(Sources: http://www.wirelessbrasil.org/bloco/2011/maio/mai_25a.html and

http://www.wirelessbrasil.org/wirelessbr/secoes/telebras_eletronet/eletronet_01.jpg)


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The first IXP in the northern region will beinaugurated this year and their deployment in anumber of major cities in other states is alsounderway.

As to be expected, the largest IXP is in Sao Paulo citywith 185 members exchanging about 50 Gbps of

traffic at peak times, with the remaining IXPsexchanging a total of about 10 Gbps of traffic at peaktimes.

2.2.4 Broadband providers

2.2.4.1 Fixed broadband

The current extent and future growth of fixed linebroadband services is limited by the stagnating marketfor fixed voice services, although this is beingincreasingly augmented by other fixed technologies, inparticular deployments of subscription/cable-TVservices, spread spectrum/Wifi, fibre to the home(FTTH) and broadband over power lines (BPL).

Brazil's fixed-line teledensity is about 23% higher thanaverage for Latin America, but there has been littlegrowth since 2002, partly because fixed line rentals arerelatively expensive compared with other countries inthe region. The fixed voice market is dominated bythree groups which all have substantial foreignownership - Spain's Telefonica, which owns Telesp(and mobile provider Vivo), Mexico's America Movil,

which owns Embratel (and mobile provider Claro)

and fixed/mobile provider Oi (Telemar NorteLeste/Telemar), which is owned by Portugal Telecomand Brazilian investors. The market leaders are thetwo incumbents Oi and Telesp, with 48% and 27%respectively of the fixed lines in the country. Twoother companies, the long-distance incumbent

Embratel, and Vivendi's GVT, have gained anincreasing share of the market with 18% and 5%respectively.

Although there are over 2,500 fixed broadbandproviders in Brazil, the five largest hold about 95% ofthe market. These are mainly the incumbent voice

operators, and according to the government'sInstitute for Applied Economic Research (IPEA), inJune 2011 Oi was the largest broadband provider,with about 36% of the broadband market, followedby NET Servicos (Embratel) with 26%, TelefnicaBrazil with 24%, and GVT with 8%.

Until the arrival of Telebras (see below) there hasbeen little structural wholesale/retail separation in themarket, and the smaller ISPs largely resell capacityfrom (and compete with) the larger telecomoperators.

The principal operators in Brazil's cable/subscriptionTV market are Net Servicos, Sky Brasil, Embratel,Telesp, and Oi TV. Net Servicos is the largest multi-service cable provider in Latin America, and iscontrolled by local media group Globo, althoughlong-distance fixed-line incumbent Embratel owns amajority of the company's stock. Sky Brasil, thelargest High Definition satellite TV operator, iscontrolled by DirecTV, with Globo as a minorityshareholder. Independently of Net Servicos, Embratelalso provides satellite TV services.

All of these companies provide TV/broadbanddouble-play packages, except for Sky, which has apartnership with GVT for broadband services.However Sky will soon enter the broadband market asit is now in the process of establishing one of the firstdeployments in the world of TD-LTE technology,

Figure 2-5: Growth in average traffic exchanged on Brazils IXPs

(Source: http://www.ptt.br)


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following its purchase of radio spectrum in the2.5GHz band.

Fibre to the home (FTTH) is now beginning to takeoff in Brazil's major cities, seeing much increasedinvestment over the last two years. Telefonica Brasil isamong the largest providers of FTTH services and isplanning to extend its network coverage, initiallyfocussing on Sao Paulo state. Backed by Telefonica of

Spain, the group already has fibre coverage of apotential 400,000 households, of which 20,000 arecurrently signed up to its services. By the end of 2011it plans to increase coverage to about one millionhouseholds and boost the actual subscriber base to70,000, with a long term plan to have one millionfibre customers by 2015.

Intelig, a subsidiary of TIM Brasil (owned by TelecomItalia), has launched broadband and telephonyservices using broadband over powerline (BPL)technology in areas of Sao Paulo city, provided over

the infrastructure of local power utility Eletropaulo.

Triple-play bundles (voice, Internet and IPTV) andquad-play bundles (plus mobile) are becomingincreasingly available, following recent consolidationof fixed, mobile and subscription-TV providers. Thetriple-play leaders in this area are GVT in partnership

with Sky, and TVA (owned by the Abril Group andTelefnica), while Oi launched the first, and so faronly, quad-play service in the country in 2008.

2.2.4.2 Mobile broadband

There are seven GSM operators in Brazil Vivo,Claro, TIM, Brasil Telecom, Oi, Sercomtel and CTBC(now Algar Telecommunications). By August 2011they had rolled out 3G services in 28% (1,588) of the5,565 municipal areas, covering about 144 millionpeople, or 76% of the total population. Vivo is thedominant player in numbers of subscribers and also interms of coverage - it is present in over 1,500municipal areas, while it's nearest rival, Claro, ispresent in only about 500 so far but is expanding fast

with plans to cover 1000 by the end of the 2011.

Technology Users (1000s)

xDSL 10222

Cable Modem 4121

Ethernet 794

Spread Spectrum/Wifi 647

ATM 383Fibre 185

HFC 151

Satellite 40

FR 24

FWA 23

WIMAX 19

MMDS 10

BPL/PLC 0

Total 16619

Speed 0-512Kbps512Kbps-

2Mbps

2Mbps-

12Mbps

12Mbps-

34Mbps> 34Mbps Total

Subscribers 2977 6961 4215 1972 496 16621

Table 2-2: Fixed broadband subscribers by speed of access, 1000s, February 2011 (Source: Anatel)

Figure 2-6: Mobile coverage in Brazil

(Source: http://www.teletime.com.br)

Table 2-1: Broadband users by type of technology,

1000s, February 2011 (Source: Anatel)


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Having heavily invested in new 3G spectrum (a totalof R2.7 billion was realised in the H band auction inDecember 2010), the mobile operators are nowrapidly expanding their 3G networks, which shouldcover at least 2,000 municipalities by 2012. In the Hband auction, a new operator, Nextel, acquired

frequency in virtually all of Brazil and will soonbecome a specialised 3/4G competitor in the market.

The government is looking to ensure that 4G/LTEnetworks are in place in time for the FIFA World Cupin 2014, and it has already identified about R200million worth of investments to encourage this.Bidding for 4G mobile network licenses is scheduledfor April 2012.

2.2.4.3 Satellite

Because of the remoteness of many areas in Brazil,the country has an extensive satellite sector. Threecompanies operate national satellites: Star One,

Telesat Brasil, and Hispamar. Star One was the first toprovide satellite services, and is the market leader. StarOne C3, scheduled for launch in 2012, will cover allof South America including Brazilian territorial

waters. The launch of Telstar 14R (known as Estrelado Sul 2 in Brazil), was launched in mid-2011 andcovers the whole Brazilian territory as well asdelivering services to the rest the Americas.

2.2.5 Access devices

PCs and laptops are becoming more widely present inhouseholds, although smartphones are now thedominant consumer broadband access device inBrazil. In total it is estimated that there are 60 millionPCs and laptops in use in Brazil, rising to 100 millionby 2012. Not all of these are connected to theInternet and many are in businesses or largehouseholds which share their Internet connection.

In contrast, there is a closer match between thenumber of 3G phones and the number of 3G

broadband subscribers, although the match is not 1:1.In a field survey, Grupo Mobi estimated in February2011 that there were 19 million smartphones in Brazil;this is higher than the number of 3G subscribers dueto the large number of subscribers with multiplephones, and many using smart phones on 2/2.5Gsubscriptions. The survey found that 41% of theirsample of mobile phone users in general, and 83% ofthe smartphone users used their phone to go online.

The federal government has a long history of supportfor local industry to develop low cost access devices.In 2000 strong efforts were made to establishreference models for low-cost open-source based PCmanufacture. As a result Linux is widely available asan option on locally made desktop and laptops fromthe major white-goods chain stores and other outlets.

In 2010 it was estimated that about 14 million, mostlylocally made computers, had been sold in Brazil, oftenon instalment plans provided by the major retailers.

Recent plans to provide tax incentives to promote thelocal manufacture of low-cost tablet devices echothese earlier efforts, and have attracted Taiwanesecomputer manufacturer, Foxconn Technology, toproduce Apple's iPad tablet in the city of Jundiai inSao Paulo state. In addition Motorola, Samsung and

Asus have also expressed interest in producing tabletslocally.

2.2.6 Public access facilities

Internet cafes, or LAN-houses, as they are commonlycalled in Brazil, are widely used throughout thecountry and are present in virtually every community,either to serve the youth in the richer areas, or toserve the general population in the poorer areas.Privately run, usually by small businesses (90% of

which are informal), Cetic.br16 estimated in 2010 thatthere were about 100,000 in the country, serving 30-35 million people. This is a slight decline on previousyears, most probably because of the increased

penetration of broadband in homes and on mobiles.

Provision of public access facilities for those whocannot afford their own equipment and connectionshas also long been part of the Brazilian government'sdigital inclusion strategies. The largest of these isgovernment parastatal Serpro's17 digital inclusionprogramme (PSID18) which has rolled out over 8,000telecentres since 2003, providing free access in 98%of municipalities. Part of Serpro's remit is to facilitatecitizens' relations with the government, including thedevelopment of e-government applications. The

programme includes donation of computers to publicand civil society institutions.

16 Center for Studies on Information and CommunicationTechnologies17 Formed in 1964 to modernise the strategic sectors of theBrazilian Public Administration, Serpro is one of Brazil's largestpublic companies, responsible to the Ministry of Finance.18 Programa Serpro de Incluso Digitalhttp://www.serpro.gov.br/inclusao/oprograma


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Serpro is now developing a new programme with theMinistry of Agricultural Development which willsupport integrated management of telecentres, calledthe Brasil Digital Network19 which will be used tosupport the digital inclusion initiatives of bothinstitutions. The proposal is to form a centraldatabase with information from a variety of digital

inclusion initiatives in order to generate inputs for theimplementation of government policies.

In addition to a tool kit for the management oftelecentres, the Brazil Digital Network provides adecision-support system. The data are presented inreports and graphs, as well as geo-referenced,providing a mechanism for monitoring and trackingof benefits to the population and the variables thathamper the smooth operation of telecentres in Brazil.

Serpro's PSID is also collaborating with thegovernment's Casa (House) Brazil project20,Broadband in Schools21 and One Laptop per Studentprogrammes22.

Casa Brazil is a similar but much smaller project, alsoestablished in 2003. Working in poor communities,the project provides computers and connectivity tocommunities, focusing mainly on use of open sourcetechnologies to promote culture, art, entertainment,popular participation and community liaison. A CasaBrazil typically has a telecentre, a reading room, anauditorium and several laboratories and workshops

where use of digital technologies can be made. About

100 units have so far been established with supportfrom the Ministry of Science and Technology, inpartnership with other government agencies, theprivate sector and municipalities.

Banco Brazil and other large businesses are alsodonating computers to public access programmessuch as the above to support digital inclusion efforts.

2.2.7 Content and applications

With a large population and advanced electronic and

print media market, along with the relatively highnumber of wealthy people, Brazil's local onlinecontent market is well-developed. This has beenencouraged by the popularity of local social

19 Rede Brasil Digital http://www.serpro.gov.br/inclusao/rede-brasil-digital / redebrasildigital.org.br20 http://www.casabrasil.gov.br21 Banda Larga nas Escolashttp://www.inclusaodigital.gov.br/links-outros-programas/programa-banda-larga-nas-escolas22 Um Computador por Aluno http://www.uca.gov.br

networking sites, the distinctive independent forms ofcultural expression in Brazil, the substantial efforts bygovernment to provide online services, and by thelack of Portuguese content elsewhere (except to acertain extent in Portugal).

In addition, e-commerce services for consumers are

widespread, partly due to the relatively highproportion of the population that have bank accountsand credit cards23. It is expected that e-commerce willhave a turnover of US$18.7 billion at the end of 2011,representing an increase of around 26% compared to2010. By the end of 2011 it is expected that about 32million people will have made at least one purchaseonline.

Another indication of trends in Brazilian applicationsand content is that Google Brazil's revenues grew80% in the last year, bringing in close to US$500million.

2.3 Patterns of broadband utilization

As of mid-2011 there were an estimated 43 millionbroadband subscribers in Brazil, representing apenetration rate of about 23% of the population.

With about 74 million Internet users in the country,this brings the proportion of broadband subscribersto about 60%.

The rate of broadband uptake also appears to beaccelerating fast - new activations hit a record in themonth of August 2011 when there were 2.2 million

additions, compared to the average of about 1 milliona month between July 2010 and July 2011. As a

whole, broadband subscriber growth of about 60%was recorded over the last year, and 3G broadbandovertook fixed broadband subscriptions. Telebrasil's

August 2011 assessment indicates that fixedbroadband grew by 25% in August 2011, whilemobile broadband had a growth rate of 87%. Otherfeatures of broadband uptake in Brazil include:

About 27.4% of households had Internet access ofsome form in 2009 according to IBGE's National

Household survey, while 12% of households hadbroadband access in 2010, estimates IPEA.

Regional variations in access to broadband are large,mainly reflecting the pattern of income levels andpopulation densities. About 80% of broadband users

23 The reasons for this date back to the years of hyper inflation inthe previous century, where funds kept in bank accounts wereindex linked to maintain their value.


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are concentrated in the Southeast, while the Northeastand Midwest have 9% each, and the North, only 2%.Subscription/Cable TV had about 11.1 millionsubscribers in mid-2011, representing a growth of31.8% over the last 12 months.

A number of projections have been made on thefuture levels of broadband uptake. These include:

Mobile chip manufacturer QUALCOMM estimatesthat there are likely to be over 107 million 3Gsubscribers in Brazil by 2014.

Telecom industry group SindiBrasil estimates that ifinvestments of about R145 billion are made innetwork infrastructure and services, broadbandpenetration could reach 78 million subscribers in 2014

and 153.6 million in 2020. If no action to encouragepublic or private investment takes place, thisexpansion would be limited to 57.3 million in 2014and 93.2 million in 2020.

The IPEA estimates that if the price for broadband isreduced to the PNBL target of R35/month (see nextsection), the number of households connected wouldrise to 35 million (52% of total households).

Brazil also has had an extensive 'Broadband inSchools program which has resulted in about 84% ofBrazilian students having access to free broadband inurban public schools.

Fixed line subscribers 42.0 million

Mobile Subscribers 224.0 million

Fixed Broadband Subscribers 15.2 million

3G Phone Users 22.8 million

3G Modems/Data Terminals 5.6 million

Total 3G users 28.4 million

Total 3G + Fixed Broadband subscribers 43.61 million

Broadband penetration 23 %

Internet users 74 million

Broadband users as % of total Internet users 59 %

Municipal Districts with 3G 1594

Average 3G speed 769 Kbps

Broadband subscriber growth Aug 2010-Aug 2011 60 %

Subscription/Cable TV Subscribers 11.1 million

Cable TV broadband subscribers (Q4 2010) 3.7 million

Computers in use 60 million

Table 2-3: Key features of the broadband market in Brazil

(Source: Anatel, Teleco) Note: Data are for end of Q2 2011 unless otherwise stated.


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3. The PNBL

Beginning with the PGR in 2008, the Federal andState governments have adopted extensive and wideranging strategies for supporting improved access tobroadband. These efforts emerged from much earlierinitiatives to promote the uptake of ICTs more

generally in Brazil, prior to the advent of 'broadbandInternet'.

The first systematic effort by the Government tookplace in 2000 when the then President HenriqueCardoso issued a decree to establish the Secretariatfor Logistics and Information Technology in theMinistry of Planning, Budget and Management(SLTI/MP), as the lead agency for developing andimplementing Brazil's 'e-strategy'. SLTI/MP served asthe secretariat for an inter-agency committee chairedby the Presidents Civilian Chief of Staff24 - the

Executive Committee on e-Government, to which anumber of inter-agency technical groups reported.

ICT development at the Federal level continuedduring the first administration of President Lula daSilva (2003-2006), and some progress was made indigital inclusion, with the development of aninteroperability framework and other aspects of e-applications development. E-strategies also advancedat lower levels of the federal system, albeit unevenlyin the 26 states and the Federal District, as describedfurther below.

Developed by the Lula government in 2010, theculmination of earlier efforts toward digital inclusionis the PNBL (Programa Nacional de Banda Larga,National Broadband Program), which, after about ayear of preparation, marked its first deployment in

August 2011. The five key objectives of the PNBL areto:

Broaden access to broadband-based Internetservices

Accelerate economic and social development

Promote digital inclusion Reduce social and regional inequalities Promote job creation and income

To implement the programme, the dormant formerstate-owned monopoly operator, TelecomunicacoesBrasileiras (Telebras), was revived and given the task,

working closely with the national regulator, Anatel,

24 Ministro da Casa Civil

and the Ministry of Communications. Telebras hasalso been made responsible for ensuring thatconnectivity is provided for some of the 2014 WorldCup stadiums.

The government owns 89.88% of Telebras shareswith voting rights, and 72.67% of the share capital.In June 2011 it was announced that additional privateinvestment in Telebras can be made, but thatgovernment would still maintain control. Telebras'business model envisions it to be cash flow positiveby its 2nd year.

Aiming to cover 40 million households or 68% of thepopulation by 2014, Telebras core activity will be toact as a 'wholesale' operator, providing infrastructureand network capacity for the broadband providers, as

well as the administrations of the federal government,the states and Federal District, municipalities andnon-profit organizations such as universities, schools,hospitals, community telecentres and other points ofpublic interest. Telebras will also manage thedeployment of a national fibre network which willeventually reach 3,045 municipalities without accessto fibre.

In essence the overarching strategy with the revival ofTelebras has been to create a public broadbandoperator that will compete with the private operators

in order to lower prices and improve service levels.The government's view is that the private broadbandproviders are not competing effectively and thereforecharging too much and giving poor service. MiniComcites as evidence for this the fact that averagebroadband prices have already dropped by 50% sincethe announcement of the PNBL strategy, even priorto any actual roll-out of services.

Not unexpectedly, the larger providers have criticisedthe entry of a state funded entity into the marketarguing instead that the government's role should berestricted to stimulating demand, such as through

provision of improved online services and perhapssubsidising users. Nevertheless some of the largerproviders have signed agreements with Telebras, anda large number of the smaller operators haveapproached Telebras, seeing the opportunity to breakthe control of the larger operators on the market.

The service is expected to be particularly useful tosmall broadband providers operating in the smallertowns and more remote areas that have not been


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reached effectively by the large operators. So farabout 600 broadband providers have registered theirinterest on the Telebras web site, with 1000registrations expected by the end of the year.

The other key actions being taken by Telebras and thegovernment agencies to achieve the PNBL objectives

above are:

The establishment of a broadbandprice/performance target of R35per monthfor a 1Mbps connection

The provision of broadband services directlyto consumers where other operators are notpresent or providing inadequate services

Provision of soft loans to small broadbandproviders to expand their services25

Freeing up additional radio spectrum for usein broadband provision

Tax exemptions for equipment and providersmeeting local manufacturing or performanceobjectives

The PNBL also aims to support the development ofthe Brazilian ICT equipment and related servicesindustry, which is seeing strong internationalcompetition especially from China. As with allgovernment purchasing, Telebras is able to givepreferential treatment to Brazilian firms by allowingits procurement process to select local companieseven if the cost is higher than the bids of foreign

companies.

A consortium was formed in July 2011 to promotethe development of local Brazilian ICT equipmentsector, called GENTE26, which consists of companiesthat each invest more than R150 million of their salesin R&D (about 20%). This includes Gigacom, CPQD,

ASGA, WXBR, Trpico, Icatel, Parks, Digitel eDatacom and PadTec. Padtec recently won Telebras'R68 million tender for hardware to support thePNBL rollout. The company is a subsidiary of theCentre for Research and Development in

Telecommunications (CPqD), a private foundationthat was the technology arm of Telebras prior to itsdissolution following privatization of the telephonesector. Telebras still holds a 65.7% stake in Padtec.

25 Lines of credit have been made available by the NationalDevelopment Bank (BNDES) with interest rates of 1% permonth and no collateral requirements.26 Grupo de Empresas Nacionais de Tecnologia

The scope of the PNBL may widen further if thePNBL adopts the September 2011 recommendationsof the IPEA. The IPEA proposes a series of measuresto address those at the bottom of the pyramid whocannot even afford the R35/month target price forbroadband. These include extending tax breaks tomobile phones and television sets, more public

support for additional public access/telecentrefacilities, and offering prepaid plans and fractionalprices (weekly rates for example).

The key elements of the envisaged activities outlinedabove, along with other related government initiativesare described in more detail below.

3.1 Price and performance targets

The R35/month target was determined by fieldresearch which indicated that the 70% of theBrazilians that are still offline would be willing to paythis amount for the connection. As mentioned abovehowever, the September 2011 IPEA indicates thateven this price is still too high to be affordable by thepoorest segment of the population. In addition theR35/month target does not include the cost of thesubscriber equipment, and this could also be asignificant barrier to entry unless bundled into long-term contracts.

The initial speed target is perhaps the more difficultcomponent to derive, since 'broadband' is such arapidly evolving area27, and in fact the initial speed

target for the PNBL was 512Kbps, but this wassubsequently increased to 1Mbps shortly after theRousseff government took over.

Currently, operators using the Telebras network areinitially required to provide a minimum of 20% of thetarget speed of 1Mbps, but the government isplanning to ensure the speed of offerings of allbroadband connections in the country is guaranteed.

As a result Anatel has proposed that providers withmore than 50,000 customers will have to deliver tousers at least 60% of average contracted plans. The

rule also provides for raising the requirement to 70%in 12 months, and 80% after the following year.

Efforts are also being made to monitor andbenchmark the quality of available broadbandservices. In mid-2011 Anatel proposed theestablishment of a broadband speed test service

which would be available to subscribers directly, and

27 It may be recalled that the maximum speed only a decade agowas 56Kbps dialup or GPRS was the standard


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unbundling is also being considered that would allowany provider to sell services on the last mile if theoperator that installed it is not providing services. Inaddition broadband providers will also will berequired to implement 51 new internet exchangepoints IXPs.

The PGMC also aims to create three organizationsfunded by the operators. One will compare the offersfrom retail services to give more transparency to theconsumer and pinpoint the best options for them.

Another will provide a representative forum foroperators without significant market power, and asupervisory body will be create a centralized databaseof wholesale offers and to promote conflict resolutionbetween operators.

Finally, operators are expected to provide a range ofbackhaul capacities, depending on the city size 32Mbps (for municipalities of up to 20 000 inhabitants),64 Mbps (for 40,000 inhabitants), 128 Mbps (60,000)and 256 Mbps (over 60 000 inhabitants). Where thereis capacity available companies will have 60 days toinstall the link.

In August 2011 Anatel announced proposed revisionsto the SCM license (the main broadband serviceprovision license), which aimed to make it easier forsmall providers to enter the broadband market. Themain changes are to relax the criteria for evaluatingthe credentials of the licence applicant and to createnew licenses with smaller geographic scope state

and municipal level licenses. Previously there was onlythe national licence costing R9000 per year, the priceof which remains unchanged, while the annual fees ofthe new licenses are R1200 for a state license andR400 for a municipal license.

Other planned changes include:

Companies without SCM licenses would beable to partner with an existing SCM licenseholder to provide niche services such asbroadband-based home security systems

The individual costs of bundled services(such as broadband with IPTV or voicetelephony) are to be made explicit andoperators required to allow any part of theservice bundle to be cancelled by thesubscriber

Above the 50 000 subscriber threshold thequality of the provider's service will be

regulated and increased time limits imposedon subscriber data retention31.

The concept of net neutrality would beupheld, whereby providers are not allowed tolimit the speed of any of the data passing tothe subscriber

3.5 Use of satellite

A network of free broadband services via satellite,known as the GESAC Program, has beenincorporated as part of the national broadbandstrategy. In November 2010 new contracts weresigned between MiniCom and a private satelliteoperator to expand the number of ground stations inschools, community telecenters and other public orcommunity entities in areas not served by otherbroadband services. The number of ground stations

will be expanded by 1,460 to a total of 13,379,

operating at speeds between 512 kb/s and 2 Mb/s.

In addition, the auction of four satellite positions forprivate use took place in September 2011, shouldreinforce the availability of satellite capacity forremote areas by 2014. In the same month broadbandprovider Oznio Telecomunicaes announced itplanned to invest US$1.2bn in a satellite basedinternet service for the Amazonas, using the O3bsatellite network which is to be launched in 2013.IPEA has also proposed that the feasibility of anational satellite to complement PNBL be examined.

3.6 Extension of mobile services toremote areas

Another strategy that is being discussed by Anatel tosupport the PNBL is to improve mobile networkcoverage in the more remote and rural areas that arecurrently under-served. The two options beingconsidered are either to provide some type of subsidyto encourage the existing operators to extend theirnetworks, or to establish a shared wirelessinfrastructure managed by a third party which wouldlease services to the existing operators.

3.7 Universal service

This year (2011) Anatel has been conducting a 5-yearreview of voice telephony (PSTN) licenses, theconcessions for which expire in 2025. This includesreviewing the licensees' universal service objectives to

31 Currently only about 13 SCM licensees have more than 50 000subscribers.


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ensure they are in line with updated requirements formeeting outstanding connection needs in remote andrural locations32. In May 2011, Anatel held a series ofpublic consultations on the license review whichculminated in new USO proposals. Supporting theobjectives of the PNBL, they included expansion ofthe fixed network to support broadband services by

ensuring a minimum transmission capacity of 2.5Gbps to all municipalities with more than 30 000inhabitants. In addition the proposals, if adopted, willallow operators to apply their license renewal feesdirectly toward universal service projects.

3.8 Content and applications

Most government services that can be put online havealready been implemented at the national and statelevels, but increased demand for local governmentservices is to be supported by the PNBL with Federalgovernment plans to establish a cloud servicesplatform for use by municipalities. This strategy hasgenerated some controversy among some members ofthe private sector which have said the provision ofapplication services should be left to the privatesector, as with broadband service provision.

3.9 Radio spectrum liberation

Anatel is accelerating the process of making moreradio spectrum available for broadband, and anumber of spectrum bands have already beenreleased. With its long-distance transmission

characteristics, the 450Mhz band has been opened forrural communications, previously held by a number ofstate agencies. In the 3.5Ghz band Anatel also expectsto allocate a specific segment for the PNBL. Theavailability of the 3.5Ghz band was initially delayed incourt by the fixed line operators, which challenged

Anatel's plan to make the band available for only fornew competitors33, but their protest was unsuccessful.

Unused parts of the 1.9 GHz band are to be issued tonew mobile operators with the requirement that 3Gservices be provided with coverage in all

municipalities of 100,000 inhabitants or more, evenalthough mobile services are not under PGO publicservice regulatory regime. Similar requirements arelikely to be imposed on operators seeking

32 1,894 police stations and federal and state roads, 82,301 ruralschools, 7,945 settlements, 10,989 health posts, 2,224 Indian

villages, 824 maroon communities, 741 public airfields, 300conservation and sustainable use offices and 1620 military camps.33 The license for the 3.5Ghz band does not allow existing fixedline operators to use it in their market areas.

authorizations to operate in parts of the 3.5 GHzband.

Other spectrum liberation activities include:

Frequencies above 6 GHz will be madeavailable for Telebras to provide point-to-point links in municipalities using high-speedradios

The designation of the 2.170-2.182GHzband, and the 2.5-2.690GHz band has beenchanged, in order to foster broadband access,and has published public consultationsregarding the designation of other radiofrequency channels, with similar objectives.

3.10 Subscription/cable TV broadcasting

The opening up of the subscription/cable TV sectorhas been under discussion for some time, but thisintention appears to have been accelerated followingthe announcement of the PNBL. In August 2011 thegovernment announced the removal of the legallimitation that prohibited majority foreign ownedtelecommunication companies from operating in thesubscription/cable-TV market. This will allow entryby some of the major telecom providers who areforeign owned, notably Embratel, Telefonica, GVTand Sky.

The IPEA's analysis of the impact of this measure onbroadband-use indicates it should boost the numberof subscribers significantly. The agency said in aSeptember 2011 research report that the presence of asubscription/cable-TV provider could increase fixedbroadband subscribers in the location by up to 35%.

3.11 Fiscal incentives and subsidies

Tax levels on equipment and services are relativelyhigh in Brazil, and according to the telecom industrylobby group Telebrasil, the government tax onbroadband services currently increases the cost to the

consumer by 43%, while taxes on imported modemsadds 78% to the price. Some tax exemptions onconnectivity services pre-dates the PNBL in somestates, however the government at both federal andstate levels is now adopting a broad range of taxexemptions to promote the uptake of broadband andother ICTs.

Responding to concerns that the backbone andmiddle-mile networks will not be sufficient to cope


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with rising local demand for broadband, in August2011 the Ministry of Finance agreed to forfeit anestimated R4 billion in tax revenue to encourageoperators and suppliers to make R70 billion worth ofinvestment in the construction of fibre-opticnetworks over the next four years. Priority will begiven for projects that include coverage of North and

Northeast regions.

Due to import substitution promotion, foreign ICTequipment is subject to 50% duties and this isencouraging efforts to develop more advanced localmanufacturing facilities to help reduce the cost ofcomputers, phones and other telecommunicationequipment. In 2009, the government announced thatthe exemption on taxes for strategic capital goods,including computers and tablets, would be extendedto 2014. For computers alone, this was expected tocost the government about R1.6bn in 2010. Inaddition all taxes and import duties have been waivedon computers for the public school system.

To further reduce the cost of tablets and relatednetwork access devices, in May 2011 the governmentannounced its intention to exempt locally madehardware from industrial taxes which, whencombined with sales tax exemption, could reduceprices to consumers by 30-40%. The bill was passedby the lower house in September and is expected tobe approved by Senate shortly. Also in September,IPEA published a report proposing that taxexemptions be extended to mobile phones and

televisions if universal access to the Internet is to beachieved.

A growing number of states are exempting broadbandfrom sales taxes. In 14 of the 26 states (which have atotal of 49% of the population) agreement to exemptbroadband from sales tax (VAT) has recently beenreached. However of these, only seven have signedthe exemption in local law - Sao Paulo, Rio de

Janeiro, Espirito Santo, Parana, Goias, Pernambucoand Par. The remaining states where this is pendingare Distrito Federal (Brasilia), Acre, Amap, Cear,

Rio Grande do Sul, Santa Catarina and Sergipe.

Brazil's lower house has given approval to a proposedmeasure offering tax breaks for national productionof tablet computers. The bill, which must still gainfinal approval in the Senate, would offermanufacturers full exemption from industrialmanufacturing and retail taxes, as well as import taxesfor electronic components. According to government

estimates, the tax breaks could help reduce the finalcost to consumers by 20%-30%.

To promote deployment of broadband to remote andunder-served areas the government is currentlydiscussing the possibility of subsidising the cost ofproviding connections to the end user.

The government also plans to discuss with the energydistributors the possibility of offering lower electricityprices to small broadband providers.

3.12 State and municipal efforts

Prior to the PNBL there have been a variety ofmunicipal and state supported efforts to improveaccess to the Internet, including the use of taxincentives and provision of low cost, or even free,broadband services in public access facilities andschools. These efforts are now accelerating followingthe PNBL. A growing number of municipalities areparticipating in the PNBL and partnering with

Telebras for use of network infrastructure. In theagreement, the Telebras will use the municipalnetworks and offer access in cities where broadbandis not widely available.

An example is the state of Sao Paulo which hasexempted broadband from sales tax for the last twoyears but in August 2011, the State announced that acomplete mapping of the investment by operators

would be made, including capacity and locations

covered. From this, the department will mount apublic investment plan for municipalities not covered.

The goal is to ensure that in the next two years, allmunicipalities of less than ten thousand inhabitants inurban areas have broadband access this is expectedto be about 230 cities. Where current operatorsindicate they are unlikely to cover these cities withintwo years, the state will offer finance and taxincentives to other operators to ensure that access isprovided.

The State of Paran has been taking a different

approach to improving connectivity for its citizens,using the state energy company, Copel34, as itsprimary vehicle for this. The Paran State Plan forBroadband was adopted in August 2010 and inFebruary 2011, Copel announced that it would use its17 000 km fibre optic network to provide 100Mbpsbroadband connections. With an investment of R100million, the company plans to ensure 100% coverage

34 Companhia Paranaense de Energia


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of all municipalities by 2012. Paran State is allowingCopel to defer its tax payments in return for a)ensuring the wholesale 1Mbps price is R230 or less, b)reserving 15% of capacity for low-income groupspaying R15/month or less, and c) reserving another15% of capacity for services at R30 per month. Inaddition a 10:1 maximum contention ratio is specified

by the state.

The State of Cear is also amongst the most advancedin its efforts to ensure broadband access for itscitizens. In 2008, the state government decided tocreate its own fibre optic and WiMax infrastructure,

with the aim of providing broadband access in major

cities. Coverage of 92% of the population wasexpected by July 2011. Known as the Cear DigitalBelt35 (CDC), with an investment of R65m, a ring of2500 km of fibre has been established linking all 56metropolitan areas. Free access is provided to allpublic institutions in the state.

At the city level, the mountain municipality of Canelawith about 40 000 inhabitants near Porto Alegre hasbecome a digital city role model. In March 2011Canela planned to open a 1 Gbps network, developedin partnership between city and federal governmentsand private enterprise. The network has beenestablished mostly with support from the privatesector in provision of infrastructure.

35 Cinturo Digital do Cear


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4. Lessons LearnedWhen the Cardoso government promoted theprivatisation of the telecommunications sector inBrazil in 1998, the promise was that increasedcompetition would bring down prices. While theextension of services has reached most areas for

voice, prices have remained relatively high, and theavailability of new services such as broadband hasbeen slower and more costly than expected. Inaddition the telecom sector has become moreconcentrated among fewer dominant players whichare mostly owned by foreign operators. The PNBL isclearly responding to this market environment, aimingto reduce costs, increase coverage and support localBrazilian industry.

It is notable that the PNBL did not come out ofnowhere, and builds on much prior experience,

including in sector regulation. However mostinitiatives concentrated on public access facilities(telecentres), e-applications development and low costaccess equipmentopen source, locally manufactureddesktop computers. Since then the environment hasmoved on, broadband has become a priority, localapplications development has continued to take placeand access devices have switched to laptops,smartphone and tablets which are a once-off cost andbecoming increasingly affordable. As a result loweringbroadband costs and improving performance isrightly seen as the key priority to achieve digital

inclusion and leverage the benefits of ICTs fordevelopment.

The operators' mixed reactions to the PNBL hashighlighted the continuing tension between publicand private sectors, and between the dominant playersand the small ones, in defining the best way forward.

The technical and market complexity of Internetprovision generally, and in Brazil in particular, has nothelped either side to identify a clear collaborativestrategy, and as elsewhere in the world, this is anongoing area of debate.

The discussion over the role of the public versus theprivate sector is also taking place within differentparts of the federal government. Subsequent to theannouncement of the PNBL, which was largelydeveloped by the Ministry of Planning, some otherparts of government have indicated that they are notentirely in agreement with the strategy, and similarlyto the private operators, have indicated theirpreference for a model focussing on subsidising the

cost of providing connections to those who cannotafford current market rates.

In any event, the proof is in the pudding' and itremains to be seen how effective Telebras will be in

competing with the private sector to drive downprices and extend the range of services. However italready seems that simply the threat of this type ofinitiative has already caused the private operators torespond by lowering prices and increasing theircoverage targets.

In Brazil, as in China, the role of the state is notablein equipment development and the efforts of thegovernment to support local manufacture ofequipment are extensive, ranging from R&D support,tax breaks and import barriers for foreign equipment.

The effectiveness of import barriers is as yet unclear,but currently the cost of much of the consumerequipment available in Brazil is higher than it is inEurope or North America. This has also resulted in asmall but significant grey market in ICT goods, eitherbought from tourists, or while travelling abroad, andsometimes even smuggled in.

Among the other key issues that the initiatives takingplace in Brazil have drawn attention to so far are:

The setting of performance targets for thequality of broadband services under thePNBL has highlighted discussion of therelative importance of speed versus trafficlimitations. Many have said that with lowmonthly traffic caps, access to higherbroadband speeds is largely meaningless.

Price target setting needs to be able to takeinto account bundled service offerings whichcan extend the basic broadband service todouble and triple-play, where TV and voiceservices may be part of the broadbandpackage. In fixed line ADSL services, thebundling of voice telephony subscriptions isalso very common, but increasingly unneededdue to the availability of mobile telephony.

If the setup cost for the access equipment(modem and terminal device) is not takeninto account, and remains at market -relatedprices, the lowest income-groups will likelyfind the cost of entry unaffordable. Some


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operators have initially responded by makinga USB modem free if a contract is signed, butthis is not guaranteed to continue indefinitely.

Brazil's experience also show that tensionsbetween broadcast and telecom sectors, andbetween fixed and mobile sectors needs to be

anticipated. The broadcast sector will resistopening up to telecom operators and thesubsequent debate over network neutralitycan slow down implementation of effectivesolutions.

Technically, the debate over the ability ofmobile operators to service the demand forhigh speed broadband (>5Mbps) continues.Clearly, in developing and emerging markets

where the penetration of fixed infrastructureis low, mobile wireless will have a vital role to

play for some time to come. But even inthese markets, notwithstanding the lack ofexperience with LTE, fixed-line infrastructure

fibre to the home in particular, may well bethe ultimate evolutionary path to cope withexploding demand for capacity.

The consolidation of fixed, TV and mobileoperators in single integrated companiesoffering triple- and quad-play services is alsotaking place around world trend, improvingoperator profitability with economies ofscale, streamlined management and betteroptimization of investments. Demand forbroadband is also an accelerator of thisprocess in the mobile sector - with 3/4Gmobile broadband, the only way to scaleservices sufficiently is to use fibre in thebackhaul transmission to connect cell sites.

These conclusions seem to be gaining wideracceptance as underlined by the merger ofEmbratel and Claro, the purchase of GVT by

Vivendi and the efforts of Telefonica to buyPortugal Telecom's share in Vivo. A similardynamic is also evident between the

broadband and TV broadcasting sectors.

Fiscal measures such as tax exemptions forequipment and broadband services are a keyplank in Brazil's broadband strategy, but donot seem to be as well recognised elsewhere.Brazil's approach is particularly innovative inthat it proposes to exempt operators whoreduce the cost of their offerings by asignificant margin. In a federal system such as

Brazil, the variation in the extent ofexemptions underscores the need for buy-inat each level of government.

Top-level support from government has beenobserved as a key feature of many of themore successful national broadband plans,

and Brazil is no exception. The PNBL wasdevised under the previous President Lula'sclose leadership and reaffirmed by thecurrent President Rousseff, who said, in herfirst public address to the nation followingher taking of office earlier this year, that theimplementation of the PNBL would beaccelerated. At the other end of thespectrum, the efforts of a number ofmunicipal governments to supportbroadband development, and even providefree broadband services, are noteworthy,

highlighting the important role of municipalgovernments in provision of broadband as autility, just like water, electricity andsanitation. Finally, the variation in activitiesof the federal, state and municipalgovernments also calls attention to the needfor all levels of government to co-ordinatetheir efforts to ensure the most effective useof resources and to make affordable highspeed broadband available as quickly aspossible.

The opportunity to massively reduce thecosts of broadband network deployment byensuring access to other complementaryinfrastructure sectorsnamely power andtransport, has not gone unnoticed byBrazilian broadband policy makers - one of

Telebras' first actions was to secure access tothe fibre infrastructure of the petroleum andelectricity distribution networks. Howeverless discussion has so far taken place for thefuture advantages of ensuring that ducts areprovisioned in every new road, and ensuringsmooth and low cost access to rights of way

for fibre cable.

In making additional radio spectrum availablefor broadband, the tensions with thedominant players, and incumbent mobileoperators in particular, to use control overaccess to spectrum as a way of staving offcompetition, signals the importance offorward planning in spectrum management


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and the need for strong independent policy-making.

In conclusion, although it is early days in the PNBLprogramme, developments over the coming year willbe watched with keen interest by policy makers, civil

society and providers wherever the promotion ofaccess to ICTs has become a national policy issue. Inthis respect the Brazilian experience is and willcontinue to be a valuable one for most othercountries planning broadband strategies.


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5. Annexes5.1 A timeline of events relating to the PNBL

August 2009.The Steering Committee for Digital Inclusion Programmes is formed, which lays the groundworkfor the PNBL.

May 2010.The PNBL is officially announced by Government decree 7.175.

June 2010. Supported by the CGPID, a series of public consultations on the PNBL takes place with civil society,private sector and government officials.

24 Aug 2010. Complementing the 16 State capitals already announced, Telebras publishes the list of the next 100cities that will receive broadband access by end 2010. It said a further 1063 cities are planned for 2011.

November 2010. Padtec, a Campinas based Brazilian equipment supplier, wins Telebras' R68m tender forhardware to support the PNBL roll-out.

A consortium of 29 operators, represented by SindiBrazil, files an objection in the Federal Court in Rio de

Janeiro claiming that Telebras does not hold the power to provide services for the Federal government, andsaying that the use of Telebras as a state company is "anticompetitive". The claim is not upheld.

Anatel approves measures allowing operators to apply their license renewal fees directly toward universal serviceprojects.

The government announces plans to host cloud-based applications in support of the PNBL to make it easier formunicipalities to provide online content.

January 2011.The budget for the PNBL is revisedInitially, R600 million was to be released to Telebras in2010 and R400 million in 2011. Now, Telebrs is to have R316million for 2010 and an additional R273 millionin capital investment in 2011.

Federal development bank, Banco Nacional de Desenvolvimento Economico e Social (BNDES), provides creditlines without collateral requirements to small Internet providers participating in the PNBL.

Telebras is issued with an SCM license and thereby authorised by Anatel to provide services to the last mile.

February 2011.The new Secretariat for Digital Inclusion is inaugurated by the federal Government Ministry ofCommunications.

Fibre optic cable reaches Manaus (the capital of the Amazonas) via Venezuela in a joint project with Brazil tointerconnect the power and fibre networks of the state utilities of Eletrobrs and the Compaia AnnimaNacional Telfonos de Venezuela (CANTV).

Seven Brazilian state governments agree to eliminate state taxes for broadband service provision and tabletcomputers will also be exempt from federal taxes, in line with the existing exemption on PCs and laptops.

April 2011.Telebras announces that it had invested R166m in equipment and services to establish itself as abroadband provider.

May 2011. Telebras reaches agreement with Petrobras and Eletrobras (Furnas, Chesf, Eletrosul and Eletronorte)to use the fibre networks of their energy distribution grids.

Government announces intention to reduce taxes on locally manufactured tablet computers.

June 2011. Government moves to encourage additional private investment in Telebras.


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The 'Broadband is Your Right' campaign is launched by a coalition of civil society groups.

August 2011.The cable TV market is opened to telecom operators and others with foreign-ownership exceeding49%.

After public consultation Anatel releases the proposed revisions to the SCM license which aims to make it easierfor small providers to enter the broadband market.

The Ministry of Communication announces that it plans to ensure that at least 80% of metropolitan areas willhave 4G coverage by 2014 (in time for the FIFA World Cup). To achieve this, tenders for the provision of 4Gare being speeded up and the first set of tenders will be issued in April 2012.

Telebras announces that budget cuts for the PNBL programme this year from R1bn to R350m will delay the rollout but that 250 cities should be covered by end 2011.

Mobile operator Claro announces that it will join the PNBL and is now able to provide a 1Mbps service basedon 3G in 515 cities for R29.90 / month (with a 200Mb/month traffic cap). Claro also said that by the end of2011 the service will be available in 1017 cities.

The city of Santo Antnio do Descoberto in Gois state is the first to see the rollout of PNBL with residentsable to obtain the 1Mbps service.

The Federal government says it will provide tax exemption for the deployment of new telecommunicationnetworks in areas which are not yet served.

Telebras signs a contract with the state of Ceara to use its 740km of it 2500km fibre backbone for the PNBL.

September 2011. Brazilian manufactured tablets become available.

Brazil's government (lower house) agrees to exempt locally manufactured tablets from the federal taxes, which isexpected to reduce tablet price by 30%. The bill now goes to Senate.

Telecom operator GVT, part of the Vivendi Group, announces it will invest U.S.$300500 million to build abackbone network International in partnership with international carriers.Telebras announces that it has signed contracts to supply network infrastructure for more than 20 Internetservice providers and expects to close the year with more than one thousand ISPs registering their interest on theTelebras web site (currently about 600 have register

Broadband in Brazil

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