WVI I WFIF - World Bank...RETURN TO -Report No. WH- 146aREPORTS DSK WVI I F-II 11 lI -s WFIFo tfr This report was prepared for use within the Bank and its affiliated organizations.

RETURN TO - Report No. WH- 146a

REPORTS DSKWVI I F-II 11 l

I -s WFIFo tfr

This report was prepared for use within the Bank and its affiliated organizations.They do not a,cenpt respo..nsibility for its ,curacry, or complaten,s5, The report may not be published nor may it be quoted as representing their views.

TTT1rPMN'ArTTCV)AT. 'RANK FCR RFCONSTRIICTTC)N ANn TFVT1T .C)PM1XNT

LNTMT'PNNATICNAT DE-PVFT PMFPNT ASSCIC"TATTIN

CURRENT ECONOMIC POSITION

AND PROSPECTS

OF BRAZIL

Volume IV

Tele communications

May 11, 1965

Western Hemisphere Department

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CURRENCY EQUIVALENT

C-urrency Unit = Crzio(,.blr$

FLOATING RATE Quotation:

June 1964 US $1 = 1, 200 CruzeirosApril 1. 1965 US $1 = 1.840 Cruzeiros

Volume IV

Telecommunications

TABLE OF CONTENTSPage No.

SUMMARY i - ii

I, ORGANIZATION 1

Telegraph 1Telephone 1

II. PRINCIPAL PROBLENqS 2

Shortages of Facilities 2Ownership 2Organization of CONTEL and ElERATEL 3Telephone Tariffs 5Telegraoh Tariffs 6

III. TELEPHONE DEVELOPME.NT 7

IV. ERPANSION PLANS 9

.Suhsrihs.r-Fi4ncing of L.ocal TP1 A.nhoNn Sy.StAWrn 9Long-Distance Telephone 11Postal-Telegr'aph Plan 12

V. NTTTIONiTKL PRODUCT ION OF T .ECO.JNICATION KQUITP,>KTP 12

lTT TF TATA TVTAT .-PSrTr1 1 2

R A TITOINTA T 1)

RADIOBRAS 15T ALC.ALE 1

Western 16

VII. CONCLUSIONS AND RECOPMNDXTIONS 16

Strengthening of CONTEL 16Es1 LK2U^bls"jient of "'LWPTT 17~ _

Purchase of Companhia Telefonica Brasileira 17Transfer of P&TTlco,,uriainssrtin; 1Local Telephone Development Program 18£i' hII U n 'Id i.eUI 4UIL - ---I1 L'--.2yUt1 I UIntegrnati.*or nalk iTelecmuiain Cones iona -'OInternational Telecom_ _unications Concession __0r Fia n ci R ne quirement,s I or Program

(without External Financing) 20Financial Rtequirements for Program

(with External Financing) 22Comparison with Government's 'Action Program 23

Ijap of Proposed National Telecommunications Plan

Volure Dv

le:..ecoirunications

Sunra ry

1. The lag in telecommunications tariffs behind the general pricelevel has caused a progressive worsening in the financial position of theindustry and a stagnation of telecommunication development. The networkis today inadequiate as to coverage, capacity and quality. There areabout 1,200,000 telephones in Brazil and nearly an equal number of appli-cants for service, Some have been waiting as much as ten years. In mostcities several attempts are frequently required to obtain a call and some-times it is impossible to get the connection at all. Except on a fewmajor routes, long-distance facilities are grossly inadequate and subjectto noise and interruptions, These failings handicap Brazilts economy andimmediate attention should be given to resolving the problem.

2, The National Telecommun-cations Council, created for the deve'lop-ment, coordination and regulation of telecommunications on a national scale,should be strengthened through the addition of permanent technical staffassisted by a few experts from abroad. A policy should be established asto the take-over of the concessionaire companies providing national tele-phone service and action under suchr policy should be taken as quickly aspossible.

3. The level of telenhione tariffs is verv distant from reauirements.For example, in Rio de Janeiro and Sao Paulo a residence telephone withunlimited service has a monthlv rental approximating only- one U.S. dollar,In Curitiba the residence rate is about 40 U.S. cents for 130 calls arrnnth- Thp nhanrg for n loncnl ca11 from n noin hny is generallv qholt, ones

U.S. cent and in some instances less. If adequate service is to be pro.-viPed and the derand for service met wthout mjorcapital contribution.sfrom the subscribers or resort to government subsidies, local telephonetariffs .Julst in c e-i ne, r be incre-rsed Seir,erMll hu1 n vored pler "ent. - v,ncdistance tariffs, although they will als re'14i?e substantial incrc<31a4re not. sn mcih uiii-. nf lirne with the cofsts- of nm-rHiAnr cyn,r o-rNrinc, :qqurban rates.

4. Equipment and material requirements for the expansion of locaLcA fflfn,,c c'w,r,on 'kr h 1-,1 ma -4

4- 1.i-y ma - In - ..,+4n-,n i-inrOn.r-n

manufacturers whose plants are operating at a fraction of capacity. Theneeds for the propo-edA longAistance Seleconamnsystem howeverwill have to be largely imported, at leas-t during the next five years.

5. This long-distance syster-m is to comprise a microwave radiolukxou rk rc thI eing 4 icp cities of. the nionbUll. A- governm]er

agency, the Empresa Brasileira de Telecomunicacoes, is to 'build the net-work but has not vet been or-ganized. In -the detailed planning of theproject a determination should be made as to the route sections clearlyhaving sufficient traffic to jusifiiy the investment and on this basis a

construction program established. Then detailed engineering should becarried out. Technical assistance from abroad is desirable in connectionwith this planning and engineering. Because of the time entailed in suchprelirinarv work. the mission exnects that most of the expenditure on thisproject will not start until after 1965 and 1966. However, preliminarywork should be started at once by the organization of the :.Tmpresa Brasi:leirade Telecomunicacoes.

6. The conclusions of the Ivlission's review of the telecommunicat:ionsindustrv plans mand n-rvnctions, included in the August 196) Program orfAction, are given at the end of Chapter VII and in Annex 4 of Volume I.

Volturie IV

Telecormunications

I. Organization

Telegraph

1. The principal teleg:raph network serving the public is ownedand operated by the Federal GTovernment through the Department of Postsand Telegraphs. The system comprises an extensive land-line network suppl.e-mrented hv high-frequency radio installatiAnis to li nk the more distant nraiorcities. Somie of these radio links provide public radio-telephone serviceas well as telegraph. The Thenr+.mPnt. of Posts and TPl or_nhis also 1opra1tesa national Telex service with installations in the major cities. Railroadtelegraph systemr s and m rcivarte companies supplement the Po sts and Telegraphssystem in some areas. 1i4ost of the international telegraph service ishandled by private compan-es

20 Apr -;t'y /of Brazis teehoe aelca;d nte m.oreL 0 1~4Jj1 UZ..L~Ui L.0..~y I u --- J.)I _L± _L U i JlU10 ~1- 0 LV%U UUU ±11 UII l1 '

populated states of Sao Paulo., Guanabara ard Rio de Janeiro. The CompanhliaTe.Lefonica Brasileira, whichi0 -Ls owned uy U:te Brazilian Trac Uion Lh1U ancl

Power Co. Ltd., operates the principal telephone system in this area. In41 _.- _. _ - _ _- _ ____ -1 _. _._ _:_ _ ~ _ n _1 _ _ _:1 - 4_ _ _i_n -- L_ 5_T._

tvo a'dacent statues pr Viat a ou JpanIes albo proviUe a-lmIost all with tUlephoUe

service, these being the Conpanhia Telefonica de lHinas Gerais and theCorpanhia Teief'onica do Estado do Espirito Santo, both controlled by bhe

Companhia Telefonica Brasileira.

3. In the State of Parana the major system is that of the CompanhiaTelefonica Wacional, subsidiary of the International Telephone and TelegrapnCorporation. In the State of Rio Grande do Sul the form;er ITT-ownedtelephone system is the property of the State of Rio Grande do Sul follow-ing expropri.ation in 1962.

In a number of the cities and towns of those states previouslymentioned, as well as in those of the rest of the nation, the telephonesystems are largely owned by either the municipality or jointly by the sub-scribers and mriunicipality.

5, Through the Companhia Urbanizadora Nova Capital (NOVACAP), theorganization charged with the construction of the capital city of Brasilia,the Federal Government operates the public telephone system within Brasiliaand a microwave system linking Brasilia with Belo Horizonte and Rio deJaneiro.

6. By means of high-frequency radio installations, the CompanihiaRadio Internacional do Brasil (RADIONAL), an ITT subsidiary, provides tele-phone connection between the telephone system serving the city of Rio deJaneiro and the more distant state capitals, The Posts and Telegraphs

- 2 -

Departnent operates high-frequency radio links fromr tiio de Janeiro andBrasilia to a number of the nore important cities. Those from Rio deJaneiro parallel those of RADIONALI

II. Principal Problems

Shortage of Facilities

7. The nrincinal nroblem is the shortage of local and long-distancetelephone facilities', There are approximately 1,200,000 telephones inBrazil. Though accurate lists are not available, the number of apDlicantsfor service is about the same figure. Some persons have been waiting asmim .h as ten years for servinp_ This lack of telephone linps and PcYhqangeequipment is general throughout the nation.

8. Existing facilities, both local and long-distance, are seriouslyovrloaded.e Tn .t.t cit+Aies sevral attmpt are fPrqn,n+.lir reaniA red to

obtain a local call and sometimes it is impossible to get the call throughat all. This represents a serious h.andicap to governm.ental, Co.MWerc n1_and industrial operations. Sinice in the cities of Rio de Janeiro and SaoPauloI no -JVI equipe J. . *AQ2a u..L,llion are ln pr.1 oJf .I -I JOaa V4i.n,

this situation may be expected to worsen during at least the next two years.

9, Except on a few major routes such as Rio de Janeiro - Belo Horizonte-'1 ol da s-; 1 L.LL ' 't- U de: .Janilt:XlQ-zqQra - Soo1 P_-ulo - "DnLls Ulon-Udisac telephoneUsiIfacilities throughout the nation are grossly inadequate in quantity andcoverage. ThMe Sorte CdistEant cities' only connection to the BrasiLiaL - rLo Ude

Janeiro - Sao Paulo main trunk system is by means of high-frequency radio ofgenerallyy only one or two Lelephone channels capacity and subject to noise,fading and interruptions inherent in this means of communication.

Ownership

10. For many years past, the regulatory authorities have not allowedthe return essential for the operation and normal expansion of the publictelephone service in Brazil. lfith tariffs which could only be increasedunder authorizations from politically-minded officials, Brazil's long-continued violent inflation made it a problem for the telephone entitiesto meet their payroll, let alone provide anything towards expansion or toattract investment capital. There resulted a gradual degradation of ser-vice and mounting numbers of applicants unable to obtain installation of atelephone. The consequent exasperations wade more pronounced the notsurprising demand for national ownership. In 1962 the foreign-owned telephonesystem serving the State of Rio Grande do Sul was expropriated by that s-tate.In the same year and continuing to date, intervention was established bythe Federal Government in the Companhia Telefonica Brasileira, which com--pany furnishes about 75% of the nation's telephone service. Because ofthis background, it would be an illusion to envisage a major expansion oitelephone facilities until the question of nationalization has been resolved.

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Organization of cOTEL and EK,BR_APEL

ll. There are hundreds of telephone entities in Brazi.l. Someserve a single municipal area. others a number of municipalities, someextend over large areas within the same state and one crosses stateboundaries. In accordance with their particular iurisdiction. concessicnsto operate are granted by Municipal, State and Federal Government. Unti.lrecentlyv little atternt was rade towards cenrdination and uniformity ofapproach in the granting and supervision of these concessions.

12. On August 27, 1962, by means of Law No, 4117, a new TelecormurLi-cations Code wps est.bi shedv TheC ode reserves to the Fedrarl r7ovPrr-mntthe exclusive right to maintain and directly operate:

(a) the National Telecommunications System, including its inter-national connections, (The N national Telecomnnications Systemis a proposed project to provide a rain, high-capacity, long-,7 ;t nea te1 e nho r c r-+ nw. r_n.,r,+ + Inn no ,,n4o; 1 n4 +; o P-m'J_. J U~.LV±,IJta ') wisw tJ,I '.iJi i); v J.Ub11

5WV±1A., V~ | X16. IJLS.LJ ._1&± Jl Aw

Porto Alegre in the south to Belem in the north, together witha U-l1i.-,y and feeder links,)

save certain exceptlo c'ns specified in the Code including radioUroadcasting d IIU _LI1LVfI1 at±UrLIiL bseriVc.Lt

13_;l D1it The Coeu pruv±uUes riJong ouiiter urtings, T01 Une creati.on of. aNational Telecommunications Council, reporting to the President of theRep-ublic, principally to:

(a) work out the National Telecommunications Plan and revise it atleast every five years;

(b) promote, direct and coordinate the development of telecommunica-tions;

(c) adopt measures to assure the continuity of telecommunicationservices where the concessions, licenses or permits have not beenrenewed or have been cancelled;

(d) supervise the performance of concession obligations;

(e) control concessions, licenses and permits in force; pronounceupon their renewal and propose the declaration of their obso-lescence and proscription;

(f) provide guidance to Brazilian delegations to internationaltelecommunication conferences;

(g) establish a standard telecornunication accounting system;

(h) promote and supervise the inventorying of assets and specializedaccounting techniques of concessionaire and/or licensee firms oftelecommunication services, including Brazilian branches of foreigncorporations, with a view to ascertaining the effective investmentsand the operating costs;

(i) submit for Presidential approval the amount of taxes to be paicd byconcessionaire telecorrunication companies;

(j) promote and stimulate the development of industries manufacturi.ngtelecommunication equipment, giving preference to those in whichthe greater part of the capital belongs to Brazilian shareholders;

(k) establish or approve technical standards and specifications to beobserved in the planning of the industrial production and in th.emanufacture of parts and equipment used in telecommunicationservices;

(1) grant or renew permits and licenses for broadcasting of a localnature and pronounce upon the granting and extension of concessionsand licenses;

(m) establish standards aiid rates for the redistribution of trafficln connectior with traffic intrc-hanged amro ng telerornrmunicationcompanies throughout, the country;

(n) issue licenses for the operation of radio communication and

v-Q i Qr ntni-+; -ri er,.no.: ^-P niiol IPi r n~+i mm +r, nr)nYn+rm +.al at-^rry i e; on +.i nn

(~ isuecerti-icates of qualifiction tooeaetelecor-~uni-a tioservices;

(p) supervise the performance of radio broadcasting stations and impose-. L'-5pna lties;

app.rove thek c ifir c ri ons; o f +te lephone in eplited uaA rlndrer a

state or municipal concession.

14e The Code provides for the creation of an agency, EmpresaBrasileira de Telecomunicacoes (EMBRATEL), to own and opera-be the NationalTelecommunications System. It provides that the President of that agencyshall be a member of the Mational Telecommunications Council (CONTEL) and,subject to Executive Decree, provides for the transfer to the agency of thetelecommunications operations of the Posts and Telegraphs Department.

15. For the purpose of financing the building of the National Tele--communications System, the Code provides that a National TelecommunicationsFund shall be established through applying for 10 years a surcharge not t;oexceed 30% on any telecor,unication tariff. CONTEL is to determine theapplication and amount of this surcharge.

16. With such great responsibility placed upon CONTEL, the immediatefuture of telecommurications expansion and improvement depends uponCONTEL's success in creating an organization adequate to cope with thetask. It requires a permanent technical staff. It must attract qualifiedprofessional peoplee Being a new organization it r,ust pay highler salariesthan the going rarket rate and provide better than average office facilities,Some outside consultants particularly in the fields of tariffs, publicutility accounting and microwave engineering would seem desirable and stepsshould be taken towards seeking them,

Telephone Tariffs

17. To illustrate the extent to which exchange telephone tariffsrust be raised, a few rates are presented below:

Yionthly Rental Call Charge per Extra CallCr.. US., Allowance Cr. US',.

City of Sas Pauon

Business Line 2-317-10 1o36 100 905L4 0oOO56Residence Line 1908.20 112 Unlimited - -

P,blihr Cojin Box -- - 20,00 0.0118

State of rGuanabara

Business Line 197860 1.05 120 1220 0n00o72Residence Line 1,597,10 0.94 Unlimited - -Th,hblL-. 0^j P -.~ - - in-no0 n.no0~q

Cit+yr olfCurrit-iba

Business Line 1,n06.00 0,8.3 160 6A03 0n0035Residence Line 699,40 0.41 130 6.03 0.0035Public Coin Box - - - 2fl00 0011R

Ci;+y of Po-to Alegre

usi.neiss 3Lirine I,'7O' i-o33 Unlimited - -

Residence line 29 824.00 1.66 Unlimited

18. In the middle of 1964 the average per telephone investment re-quired to build exchange telephone plant came to approxirately Cr. 500,000for medium-sized cities and Cr. 700,COO for large cities. To gen2ralize,at an investment figure of Us8,,40O per telephone and taking annuai deprecia-tion at 4% and cost of money at 6%, USO140 per year or US03.33 per monthwould be requIred for these fixed charges alone. Over and above this wouldbe the cost's for maintenance and operation.

19. To provide another nreans of understanding how distant the ratelevel is from requirements, one can take U.S.A. tariffs as a means of general

comparison. U.S.A. exchange service charges come to US;5 or more permonth for a residence rran line and about double that for a business ±jne.'Nhere a metered rate system has been adopted, a lower free call allowance

is prr dedthanI -iL Ba l U a n d the price pe.r eta I all sL gL e era'y c aos

to US$O0O05 Public coin box calls are generally charged at US,4tO,lO corm-jvre. ~ with thke present cl-rge in Brazil o about U."V'V..lJI. andU L.aequenLu-y less.

20. F~'rom, 4the abv J.,rllain it is clea ta rzii-- eca£ k V~ l.11 dUuvt gI~d~~ L'.LUk 1U ±1.Z ULt:Le.F UI.,kU 1D.EZLLaJ1aL1 tA;1_1

telephone tariffs must be raised several hundred per cent if adequateservice is to be provided and, in the course of the years, the deirand iretwithout major capital contributions from the subscribers or resort togoverriiinmerl s- ub'Usi Uides e-

21. Long--distance telephone tarifis are not adequate but the extentto which they need to be adjusted is not so great as that required forexchange service. On the other hand, a subs-tantial rate increase inthis class of service would lessen the extent that exchange rates needbe increased and hence reduce tne corresponding probiem oI public relations6Two examples of developing countries wihich have increased their telecormuni-cation taiiifs to satisfactory ievels are India and Ethiopia. Botn are em-barked upon substantial telecommunications expansion programs for which.more than 40% of the -financing is provided by self-generated funds, thebalance being from external borrowings.

Telegraph Tariffs

22. Adjustments in the telegraph tariffs for national service havenot kept pace with inflation,, The following table shows the principaltelegraph rates of the Department of Posts and Telegraphs. After a lapseof nearly three years since the previous major rate increase was made,these rateOs were authorized on Aug,ust 12, 1964,

Min.Tariff Iuriber of Tariff for eachper MIessage Words in Extra W-ordCr. IST Min,Yessage Cr. U8t

Type of Message

Urban & IntrastateTelegrams * 200. 0.12 25 15. o.o089

Interstate Telegrams * 1h0. 0.08 7 20. Om0118Night Letter Telegrams 375. 0.22 25 1C. 0,0089Greetings Telegrams

Urban & Intrastate 200. 0.12 - -Interstate 300. 0,18 - --

Official. Telegrams * - - - 15. 0,0089Press and Legislators'

Telegrams * - - - 5. 0.0030

Rate is doubled for "urgent" messages.

f'7- I -

23- Though the greatest operating loss is understood to be in thepostal ser-vices, the inadequacy of charges is reflected in the operatior sof the Posts and Telegraphs Department. Expressed in billions of Cruzeirosand including crenit for ":officiai" services rendered, the financial opera-tions of the Posts and Telegraphs Department are reperted as:

P&T Operating ResultsEstirated

1961 1962 1963 1-964 1965

Gross Expenditures 17.5 29.0 48.8 lo4.3 157.6inlcluding InvestmentEs

Gross Revenues 4.8 6e2 8,0 18,0 42,5

Deficit 12.7 22.8 40.8 86J3 115.1

Ratio of Expenditures toRevenues 3.7 h47 6.1 5,8 3.7

III. Telephone Devel.,pment

2h. The following figures as of January 1; 196L, relate thp telephonedevelopment attained in Brazil with that of selected other nations:

Country Number of' Telephones Per 100 Population

BRAZ IL 1,207,566 1.57A reo+.nt irn 1, 1 0102 nn6 50Chile 235;046 2.83Colomr.bina T7 917 0 Ii,

Portugal 485,177 5.35Tj-,--y ~ ~ ~ ~ ~~AOI.Ac.1 A" iZc,

Venezuela 242,264 2.93

25. Aks of the.sane date the development of certain selected cities

C Ounv J NO^W-,'ber o-L Popu-lationvl Prt: 100and City Telephones Thousands Population

BRA.ZILBelo Ho ')zon1re U"?7 I05 0-)Brasilia 11,057 250 4.4

uctII .P Liict0 - U -) r -' 0 4 '.I au

Curitiba 17n,775 )09 403Pitrto legre 30,904 722 4e3Rio de Janeiro 356,088 3,612 9,9Oanbos 27L4L £00Sao Paulo 232,256 49359 6,5

Country Number of Population Per 100and Ci+ Telehone Th-ousands- D- Ppl+n

Buenos Aires 736,220 3,100 23.7

Cordoba 45,564 589 7 27Rosario 70,200 672 lOeLSanta Fe 17,492 259 6.8

CHILESantiago 137,219 2,437 Valparaiso 14,037 300 4c6

COLOi"iB IA

Bogota 154,222 1,446 10.7

UIRUGUAY

Montevideo 134,965 1,203 1102

260 From the above it appears that, with the exception of Bolivia,Brazil has not done as well as its neighbors in telephone development.

27. P'roviding about three-fourths of the telephone service in Brazil,statistics of the Companhia Telefonica Brasileira are indicative of thecountry as a whole. A record of its development, in recent years stifledby lack of facilities, follows:

Cornpanhia Teleronica Brasileira

Telephones Annual Long-Distance AnnualYear in Service Increase Calls (Thousands) Increase

1951 467,237 0.2% 29,022 3.7%1952 510,430 5io2 32,430 11L71953 546,165 7.0 33,998 4,91954 599,235 9.7 37,168 9.31955 646,733 7.9 40,296 8.41956 677,316 4.7 44,240 9.81957 698,974 3.2 h7,712 7.91958 729,857 IL.h 53.265 11.61959 756,694 3.7 6L,068 20.31960 787,198 4.0 7h.837 16.81961 812,037 3.2 77,491 3.51962 832.067 2.5 83,472 7.71963 844,725 1.5 85,320 2,1

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General Statistics of theCompanhia Telefonimca Brasileira

& Associated Systems at August 30, 1964

Number of telephones in service - CTB 795,3h2Number of lines in service - CTB 518,987Number of telephones in service - CTMG (Minas Gerais) 509280Number of lines in service - CTNIG 34,743Number of telephones in service - OTES (Espirito Santo) 8,261Number of linasin service - CTES 5,760Pending applications for service - CTB 569,h63Pending applications for service - CTNG 40,731Pending applications for service - CTES 6,857Pending applications for service in City of Rio

de Janeiro 213,054Pending applications for service in City of

Sao Paulo 270,093Approximate population in area served by CTB 20,977,2h0Approximate population in area served by CTMG :10,276,500Approximate population in area served by CTES 1,263,000Number of exchange lines of manual service of CTB

to be changed to automatic 59,586Number of toll circuits of CTB 3,h76Number of kilometers of toll circuits of CTB 420,000

IV. Exuansion Plans

Subscriber-Financing of Local Telenhone Svstems

28= Tow telephone rat.es have Tne it irrnosibh1e to generate orattract capital for the necessary facilities. Therefore throughoutBr-m,zil suiich evnn-nqir%n as is- hei c, rieng ve isq a1lmost. PntI_rely be)pingy financedby the applicants for service. Under this system of "subscriber-financing"the anplicant nays installments duaring the couirse of Tanuifqcture and installa-tion approximately equal to the estimated cost per line of the projectedexpansinn nrogram. Tn view of the rnira past rises in costs the nationa1equipment manufacturers are unable to quote firm prices. Their sales

rr+.r>o-i- iniri -nn Pczcni1,q+.r%r in +.ipr 1 +.n nffini'il nrir-c inrlitpsBecause national manufacturers must currently pay interest rates of at least

4n pr mont-n-h forvr loa borrowing t,TIv~ heyr vir,vit+ nvro.n even s~hort-term P-i nn

ing for these programs. It is usual that during the period of manufactureand installation, whilch for large projects runs to about taee years, a costincrease of one or more times the original estimate takes place. Upwardad,justr.ents aecrepnngyscesvl ael h ot flsalment payments required from the future subscribers. Arrangements are workedout w.ithi eacha -ml *Itunicipal.ty t +C -LorJ authorities autho lze

the application of a surcharge on the tariff of existing subscribers, the

Such procedure facilitates the operation and provides some cushion for errorsin1 estirLating and price rises.

- 10 -

29. In most cases the new subscribers receive shares or debenturesin the concessiornaire organization, In nfher cases however the subscriberh spayment constitutes a non-earning capital contribution returnable in theevent the subscriber subsequently glves up service.

3°e As a resul+ of such arrangevnents a n,,rber of exchange expansion

projects are in course of negotiation or under execution. Among these, thefolloTng more .iport-n+ ones Mve come to our l..owl e6de

31. Sao Paulo. This is t ro ide for appr linesover a peri.od of three to three and a half years. Bids have been obtainedfrom rnational suppliers but the award has not yet been inade.

32. Porvo ^vlegre. In course of national rin-uala-c'ure are \4OO lnePor'oLU -±egre. il UI J.L i bU-Id 111J.c i iu.L uesfor additions and 10,000 lines for equipment replacements in Porto Alegreplus 2£3 U'U llnes Ior smlal cities in the r tie oua Le oI Rio Grand.e dUO SUl. Thaeinstallations in the small cities are scheduled to go into operation ini965 and thlose of Porto Alegre in l9660

33. The tariffs for exchange telephone service in Porto Alegre, thoughinsufficient in amount, are appreciably higher than those in force in othermajor Brazilian cities and hence provide some contribution towards thefinancial requirements for expansion and improvement of facilities. Anothersource of flnancing is from the portion of the Rio Grande do Sul state taxon electric: power which is assigned to telecommunication, this allocationbeing estimated at Cr. 1 billion in 1964 and Cr. 14 billion in 1965.

34. State of Guanabara (City of Rio de Janeiro), In the area compris-ing the outlying suburbs of Rio de Janeiro a company called CETEL has beenformed, ovwned h9, by prospective subscribers and 51% by the State of Guana-bara. Orders for 14,000 lines of equipment have been placed with a nati.on2lRanufacturer. Service is scheduled to commence about April 1965

35. Negotiations are uncder way which should lead to a subscriber-financed plan for the expansion of telephone facilities in the city proper.

36. Belo Horizonte. There is a program for rraking a 30,000-line ex-pansion and a public licitation for the supply of equipment is expected tobe called in the near future.

37. Brasilia. There are 11,000 lines of equipment in service andan extension of 3,000 lines is in course of installation. An order for10,000 additional lines has been placed but scheduling of ranufacture isawaiting construction of the building required to house the equipment.

38. Curitiba. The Companhia Telefonica Nacional, subsidiary of theInternational Telephone and Telegraph Corporation (ITT). provides theprincipal long-distance and local telephone service in the State of Paranaincluding that of Curitiba, the larges-t and capital city. In the south--western portion of the state, some 15 tow-lns are served by the Telefonica.Sul Paranaense S.A. (TELESUL).

39. Following a long history of inadequate rates, in October 1964ITTL. miade an offter to0 sIell lts50 t-e;-lephoune, system in Paa, o-eSate o,3Parana, the proposal including the manufacture and installation of 30,000aLV_L Ltional lifnes of automatic exchiaringe .e(u.iprl en t his addi UL,UI1 LU Ub

subscriber financed, Some resolution of this negotiation would seeminecessary before effective auvances can be made on tne pr(-iiUi1 VI uthe

much needed new facilitiass

Long-Distance Telephone

4O0 To the extent the limited funds of the private comnpanies permit,with limited help in some instances by State or iunicipal appropriations,a very restricted amount of long-distance telephone development is beingundertaken by the various telephone operating organizations: The Departmentof Posts and Telegraphs under its Postal-Telegraph Plan is slowly extendingits network incorporating in it a few long-haul telephone circuits.

41 However, the princ:ipal long-distance telecormunic3tion expansLonprogram is that provided for under the Brazilian Telecommunications Code(Law 4117) and corresponding general regulations (Decree No. 52026).Under this legislation an interstate telecommunication system interconnect--ing the major cities is to be established, The new system., to be calle(dthe National Telecommunications Systemn is to be owned and operated byF1VBRATEL, a federal government-owned agency to be formed unlder the guidanceof the National Communications Council (CONTEL). A tariff surclharge nolt toexceed 30% is to be fixed by COMTEL and applied on telecommunicationtariffs, including telegraph, for a period of up to 10 years for the purposeof creating funds for building this interstate telecormmunications systena.

420 T"his National Telecommiunications System, as now planned, is avery ambitious project whose cost would, as presented under Decree No,52859 of November 13, 1963.. exceed US$100 million. It is to comprisea high-capacity microwave system of about 960 telephone channels plus abroad-band channel for television networks. Supplementing this main back -bone network, auxiliary high-frequency radio links and feeder routes tocomplement the system are envisaged under the plan. The back-bone micro-wave syTstem would aggregate some 15,000 Icilometers.

43. Because of cost, organization and the obstacles inherent insirultaneous engineering and building over the vast distances involved,it would seem more realistic to select the links clearly having suffici->ent traffic to justify the new investment and to plan for shorter periods,proceeding bv stages as exnerience is gained. TJnder such a reduced programexpenditures of the equivalent of some US$;24 million during the first five-year neriod woulld seem a reasonahle objective_ Proceeding on such astep-by-step basis would permit a larger share of equipment requirementsto be nrovided by domestic manuifacturers and a onsequePnt overall red7rc--tion in foreign exchange requirements.

-1' -

Postal-Telegraph Plan

44. Dating from as far back as 1945 a general expansion and moderniza-tion program was araw-n up with outside technicai assistance by the Post.sand Telegraphs Department 0 This Postal-Telegraph Plan was modified andbrought up to date from time to time in the succeeding years as work slowlyprogressed in accordance withl the budgetary appropriations made for itsexecution.

45. As now presented it provides in the telecommunications sectorgenerally the following:

(a) A system of high-frequency radio links from both Rio de Janeiroand Brasilia to the principal cities of Brazil. Between certainof the cities direct connections by high-frequency radio arecovered by the plan as well as some connections by land line andsuper-imposed carrier equipment. Certain of the high-frequencyradio circuits have telephone as well as telegraph channels.

(b) A land-line network from the Uruguayan border in the south,generally along the coast northwards and westwards around toBelern, including branch routes to the interior.

(c) A Telex system with switching facilities in some 3L cities.

46. Work has proceeded on all phases of this plan, the concentrationof effort having been for facilities serving the new capital and the largercities,

V. National Production of Telecommunication EquiDment

L7. There are four telecormunication factories in Brazil. allforeign-owned:

ATE - Telefones Automaticos do BrasilEricsson do Brasil Comnercio e Industria S.A.Siemens do Brasil Cia. de ElectricidadStandard Electri=ca S.A.

h8. ATE - Telefones Automaticos do Brasil and Siemens do Brasilare located in Sao Paulo; Ericsson do Brasil some 90 kilometers from SaoPRaul towards Rin c.e Janeiro and Standard EThentrica in the outskirts ofRio de Janeiro.

490 The principal items of telecommunication equipment producedn.ation.ally aro eolephone instruients, na.anual priv.ate branch exchanges,automatic private branch exchanges, switching equipment for telephone andTelex exchanges of Crossbar and other types, crrier telephon.e systems,short-wave transmitter and receivers and cable terminal boxes0 The totaLcand-tel o switc hi equoipent far exceeds rqitemlepnone instorementsand telephone switching equipm.ent far exceeds requirements. For exaimple,

just Standard Electrica and Eiricsson can together produce more than 160 000telephones annually and nearly that number of lines of switching equipmInt.This production can be increased by adding shifts.

q0. The foreign or imported content of the switching equipment is ofthe order of 15% and somewhat less for telephones.

51. The foreign or imported content of transmission equipment issomewhat higher, depending on the period that the particular item has beenin production nationally. Usually commencing with about 6',% importedcornponent, it is gener.ally possible over a period of about four years toincrease the extent of national manufacture so that only about 15% needbe imported.

52n The broad-bandy high-capacity microwave system proposed for theNational Telecommunications System is not yet produced in the country.For its production it is estimated that imports of nearly UJS,2;2 million offactory tools, machinery and test equipment would be required. In con-sidering national manufacture of this equipment, care should be taken toavoid a duplication of the situation which exists as regards national manu-facture of local telephone switching equipment, that is, excess productioncapacity.

VI. International Service

53. 'The principal public international telecomzmunication servicesare provided by the following four foreign-owned companies:

Companhia Radio Internacional do Brasil (RADION.AL)Companhia Padioteleprafica Brasileira (R.ADIOBTAS)Servizi Cablografici Radiotelegrafici e

Radioelettrici SPA (TTAlCABLE)

The W,1estern Telegraph Comnany, Limited

54. On the whole these companies are well organized and efficientLyruin, They nrnovidle hiigh-n-iilitv inter-national tel egranh and Telex service.

The quality of the international telephone service rendered is not satis-factory owing to the ilnherent liritattions of high-frenqnen-y radio equipmenttwhich, until the recent development of repeatered deep-sea telephone cablesand the prospect of public -o.Mrniratin by satellite, was the only prac-ticable means for such overseas comrunication. It would seem advantageousto Brazil +t_o contnue with these organlzations as the prl ncil means of

public international telecommunication service, granting such concessionand tariff treat-ment as would assure that the concessionaires invest in thehigher-capacity and higher-quality facilities now becoming available,

55. A summary of the operations of each of the four companies follows,

Companhia Radio Internacional do Brasil (RADIONAL)

56. With headquarters at Av. Rio Branco 99, Rio de Janeiro, RADIONALprovides public international telephone, telegraph and Telex service bymeans of high-frequency radio equipment installations located near Rio deJaneiro, Radio installat;ions in the principal cities of Brazil plusconnection to the Posts and 'lelegraplstelegraph network and to the localtelephone systems provide it the means for handling international traffic toor from interior cities. In addition, RADIONAL provides domestic radiotelephone service between the state capitals and Rio de Janeiro.

57. On the basis of gross revenues, the distribution of its businessis approximately as follows:

International telegranh h2%International telephone 24%Tnternational Telex 19%Domestic telephone 15%

58. Expiration dates of' its concessions are:

Service Rendered Expirat;ion Date

Domestic Radio-telephone August 4, 1969Intern-atioal Telephone November 28, 1Q71International Telegraph &

Te-lex Spebr1,17

r_ 'a , TnAAA Th- - . 1 DA n TAT v-4A 1 flO AA-es PoA-,- A,) .7. J' t Dec mbe L, I L 7J, ±~~Si2L ILC&Q J 4)"4 _ .-

national operations and 290 for domestic telephone service<, Gross revenuesin the same -year amtountted to Cr. 3,270 mU,illion from interna,c.tional serviceand Cr. 57[4 million from national telephone service.

60. In the immediately ensuing years, it plans to make noderateincrease in1- th_Vune cfitratoa2 "'' e eLlul Ult: t:; _1i WMtC IiWIIUl- Ul1 U11CLdU_U11ldX b1111C d;LU 1st _L, il121b._

the additional facilities to be financed out of earnings. Because ofthe e3rl-y concession expiration date for dorI) estic tele oir) service nfd

because domestic telephone service has been operated at a :Loss since1960, no increase in dorestic telephone facilities is planned. Inadequacyof tariffs and past government inattention to applications for increasesto offset rising costs have resulted in RAwIOuNJAL being unable to financerequirements for expansion and modernization of the domestic telephonefacilities.

61. The International Telephone & Telegraph Corporation, owner ofRADIONAL and other telecommunication operating properties in South America,has a project for laying a submarine telephone cable from -the Canal Zone toValparaiso and from Buenos Aires to Rio de Janeiro, with overland inter-connection0 This project is in a very preliminary stage and subject toobtaining the necessary authorizations from the several governments concerned.

Ccmpanhia Padiotelegrafica Brasileira (RADIOBRAS)

62. 14ith headquarters at Av, Rio Branco 277, Rio de J'aneiro,RADI0BRI O provides p-ublic inter-nationlal telegraph, Telex an,d telepho_neservice by means of high-frequency radio installations located near Riode Janeiro. Its offices in Santos, Sao Paulo and Rio de Janeiro connectto the transmitter and receiver station by means of circuits leased fromthe Comparlhia Telefonica Brasileira, in Recife it has a radio station f'ortraffic originating or terminating there, which traffic is routed via themain Rio de Janeiro installations9 Like the other international carriers3it interconnects with the Posts & Telegraphs System.

63. On the basis of gross revenues, the distribution of its businessis approximately as follows:

International telegraph 43%International Telex 52%International telephone 4%International telephoto 1%

64. The radio-telegraph concession of RADIOBRAS expires in 1966 andthat for radic,-{elep'none in 1974.

65. At Deccir.ber 31, 1963, RADIOBRAS had approximately- 700 employees 0Its gross operating revenues in the year amounted to Cr. 2,168 million.

66. A moderate increase in telegraDh and Telex channels wascarried out; in 196b0 In the next year or two approxirately- two more tele-phone channels may be added. This expansion is to be financed out of earn-ings.

Servizi Cablografici Radiotelegrafici e Padioelettrici S.P,A. (ITALCABLE)

67. Tfith its Brazilian branch headquarters at Av. Rio Branco 50,Rio de Janeiro. IT.kLC.ABLE of Rome, Italy, provides international telegraphservice by means of its Italy - South America cable system. This systermis supplemented by a Rome - Rio de Janeiro teleprinter channel leased fromRADIOBRAS and, by agreement with the Compagnie des Cables Sudarericains(SUDAN'). interconnection at -Pecife is nade for traffic between France ardits possessions and eastern South America.

68, The service provided by ITALCABLE is mainly international tele-granh-. It is however authorizedr to nrovidle nationa1 tee1grpnh serviGebetween Santos - Sao Paulo - Rio de Janeiro - Recife. It has publicoffi ces in Rio de Janeiron Sao Paulo, Santos and Recife,

69C- T)iDuring the year 1963 it handrled 170,287 interrnational telegram.s(transmitted and received) and 25h,992 national telegrams.

70. At December 31, 1963, it had 529 employees and during the year hado.1--ross operating reT e nu S ofI Cr. 7. millo.

71 Mexaso rg> s lred

- -_L _

The Western Telegraph Company Limited

72, With its Brazilian branch headquarters at Rua de Candelaria 15',a-io du Janeiro, tne Western Telegraph Company oI London, Englana, operatesa submarine telegraph cable f'rom Brazil to Barbados, New York, M14ontevideo,Buenos Aires and London, In addition to international telegraph, intr-a-Brazilian circuits serve Belem, S.3o Luiz, Fortaleza, ?Natal, -.ecife, Maceio,Salvador, Vitoria, Rio de Janeiro, Santos, Sao Paulo, Florianopolis, RioGrande and Porto Alegre. As with the other international carriers trafficis exchanged with the Posts and Telegraphs network0

73. The number of telegranms handled during 1963 was 250,800 forinternational service and 3,726,h02 for national service. The numaber ofemployees at recemnber 31 1963, was 2,472 of which approxiirately 20' wereoccupied on international service and 80%o on national.

74h For national telegrams a uniform tariff for the whole of Brazilis applied, this being Cr. 109 per word for ordinary messages.

75. Gross operating revenues during the year 1S63 amounted toCr0 35411 million.

76. I'here are no expansion plans for the year 196L and immediatelvsubsequent years unless a European consortium should decide to go aheadwith a subnarine cable between Europe and South America, and should obtainthe necessary landing permits. In the event of such additional facilitybeing placed, Western Teleeraph would endeavor to lease channels and thusincrease its international circuits,

VII. on clUsi ons and Pec.orie tA

Strengthening Of OnNTRT.

77. Created under Law No. L117 of Anril 2?; 1902; the Consl;hoNacional de Telecomunicacoes (CONTEL) is a new organization. Its respon.-sibilities include licensing. regulation, standardizatiron supervision andtariff approval for the whole country. Reporting to the President, it rustalso nr omote, direct and roordinate the development of telecom unication.s.It must make and subsequently revise a National Telecommunications Plan.As most telenonmnir-atirAn 1 regulation has in the pa st been don.e on a ranic-pal and state level, there is little background of precedents for CONTEL tobuild upon.

78R Before it can be effective, it must obtain the necessar-y 4cn-

cal staff, paying salaries of such level as to attract qualified people,Outsidle consltants would iye o rea _ asstn a __vv z v VV~~I.VU>_Lk a IJ Vu U| V 1 :5 IYv VLCa-v3L UCtIU:lv vDdi.)H;WWvldl {y 'iI1

the areas of tariff m.aking, public utility accounting and microwave engi-neer-ngo Until further advances are ,ade in this organizationrial matter,CONTTEL will. be unable to perform successfully the very major task for whichit+ was crea.ted

- 17 -

Establishment of EhBRATEL

79. The same Law No. 4117 provides for the establishrient of the EmipresaBrasileira de Telecomunicacoes, a government agency to operate the inter-state telecommunication facilities and, subject to Executive Pecree, to takeover the telecorrmunication operations of the Posts and. Telegraphs Depart;ment.The services rendered by it are to be progressively extended in accordancewith directives issued by CONJTELG

80. Little start can be rade on the building of the proposed NationalTelecommunications System until FBIRATEL has been organizecd. Action onthis should be taken as rapidly as possible. Once created it can serve notonly to build and operate new facilities but could be used as a holdinocompany for such telecommunication companies as may be acquired by theGovernment. for examDle, the Companhia Telefonica Brasileira and the tele-conrmunication installation of NOVACAP (Brasilia telephone systei andBrasilia - Rio de Janeiro microwqve svqtem)_

Purchase of Gomnanhi2 Telefonica ,r2sile-irn

81e Resolution of B3 razil's teleconimunication problems cannot beaccomplished without resolving the problems of the Companhia TelefonicaBrasileira (GTRB) which- with facilities in the states of Guarlnabara ni deJaneiro and Sao Paulo and a majority interest in the Companhia Telefonicade M i Yina sh isanrin +--Co n -parn ia Telefonica do Estado do pSanto, operates approximately 75, of Brazil's telephones. Under Govern-,mntF in ~terventicn, operatinga+ a deficit, with - long hist;ory of Iel

tic tariff treatment by regulatory authorities and following a long pref-vailing atmosphere of nationalizatio, of public utilities, no effectiveaction towards neeting telephone demand can be expected from CTB. Theearlier an understanding is reached on Te ques ion of its nationalizati-n,the better it would seem for all concerned.

82. Since CTB comprises the largest experienced telephone organiza.-tion in Brazil and there is an overall lack of av-aJilable trained telecomil-munication staff to meet the demands of Brazil's expansion program, itseems logical to keep the CID lnUact as a functioning organization usingit as a base for building a larger organization to serve all Brazil.

Transfer of Posts and Telegraphs Telecommnunication Operations

830 Once EMBRATEL has resolved its organizational problems and hasproven itself by the successful operation oI an interstate long-distancetelephone system, only then, should it be burdened with the telecommunicationoperations, mainly telegraph, of the Posts and Telegraphs Department. J:nanticipation of such an eventuality and to avoid duplication of facilities,speciai attention snould be given to naintaining coordination between theexpansion programs of ENBRATEL and of the P&T.

- 18 -

Lccal Telephone Developrent Program

84e In the light of the desperate need for telecomlmuication service,certain municipalities, states and private companies have taken actioinwhich will result in adding telecommunication facilities. Unfortunatelythe regulatory authorities did not see their way, over the years of inf'La-tion, to authorize tariffs such as to generate the capital needed for e,cpan-sion or to provide earnings sufficiently high that investment capital wouldbe attracted. Because the public has become accustoned to unrealisticrates, it -wll take a number of successive increases over a period of yearsbefore the required level c3n be reached,. During this period, the subscriber-financing programs, contemplated or in progress, are expected to be theprincipal source of financing urban telephone expansion programs,

85. During at least the next five-year period the limitation as toadditions of local telephone facilities will be the availability of mone-,not demand 0 Thus any forecast of development to be attained can only bean approximation. On the basis of the existing situation unoer which de-

velopment is being financed largely through subscriber-financed schemes,the mraximum program for local telephone development that might be attainedwould be:

Number of Tele- Cost in Billions ofYear phones added Cruzeiros (At June 1964 Levels)

:L965 5C9000 35.0:L966 75,000 52.51967 100,000 7O001.968 100,000 70.0:L969 100,000 70.0

86c Once tariffs have been brought up to required levels bv reansof successive increases (which in the city of Rio de Janeiro reans atleast quadrunling them), subscriber-financing can be lergel=v sunnlantedby customray financing procedures; -that is, financing of expansion couldthen be provided from operations and long-term borrowrings. This wouldpermit an increase in the maximum program attainable and an earlier reduc-tion in the back-log of pendinr anplications for service. Assuming that,tariffs could be brought up to the required levels by early 1967, itwould seem nracticAl to nrovirle facilities for nn qnnul Prowt.h of some150,000 telephones, commencing in 1968, instead of the 100,000 telephonesper year considered in the previous table as the mraximum attai.n.able.

Prnormin for 1q\atioraq1 Telecoymynnication.q System

87. Braz7il lhas a2n ista lishe tleo.muiaon inusrywih

satisfactory level of efficiency. However, in international competitiveV/AieN( ar.,nygrtch +o 1,: rsl'llr r.ations there is a large --r-A4 in

price quotations for telecormunication equipment, it not being unusual forthe highest offer to be doubl--e te lowest one. 4- l, is rvreasonable to expect that Brazil's youthful industry could compete againstthe lowest offer without a substantia.1 lrgin of protection.

- 19 -

88E Brazil does not manufacture the particular microwAave radio equip-ment proposed for the National Telecommunications System but could, withthe expenditure of the equivalent of about US$2 million for imported pr,duc-tion equipment and an equal amount in national currency, set up for suc]1production. A period of the order of two years would be required to set upfor and initiate production of the microwave equipment. Decreasing amountsof imported components would be required as production advanced in the ensu-ing years. In view of the existence of the national telecommunicationsindustry and the desirability of conserving foreign exchange resources, ithas been assum.ed that the microwave equipment will be produced by nationalmanufacture but that early deliveries will include a substantial portion ofimported components.

89. For the reasons listed below, it has been assumed that constrilc-tion of the Vational Telecommunications System will be carried out in sUc-cessive stages:

(a) An organization has to be created and gain experience before itcan efficiently build and operate the proposed system.

(b) Only in the more developed areas is there any apprDoximate know--ledge of circuit requirements0 Through the establishment ofadequate service in such areas. a good understanding will beobtained of the real deemand in the less developed areas and plan-n:Lng car be adiusted accordingly~

(c) The proposed micrownve systems can be constructed and operatedat less cost once fuirther advances are made in the developmento af' par::ling highways and power lines needed for their opra--

tions.

90. Predicated upon the realization of the NJational TelecomirunicationsSystem over a prolonged riod the portion that ml--gh+ reasor.ably be schedul-ed in the f'irst five years mi.ght comprise:

(a) Filling out to engineered capacity, as required, the major exist-i- r-utes c-- 3ra - - - - -ill, I Belo Horizonte , R4i T j -aniro

Sao Paulo and Santos.

(b) Building a high-capacity microwave route between Sao Paulo andPorto A -. egrAl

(c) Bilding a highi-caipacity ,.LcJaL rvvv Loute between , JU_J.UO LU canU

Brasilia.

(d) Building a high-capacity microwave route between Belo Horizonteanu Saivador.

- 20 -

91e In subsequent stages the microwiave system could be extended fromSalvador to Recife, Fortaleza and Belem. A link between Sao Paulo andCampo Grande could be added.

92. Proceeding along the above lines, investrent in the first five-year period would approximate the equivalent of US24 million which couldbe financed by the application of the surcharge on telecommunications, perLaw No. 4117, from the funds generated by the operations of the new facili-ties and from outside long-term borrowings.

International Telecomnunications Concessions

93. On the whole the foreign companies furnishing the internationalservice are well organized and efficiently run. They provide high-qualityinternatioral teleeraDh and Telex service. The failines of the inter-national telephone service are due to the inherent limitations of theeauinment used which until recentlv has been the onlv tvne available forthe distances involved. Technical developments now make possible othertvnes of facilities which would permit high-grade international telephoneservice.

94. It would seem advan-tageous to Brazil to continue with theseorgani~izat-.ior~ ncs as i nyh prlincipl mansv of niulit- rin ternation A-n1 ' rlnmni

cation service, granting such concession and tariff treatment as wouldassr-e that the concessionaire s invest in the improvred faci:lities nowbecoming available. Since existing concessions expire in the years 1966,19S° -1971, 1907,3 andA -1 71, and m Joinvest,.ents by cocsir. e n thte~ ~ I 4-~ ..) ~1L~ 4,7 I L4 Cli EJCL~J %J .LII VJIm'1L U. 'w"j 1~ I

precarious period prior to concession expiration is unlikely, early actionwould seem to lUe Udesirabile.

Financial RequirementS for Programll (witLLo-ut Externlal FinLacLng)

95e On the basis recommended above oI (a) an urban te:Lephone expan--sion programn largely financed by the subscribers (b) a tiational Telecom--r,junl.cations11 Oyse ben inslled by stagclre~s c k an Ic Ithe Postus and Aele-graphs Department proceeding iith their Postal - Telegraph Plan as nowbudgeted, the fo'lowing table presents estimarted req.uiierjnents and so-urcesof funds during the five-year period 1965/1969 expressed in billions ofCruzeiros at june 1904 price levels:

- 21 -

1965 1966 1967 1968 1')69

Municipal and State Telecom ProgramsRequirements:

Total 35,0 52.5 70.0 70,0 70.0

Foreign Culrrency Included 5o3 7.9 10.5 10.5 10).5Sources:

Frorm O-erations A 3 3 From Subscriber 3030 47.2 6L.4 6hel 63.8From .1ulncipnlities and States 200 2.1 22 2 2 3 2.h

Tot+ ' '2f1 z n o. if '7rn n 7n-. n n , r)

National Telecom SystemRequirements:

Total 0u8 6.0 6.5 7,2 8,0

Foreign Currency Included 0.3 3.0 3,0 3.0 3,0Sources:

From Operations - 0.3 0o6 o.8 -10From Tax (Law No, h117) 0,8 5,7 5,9 64 '7o0

Total 0.8 6.0 6.5 7.2 8,0

P&,T Postal Telegraph PlanRequirements:

Total 158 905 Not stated

Foreign Currency Included 1.8o iSources:

Budgetarty Appropriation 14eO 7 7 ! !

Foreign Supplier Credits l.8 1.8

Total 15.8 9.5

Financial Requirements for Program (with External Financing)

96. If the conditions necessary to secure long-term outside financingare met, it would be feasible to carry out a somewhat larger program. Allo-w-ing the time required for organization and engineering, comnaencing about, thebeginning of 1968 it should be feasible to obtain an annual increase of150,000 telephones insteld of the lCO,000 provided for in the previous table.

97. On this enlarged basis, the estimated requirements and sourceEs offunds durinig the five-year period 1965/1969 expressed in billions ofCruzeiros at June 1964 price levels are estimated as:

1965 1966 1967 1968 1969Mlunicipal and State Telecom ProgramsRequirements:

Total 35.o 52.5 70.0 105.0 l05,0

Foreign Currency Included 5.3 709 10.5 15.7 15.7Sources:

From Operations 3.0 5.2 1ho0 21.0 21.0From Subscribers 3OOO 5.2 53.8 29M7 29.6From Municipalities and St;ates 2.0 2.1 2.2 2.3 2 .hFrom Rxternal Financing - - - 52.0 2.0

Total 35^O 5225 7M0 105.0 l01,.

National Telecom SystemRequirements:

Total 0O8 6.0 60, 7'2 800

Foreign Currency Included 0.3 3.0 3.0 3.0 30O

Sources:From Operations - 0.3 o06 0.8 1_OFrom Tax (Law No. 4117) 0. 5.7 5.9 - -From External Financing - - - 6.4 7.0

Total 0.8 6.o 6.5 7.2 8.0

P&T Postal Telegraph PlanRequirements:

Total 15.8 9,5 Not stated

Foreign Currency Included 1.8 1,8 "t f"

S~ources:Budgetary Appropriaticn 14.0 7.7m 4. 1 e A _ i it I

I U Ua± ±U G7,

Comparison with Government's Action Program

98e In the light of the previous comments a revision has been madeof the Governmentfs "Action Program."] Tne suggested cnanges are mainlyfor the following reasons:

(a) To provide a time delay which is already being experienced inexecution of the Plan for a National Telecommunications System,making allowance for a realistic period necessary for organiza-tion, engineering and manufacture; also to carry out the planby successive stages starting with the links that are clearlyeconomically justified.

(b) In the financing plan it has been assumed that the Government willtake the necessary steps in administration, management and tariffadjustments to lay the basis for external financing. In view ofthe nature of the preparatory steps (including outside technicalassistance starting immediately), the Mission expects that externalfinancing disbursements will not commence in substantial volumeuntil late 1967.

(c) To include in the pl3n the very substantial development of localtelephone facilities.

99. i table comparing the Action Program with the Suggested Revisionfollows (expressed in billions of Cruzeiros at June 1964 levels):

1964 1965 1966Orig. Rev. Orig. Rev. Orig. Rev.

Page XVIII-102 Table XVIII-51National Telecommunication Svstem PlanRequirements:

Cruzeiros - 31 o2 O-A 37-5 3.0Foreign Currency - - 31.2 0.3 37.5 3.0

Total 45 62.4 0.8 75,0 6.0Resources;

Law No. 4117 (Telecom Tariffn__ I 11 nL ^ -~ 0 -n- r, r' -

Surcharge)l. - 25U. 0 )U, 5.

Operations J03External Financing - - 370L - L5 c -

Total 4e5 - 62.4 o.8 75v, 600

19614 4 16 -9li6

Orig. Rev. Orig. Rev. Orig. Rev0

Page XVIII-103 Table XVIII-52DOT Postal Telegraph PlanRequirements:

Cruzeiros 11A4 114 ,140 14,o 7.7 7.7Foreign Currency - - 1.8 1,8 1As8 _1 8

Total 1144 1144 15.8 15,8 9.5 9.5Resources:

Budget Nppropriation 11,,4 11.4 14o0 14.O 7,7 7.7External Financing - - 1.8 1.8 1B 18

Total ll44 1144 15.8 15.8 9.5 9.5

Page VIII-103 Ta'ole Omittedi/!un:cinal & State Teleconmriinic tions Programs

Req'u-irements:Glruzi~ros _ 20,4 - 2907 - )h406

Foreign Currency - 3.6 - 5.3 - 7.9

Total - 24h0 - 35°0 - 52.5Resources:

Operations - 2,0 3cO - 3.2Subscribers - 20.8 - 30,,O _ I7,2Municipalities & States - 1.2 2,.0 _ 2,1

Total - 2h.O - 35.0 o 52 5

SummaryRequirements:

Cruzeiros 15.9 31.8 45.2 h 4k2 45.2 55.3Foreign Currency - 3.6 33.0 7.4 3903 1207

Total 15.9 35e4 78e2 5i.6 84,5 68cOResources:

Internal Financing 15.9 3544 39o0 49.8 37.7 66.2Budget nDDroDriations ll-h liil ihO ih.0 7.7 7-7Law No. 4117 4.5 - 25.0 0.8 30,0 5.7Oneratinns - 2.0 - 3=0 - 3.5Subscribers - 20.8 - 30,0 - 47.2l 4 unicinalities RY States - 1I _ 2 0 -_2^

External Financing - - 39,2 1.8 46.8 le8

Total 15,9 35r4 78.2 51.6 845 68.0

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