Bloomberg News

Brazil Mobile Fees May Fall 80% Through 2018, Regulator Says

March 12, 2012

Fees charged by Brazil’s mobile carriers may drop almost 80 percent through 2018 as the country’s regulator seeks to catch up with other nations’ moves to cut prices and boost competition in the industry.

The mobile interconnection fee, or VU-M, may fall to 10 centavos (5.6 cents) a minute from the current 48 centavos a minute, should an analysis of a new cost model be approved, Emilia Ribeiro, commissioner of Brazil’s telecommunications regulator, known as Anatel, said in an interview in Brasilia on March 7.

Interconnection fees are what carriers charge to competitors in exchange for accepting incoming calls to their networks. While reductions would result in lower prices for consumers, mobile phone price cuts in Brazil are lagging behind those of other nations, including Spain and Mexico, which have already halved interconnection fees.

“It’s incredibly slow,” said Robin Bienenstock, an analyst at Sanford C. Bernstein & Co. in London, in a phone interview. “It favors the largest players.”

The government plans to negotiate fees with the four biggest mobile-phone carriers, which collected 21.3 billion reais ($11.9 billion) in interconnection fees in 2010, with two-thirds generated from calls between mobile phones and the remainder on calls from land lines to mobiles, according to Ribeiro.

Fee Reductions

Telefonica Brasil SA (VIVT4), a unit of Madrid-based Telefonica SA (TEF), is Brazil’s biggest mobile carrier, followed by Telecom Italia SpA (TIT)’s Tim Participacoes SA unit, America Movil SAB and Tele Norte Leste Participacoes SA, known as Oi. Approval for the new cost model isn’t due until next year and fee reductions may not start until 2014, Ribeiro said.

America Movil (AMXL), Tim and Oi declined to comment on the government plan, according to officials who can’t be named under their companies’ policies. Phone and e-mail messages to Telefonica Brasil’s press office weren’t answered.

The regulator’s 10 centavo-a-minute target fee compares with a current average fee of 6.2 cents a minute charged by 33 members of the Organization for Economic Cooperation and Development. The U.S., Mexico, Israel, Turkey, Korea and Portugal charge less than 5 cents, according to OECD data released this month.

In Mexico, phone regulators cut the interconnection fee last year by more than half to 39 Mexican centavos (3.1 cents).

“The reduction of interconnection fees is urgent for the growth of the country,” Ribeiro said. “We should already have been reducing this rate, even if it was just 1 percent a year.”

Highest Rates

Brazil has some of the highest phone rates in the world when the size of economies and populations is taken into account, trailing only Nigeria and South Africa, according to research by Bernstein.

“The more gradual the rates come down, the better it is for the bigger operators,” Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore, said by telephone. “As you cut rates, you’re reducing incremental operating cash flow, so it’s meaningful.”

Interconnection fees were created in Brazil to help mobile-phone operators build their infrastructure, Ribeiro said. Today, they’re used to subsidize prepaid users, who make up about 80 percent of Brazil’s mobile-phone customers, she said.

Telefonica Brasil dropped 0.5 percent to 54.40 reais at the close in Sao Paulo. Oi declined 1.8 percent to 22.82 reais, and Tim fell 3.3 percent to 10.41 reais. America Movil slid 0.9 percent to 14.80 pesos in Mexico City.

To contact the reporters on this story: Carla Simoes in Brasilia at csimoes1@bloomberg.net; Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net


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