EMIS Insights - Brazil ICT Sector Report 2019 - 2023

BRAZIL
ICT SECTOR
2019/2023
Including 5-Year Forecast
An EMIS Insights Industry Report
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ABBREVIATIONS
ABTA Brazilian Association of Pay TV Providers
ANATEL National Telecommunications Agency
ARPU Average Revenue per User
B2B Business-to-Business
B2C Business-to-Consumer
BRL Brazilian Real
CDMA Code Division Multiple Access
CNI National Confederation of Industry
DTH Direct-to-Home
FTTC Fibre-to-the-Curb
FTTH Fibre-to-the-Home
GSM Global System for Mobile Communication
GVA Gross Value Added
IBGE Brazilian Institute of Geography and Statistics
IoT Internet of Things
IPEA Brazil’s Institute for Applied Economic Research
ITU International Telecommunication Union
LTE Long-Term Evolution Technology
Ministry of Science, Technology, Innovation and
MCTIC
Communications
MDIC Ministry of Industry, Foreign Trade and Services
MMDS Multichannel Multipoint Distribution Service
MVNO Mobile Virtual Network Operator
OTT Over-the-Top
PPP Purchasing Power Parity
RENAI National Investment Information Network
TELEBRASIL Brazilian Telecommunications Association
VOIP Voice Over IP
VoLTE Voice Over Long-Term Evolution
WCDMA Wideband-Code Division Multiple Access
WTTx Wireless to the Home
ttm Trailing Twelve Months


01 EXECUTIVE SUMMARY p.5
CONTENTS Sector in Numbers

Sector Overview
Sector Snapshot
Driving Forces
Restraining Forces
02 SECTOR OUTLOOK p.12

Macroeconomic Outlook
Economic Sentiment
Sector Outlook
03 SECTOR IN FOCUS p.21

Main Economic Indicators
Main Sector Indicators
Number of Subscribers
Gross Revenue
Taxes
Investment
Global Positioning
Foreign Direct Investment
Main Investment Projects
Number of Enterprises
Employment
04 COMPETITIVE LANDSCAPE p.35

Timeline Brazil ICT Sector
Highlights
Mobile Telephony Competition
Fixed-Line Telephony Competition
Fixed Broadband Competition
Pay TV Competition
Top M&A Deals
M&A Activity, 2017-2018
05 COMPANIES IN FOCUS p.45

Telefonica Brasil SA
Claro Telecom Participacoes SA
TIM Participacoes SA
CONTENTS Oi SA
Algar Telecom SA
06 REGULATORY ENVIRONMENT p.56

Key Bodies
Government Policy
07 MOBILE TELEPHONY p.61

Highlights
Main Events
Mobile Telephony Subscribers
Focus Point – Mobile Telephony Density Rate
by State
Mobile Broadband
Mobile Telephony Revenue
08 FIXED-LINE TELEPHONY p.69

Highlights
Main Events
Fixed-Line Telephony Subscribers
Focus Point – Fixed-Line Telephony Density
Rate by State
Fixed-Line Telephony Revenue
09 FIXED BROADBAND p.75

Highlights
Main Events
Fixed Broadband Subscribers
Focus Point – Fixed Broadband Density Rate by
State
Fixed Broadband Revenue
Fixed Broadband Prices
10 PAY TV p.83
Highlights
Main Events
Pay TV Subscribers
Focus Point – Pay TV Density Rate by State
Pay TV Revenue
BRAZIL ICT SECTOR 2019/2023
An EMIS Insights Industry Report CONTENTS
01
EXECUTIVE
SUMMARY

Copyright © 2018 EMIS, all rights reserved. 5
01 EXECUTIVE SUMMARY CONTENTS
Sector in Numbers
229.2mn 31.0mn 17.6mn

Mobile Telephony Fixed Broadband Pay TV
Subscribers Subscribers Subscribers
43.5% 184.6mn 95.7%

Postpaid Mobile Mobile Broadband 4G Technology
Telephony Subscribers Coverage, % of
Subscribers Population
USD 6.2% 4.9%

2.3bn CAGR CAGR
FDI Equity Capital Fixed
Postpaid Mobile Broadband
Inflow in ICT Telephony Subscribers,
Sector Subscribers, 2019-2023
2019-2023
Note: Data for 2018

Source: ANATEL, TELEBRASIL, CEIC, Central Bank of Brazil, EMIS Insights
BRAZIL ICT SECTOR 2019/2023 6

Sector Overview
After poor financial and operating performance in the 2015-2017 period, Brazil’s ICT sector returned to
a growth path in 2018. Apart from an uptick in economic activity and an improving job market, the
sector was favoured by continued robust demand for internet-based services – both fixed and mobile –
among local consumers. This led to a 2.9% y/y increase in the gross revenue of the sector in the first
nine months of the year. Moreover, the strong demand fundamentals encouraged local telecom
operators to resume their investment plans, with a view mainly to enhancing their 4G and 4.5G
networks and expanding their fibre optic infrastructure in an effort to grab market share. Improved
confidence among sector players was also reinforced by the pledges of new president Jair Bolsonaro
to press on with market-oriented reforms in the regulatory framework for the telecommunications
sector.
Entry Modes
Brazil’s ICT sector is in practice dominated by four integrated telecom operators. These are: Telefonica
Brasil (the Brazilian subsidiary of Spanish telecom group Telefonica); Claro (the Brazilian unit of
Mexican conglomerate America Movil); TIM (controlled by Italian group Telecom Italia); and Brazil’s
own Oi. This, coupled with the high cost of building new infrastructure, has created major entry
barriers for new players. Yet, recent regulatory changes enacted by local regulator ANATEL, aimed at
promoting infrastructure sharing and market competition, have increased the interest of both
domestic and foreign investors in the Brazilian ICT market. Among the major newcomers in 2018 was
the Singaporean sovereign wealth fund GIC Private Limited, which acquired a 25% stake in Brazilian
telecom operator Algar Telecom for BRL 1bn, with the goal of supporting its expansion strategy.
Segment Opportunities
Both fixed and mobile broadband markets present ample growth potential in the medium term,
favoured by the ongoing shift of consumer preferences towards internet-based services combined
with the new cultural demand for connectivity at all times and in all places. In particular, increasing
consumption of value-added online services, which require a stable connection and higher download
speeds – coupled with the underdevelopment of fixed-line infrastructure outside the Southeast Region
– offers big investment opportunities for new players. On the other hand, the local pay TV market is
likely to record sluggish growth in the coming years, as a result of the high price of the service, the
prevalence of TV piracy in Brazil, and intensifying competition from OTT services, such as the online
streaming platform Netflix.
Government Policy
The administration of president Bolsonaro, who took office in January 2019, has inherited key
legislative initiatives – a new General Telecommunications Law, a National Plan for the Internet of
Things (IoT), and ambitious plans to provide high-speed internet access to the entire country – and
means to press on with them. If approved, these will have a major positive impact on the ICT sector by
fostering competition, promoting investment in modernisation and expansion of the telecom
infrastructure, and increasing digital inclusion.
Source: ANATEL, TELEBRASIL, Teleco, CEIC, IBGE, MCTIC, EMIS DealWatch, EMIS Insights

Sector Snapshot
Brazil ICT Sector
FINANCIAL PERFORMANCE*
ICT Sector Gross Revenue: BRL 176.6bn
Mobile Telephony: BRL 75.8bn
Fixed-Line Telephony: BRL 21.8bn
Fixed Broadband: BRL 32.1bn
Pay TV: BRL 20.8bn
Trunking: BRL 0.1bn
Electric and Electronic Industry: BRL 26.1bn
* January-September
MOBILE SERVICES FIXED-LINE SERVICES

Mobile Telephony Subscribers: 229.2mn Fixed-Line Telephony Subscribers: 38.3mn
Density Rate: 109.9 per 100 inhabitants Density Rate: 18.3 per 100 inhabitants
Prepaid Subscribers: 129.5mn
Postpaid Subscribers: 99.7mn Fixed Broadband Subscribers: 31mn
Density Rate: 14.8 per 100 inhabitants
Mobile Broadband Subscribers: 184.6mn
4G Subscribers: 129.8mn Pay TV Subscribers: 17.6mn
3G Subscribers: 52.4mn Density Rate: 8.4 per 100 inhabitants
KEY PLAYERS MARKET SHARES*

Mobile Telephony Fixed Broadband Pay TV
1. Telefonica (Vivo): 31.9% 1. Claro: 30.2% 1. Claro: 48.9%
2. Claro: 24.6% 2. Telefonica (Vivo): 24.4% 2. Sky: 30.1%
3.TIM: 24.4% 3.Oi: 19.3% 3.Oi: 9.1%
4.Oi: 16.5% 4.Algar: 1.9% 4.Telefonica (Vivo): 8.9%
5.Nextel: 1.4% 5.TIM: 1.6% 5.Algar: 0.5%
* Based on number of subscribers
Note: Data for 2018.
Source: ANATEL, TELEBRASIL, Teleco, Company Data

Sector Snapshot
Brazil ICT Sector
In line with the increasing strength of the economy, the gross revenue of Brazil’s ICT sector rose by
2.9% y/y to BRL 176.6bn in the first nine months of 2018. The main factor in this positive performance
was a 29.9% surge in fixed broadband turnover, supported by the expansion of the subscriber base
and the migration of customers to plans with higher access speeds. The revenue from mobile
telephony also grew by 3.2% y/y, favoured by higher demand for mobile broadband services, which
offset decreases in both the usage of mobile voice services and average prices.
In 2018, the number of mobile telephony subscribers in Brazil fell by 3.1% y/y to 229.2mn. This was
related to intensifying market competition, which forced local operators to reduce or even eliminate
fees for calling a mobile number on the network of another operator. Thus, clients with multiple
mobile telephony subscriptions were encouraged to cancel some of them. However, a positive sign
was the increase of the share of postpaid among total customers to 43.5%, as of December 2018,
reflecting the improving disposable income of households. The deactivation of multiple SIM cards was
also the main reason for a 2.3% y/y drop in the number of mobile broadband subscribers to 184.6mn
at end-2018. Nevertheless, the share of 4G mobile broadband connections in the total continued to
grow briskly, reaching 70% at end-2018. The expansion of the 4G network and rising demand for
internet-based services were the main factors behind this positive development. This underlines the
ongoing transition of the mobile telephony market from a voice-based to a data-based revenue
model. In January-September 2018, data services accounted for 71.4% of the average revenue per user
(ARPU), up from 21.2% in 2012.
At the end of 2018, there were 38.3mn fixed-line telephony subscribers in Brazil. In line with the
ongoing trends of fixed-to-mobile and voice-to-data transition, this number represented a drop of 6%
y/y. On the other hand, fixed broadband was the only subsector to record an increase in client
numbers in 2018 – by 7.4% y/y to 31mn – supported by rising demand for value-added internet services
and the growing market competition that is pushing down prices. In 2018, the domestic pay TV market
continued to lose subscribers, negatively affected by the high price of pay TV plans, the prevalence of
TV piracy, and the growing popularity of OTT services such as Netflix. At end-2018, there were 17.6mn
pay TV subscribers in Brazil, 3% down y/y.
Brazil’s ICT sector features high levels of concentration, with four integrated telecom operators –
Telefonica, Claro, TIM and Oi – accounting between them for 97.4% of mobile and 95.8% of fixed-line
telephony subscribers at end-2018. However, these providers are in fierce competition on those
particular markets, offering attractive promotional fees and bundled plans to gather more
subscribers. The fixed broadband subsector is less concentrated and increasingly competitive, but still
dominated by three companies – Claro, Telefonica and Oi – with a combined market share of 73.9%.
The pay TV market, however, is the least competitive: Claro had 48.9% of the subscriber base, as of
December 2018, followed by Sky – the Brazilian unit of US media and telecom group AT&T – with 30.1%.
Source: ANATEL, TELEBRASIL, Teleco, CEIC, IBGE, Company Data, EMIS Insights

Driving Forces
External
Several demand fundamentals will continue to drive forward the development of Brazil’s ICT sector.
The increasing penetration of internet-based services into consumers’ lives for both professional and
entertainment purposes – including digital content, games, films and short videos – will support the
revenues of both fixed and mobile broadband services. The acceleration of the economy, coupled with
an improving job market and rising disposable incomes among Brazilians, will also stimulate demand
for telecom services, with a focus on postpaid mobile telephony plans offering attractive voice and
data packages, as well as fixed broadband plans with higher internet speeds. The government will
preserve its fundamental role in the development of the sector, through measures to guarantee the
population access to affordable and quality ICT services. The new General Telecommunications Law,
inherited by president Bolsonaro’s administration, eases the coverage obligations of telecom
operators and supports investments in the expansion of fixed-line infrastructure in the country.
Another initiative pending approval is the National Connectivity Plan: this is a comprehensive plan to
foster the expansion of the national fixed broadband network by converting a portion of the taxes
paid by telecom operators (as well as fines) into investments. Yet another is the National Plan for the
Internet of Things, which is expected to set out the legal framework for, and fund the development of,
IoT products and services in Brazil.
Internal
The shift of consumer preferences in favour of internet-based services has prompted a rapid
transformation of the mobile telephony market from a voice-based to a data-based revenue model. In
the first nine months of 2018, data services accounted for 71.4% of the average revenue per user
(ARPU), up from 21.2% in 2012. Additionally, thanks to this change in demand patterns, fixed
broadband has been the only ICT subsector to record a steady increase in subscribers since 2015. In
order to maximise the growth opportunities stemming from this transition, local mobile operators
have opted to invest in enhancing their 4G and 4.5G networks and expanding their fibre optic
infrastructures. Telefonica Brasil and TIM have ongoing investment plans of BRL 26.5bn and BRL 12bn,
respectively, for the 2018-2020 period. In August 2018, Claro announced a 10% y/y increase in its
investments in Brazil for 2019 to BRL 9.7bn. Even the incumbent Oi, which successfully restructured its
debt in July 2018, launched a BRL 21bn investment plan for the 2019-2021 period. Investment in the
sector is expected to increase even more after the adoption of the new General Telecommunications
Law. A report by consultancy EY, published in February 2019, estimated that the law had the potential
to trigger direct investments of BRL 20bn in the development of the country’s 4G and fibre optic
infrastructure and to inject an additional BRL 38bn into the economy in the form of increased activity
across the entire value chain of the ICT sector.
Source: ANATEL, TELEBRASIL, MCTIC, EY, Valor Economico, TeleSintese, Teletime, Agencia Brasil, Company Data, EMIS Insights

Restraining Forces
External
A major constraint on the development of Brazil’s ICT sector is the excessive tax burden, which is
transferred to end-users in the form of high prices for telecom services. According to the latest
available data from TELEBRASIL, telecom service providers paid a total of BRL 60.8bn in 2017 in taxes,
fees and social contributions – a sum equal to 44% of their net revenue. Additionally, it is still
uncertain if the government of president Bolsonaro will manage to gather political support to ensure
the passage of the much-needed General Telecommunications Law and to put into practice
programmes that promote access to quality and affordable broadband services and encourage IoT
development in Brazil. Sector companies also remain cautious about the government agenda for
deployment of 5G technology in the country. Although ANATEL announced a public tender for
frequency bands suitable for 5G services in March 2020, the government has still to define key details,
such as coverage and capacity requirements for the wining companies, as well as the financial
parameters of the auction. Local telecom operators have already warned that the success of the
auction will be contingent on favourable financial terms and less stringent coverage requirements.
This stems from the fact that the deployment of 5G technology will require much heavier capital
expenditure and a longer return on investment than its predecessor.
Internal
Brazil’s telecom market is undergoing a profound transformation, driven by the ongoing trends of
fixed-to-mobile and voice-to-data substitution. Fixed-line telephony is on the way to becoming an
obsolete technology and is likely to be fully replaced by mobile telephony and mobile broadband
services in the medium term. As to the mobile telephony market, it is increasingly driven by data
services stemming from higher demand for over-the-top (OTT) services through mobile broadband.
This has forced local mobile operators to offer attractive voice plans (e.g. unlimited phone calls) and
data packages to retain customers, which have eroded profit margins. On the other hand, the
development of the fixed broadband market is threatened by a proposed change in the regulation
which allows local providers to restrict usage through caps on the amount of data downloaded, lower
internet speed and additional tariffs. This proposal, which was backed by local incumbent players,
aims at increasing their revenues in a situation of declining usage of other telecom services. As of
February 2019, ANATEL is still assessing the proposed change, with plans to rule on the matter by end-
2019. In turn, in order to compete effectively against OTT services, local pay TV providers need to
adjust their business model by introducing affordable plans for low- and middle-income groups and
increasing the value added of their services by adding high-resolution channels and premium content,
such as sporting events and concerts.
Source: ANATEL, TELEBRASIL, Teleco, MCTIC, Agencia Brasil, Valor Economico, TeleSintese, Teletime, EMIS Insights

02
SECTOR
OUTLOOK

02 SECTOR OUTLOOK CONTENTS
Comments
Following the severe recession in 2015-2016, Brazil’s economy returned to growth, expanding by 1.1%
y/y in both 2017 and 2018. Various factors were behind this positive performance, including:
accommodative monetary and fiscal policies; an uptick in consumption stemming from an improving
job market; decreasing borrowing costs; and strong performance by the country’s agricultural sector
and by key manufacturing industries (notably the automotive sector). Growth in 2018 could have been
even higher if it had not been for the one-off effects of the truck drivers' strike in the second half of
May – which virtually paralysed production and trading activity in the country – and the political
uncertainty surrounding the October 2018 elections. The economy is set to accelerate in 2019, rising
by 2.5% y/y, as the market-friendly policies of newly installed president Jair Bolsonaro will spur both
private consumption and investment. However, economic growth will remain below its potential, at no
more than 2.2% per year through 2023, restrained by Brazil’s ageing population, stagnant productivity,
and rising public debt, and by tightening global financing conditions. An upside revision of this
projection is contingent on the implementation of the ambitious reform agenda of the new
government. The latter includes a much-needed reform of the pension system, faster fiscal
consolidation, less state intervention in the economy and an opening of the country to trade.
Real GDP, y/y change Private Consumption and Investment, y/y

change
8.6% 8.8%
2.5% 8.3%
7.7%
2.2% 2.2% 2.2% 2.2%
6.1%
1.1% 3.8%
1.1%
2.9%
1.9% 1.9%
1.5% 1.4%
1.2% 1.0%
0.6%
2017 2018 2019f 2020f 2021f 2022f 2023f 2017 2018f 2019f 2020f 2021f 2022f 2023f
Consumption Investment
Source: IMF, CEIC

(cont’d)
Consumer Price Index, y/y change Unemployment Rate, % of Labour Force
4.2%
4.0% 4.0% 4.0% 4.0%
3.8% 11.8% 11.6%
10.7%
10.2%
9.8% 9.5% 9.5%
3.0%
2017 2018 2019f 2020f 2021f 2022f 2023f 2017 2018 2019f 2020f 2021f 2022f 2023f
Volume of Total Exports and Imports,* Current Account Balance

y/y change
0
10.8% -5 -9.8
-10
-0.5% -24.8
-15 -30.9
-34.5
7.5% -20 -37.3
6.9% -40.3
-44.7
6.2% -25
5.8%
4.7% 5.0% 4.7% -30
3.9% 4.6% -1.3%
3.5% 4.2% 3.6% -35
3.3%
-40 -1.6%
-1.7% -1.8%
-45 -1.8%
-1.9%
-50
2017 2018f 2019f 2020f 2021f 2022f 2023f 2017 2018f 2019f 2020f 2021f 2022f 2023f
Cur rent Account Balance, USD bn
Exports Imports
Cur rent Account Balance, % of GDP
* Includes goods and services

Source: IMF, CEIC

Economic Sentiment
Comments Business Confidence Index,* net balance

Consumer and business confidence have been on 70
the rise since the October 2018 elections,
60
supported by positive expectations for the reform
agenda of president Jair Bolsonaro and by 50
improving economic conditions. In January 2019,
the business confidence index, as measured by 40
CNI, reached a nine-year high, reflecting
30
improved business assessment of current
conditions and optimistic expectations about the 20
following six months. The consumer confidence
10
index of the Getulio Vargas Foundation also hit a
five-year high in January 2019, favoured by more 0
optimistic sentiment about the economy, the
17
17
18
18
Ma 7
Ma 8
17
18
7
8
-17
18
19
l- 1
l- 1
r-1
r-1
labour market and household disposable income.

n-
n-
p-
v-
p-
v-
y-
y-
n
Ju
Ju
Ma
Ma
No
No
Ja
Ja
Ja
Se
Se
Business Confidence Index by Industry,* Consumer Confidence Index, July 2010-

net balance June 2015 = 100
70 120
60 100
50
80
40
Construction 60
30
Manufacturing
Industry 40
20
Extr active
10 Industry 20
0 0
17
17
No 8
18
No 7
17
No 8
18
7
Se 7
Se 8
Ma 7
Ma 8
Ma 7
Ma 8
17
18
17
18
17
18
19
-17
18
19
l- 1
l- 1
l- 1
l- 1
1
1
r-1
r-1
r-1
r-1
n-
n-
n-
n-
n-
p-
v-
p-
v-
p-
v-
p-
v-
y-
y-
y-
y-
n
Ju
Ju
Ju
Ju
Ma
Ma
Ma
Ma
No
Ja
Ja
Ja
Ja
Ja
Ja
Se
Se
* Figures above 50 points indicate positive expectations

Source: CNI, Getulio Vargas Foundation, CEIC

Sector Outlook
Number of Mobile Telephony Number of Mobile Telephony Subscribers

Subscribers, year-end by Type, mn, year-end
242.3 246.2 249.9

233.9 238.2 140
229.2
120
2.0% 1.9% 1.7% 1.6% 1.5% 100
80
136.9
130.1
129.5
126.3
122.9
122.8
119.5
116.1
115.3
60
112.9
107.6
99.7
40
-3.1% 20
0
2018 2019f 2020f 2021f 2022f 2023f 2018 2019f 2020f 2021f 2022f 2023f
Number of Subscribers, mn y/y change Pr epaid Postpaid
Comments
The shift in consumer preferences in favour of internet-based services will continue to reshape the
operating and financial performance of Brazil’s ICT sector. Improving economic conditions, coupled
with intense market competition, marked by attractive promotional offers by both incumbent and
small players, are expected to result in an increase in the number of mobile telephony subscribers in
the medium term. In particular, the rising use of internet-based services through mobile devices will
drive demand for postpaid plans with attractive mobile broadband packages. According to EMIS
Insights, the number of postpaid subscribers will expand at a robust CAGR of 6.2% over 2019-2023, to
the detriment of prepaid subscribers. Fixed broadband is projected to be the second most dynamic ICT
subsector, with subscriber numbers rising at a CAGR of 4.9% over 2019-2023, buoyed by growing
demand for value-added internet services, the entry of new companies in the market, and the
implementation of ambitious government plans aimed at improving access to fixed broadband. On the
other hand, the trends of fixed-to-mobile and voice-to-data substitution will continue to push down
the number of fixed-line telephony subscribers. In terms of pay TV, EMIS Insights estimates that the
intensifying competition from online streaming services and the high prices of pay TV plans will limit
the growth in the number of subscribers to a CAGR of 0.6% over 2019-2023.
Source: EMIS Insights

Sector Outlook (cont’d)
Mobile Telephony Subscribers by Type, Number of Fixed-Line Telephony

year-end Subscribers, year-end
100% 38.3 37.8 37.2 36.8 36.3 35.9

90%
80% 43.5% 46.0% 48.4% 50.7% 52.8% 54.8%
70%
60% -1.5% -1.4% -1.3% -1.2% -1.2%
50%
40%
30% 56.5% 54.0% 51.6% 49.3% 47.2% 45.2%
20% -6.0%
10%
0%
2018 2019f 2020f 2021f 2022f 2023f 2018 2019f 2020f 2021f 2022f 2023f
Pr epaid Postpaid Number of Subscribers, mn y/y change
Number of Fixed Broadband Subscribers, Number of Pay TV Subscribers, year-end

year-end
39.7 17.7 17.8 17.9 18.0 18.1
17.6
37.9
36.2
34.5
32.8
31.0
7.4% 0.6% 0.6% 0.6% 0.6% 0.6%
5.6% 5.3% 5.0% 4.8% 4.5%
-3.0%
2018 2019f 2020f 2021f 2022f 2023f 2018 2019f 2020f 2021f 2022f 2023f
Number of Subscribers, mn y/y change Number of Subscribers, mn y/y change

Comments ICT Sector Gross Revenue

EMIS Insights projects that the turnover of the ICT
315.7
sector will grow at a CAGR of 5.5% over 2019- 299.6
284.0
2023. This will be favoured by a robust expansion 269.1
245.7 254.7
of the revenue from fixed broadband, at a CAGR
of 8.2%, as a result of its increasing subscriber
base and the ongoing migration of consumers to 5.4% 5.6% 5.6% 5.5% 5.4%
plans with higher access speeds. The rising
demand for postpaid plans including attractive 3.7%
mobile broadband packages will also push up the
turnover of the mobile telephony subsector at a
CAGR of 8.1% through 2023. On the other hand,
revenues from pay TV services are set to
2018e 2019f 2020f 2021f 2022f 2023f
stagnate, falling at an average rate of 0.1% per
year, due to downward pressures on prices. Gross Revenue, BRL bn y/y change
ICT Sector Gross Revenue by Service, BRL bn

350.0
29.2
300.0 28.9 0.1
28.5 0.1
28.1
27.7 0.1 27.0
250.0 32.1 0.1 27.1
0.1 27.1
0.1 27.1 79.7
200.0 27.2 74.1
27.2 68.6
63.4
58.4 30.1
150.0 53.6 30.5
30.9
31.4
32.2 31.8
100.0
139.0 149.6
118.9 128.8
50.0 100.5 109.5
0.0
2018e 2019f 2020f 2021f 2022f 2023f
Mobile Telephony Fixed-Line Telephony Fixed Broadband Pay TV Trunking Electric and Electronic Industry

Mobile Telephony Gross Revenue Fixed-Line Telephony Gross Revenue
149.6 32.2 31.8 31.4 30.9 30.5

139.0 30.1
128.8
118.9
109.5
100.5
9.0% 8.6% 8.2% 7.9% 7.6%

-1.3%
-1.3%
-1.3%
-1.4%
3.2% -1.4%
-1.4%
2018e 2019f 2020f 2021f 2022f 2023f 2018e 2019f 2020f 2021f 2022f 2023f
Gross Revenue, BRL bn y/y change Gross Revenue, BRL bn y/y change
Fixed Broadband Gross Revenue Pay TV Gross Revenue
79.7 27.2 27.2 27.1 27.1 27.1 27.0

74.1
68.6
63.4
58.4
53.6
29.9%
-0.2% -0.2% -0.1% -0.1% -0.1%
9.0% 8.6% 8.2% 7.9% 7.6%

-4.6%
2018e 2019f 2020f 2021f 2022f 2023f 2018e 2019f 2020f 2021f 2022f 2023f
Gross Revenue, BRL bn y/y change Gross Revenue, BRL bn y/y change


Main Sector Indicators Forecast
2018 2019f 2020f 2021f 2022f 2023f
Number of Mobile Telephony Subscribers, mn 229.2 233.9 238.2 242.3 246.2 249.9
Number of Prepaid Mobile Telephony Subscribers,

129.5 126.3 122.9 119.5 116.1 112.9
mn
Number of Postpaid Mobile Telephony Subscribers,

99.7 107.6 115.3 122.8 130.1 136.9
mn
Number of Postpaid Mobile Telephony Subscribers,

43.5 46.0 48.4 50.7 52.8 54.8
% of Total
Number of Fixed-Line Telephony Subscribers, mn 38.3 37.8 37.2 36.8 36.3 35.9
Number of Fixed Broadband Subscribers, mn 31.0 32.8 34.5 36.2 37.9 39.7
Number of Pay TV Subscribers, mn 17.6 17.7 17.8 17.9 18.0 18.1
ICT Sector Gross Revenue, BRL bn 245.7* 254.7 269.1 284.0 299.6 315.7
ICT Sector Gross Revenue, y/y change, % 5.4* 3.7 5.6 5.6 5.5 5.4
Mobile Telephony Gross Revenue, BRL bn 100.5* 109.5 118.9 128.8 139.0 149.6
Mobile Telephony Gross Revenue, y/y change, % 3.2* 9.0 8.6 8.2 7.9 7.6
Fixed-Line Telephony Gross Revenue, BRL bn 32.2* 31.8 31.4 30.9 30.5 30.1
Fixed-Line Telephony Gross Revenue, y/y change,

-1.3* -1.3 -1.3 -1.4 -1.4 -1.4
%
Fixed Broadband Gross Revenue, BRL bn 53.6* 58.4 63.4 68.6 74.1 79.7
Fixed Broadband Gross Revenue, y/y change, % 29.9* 9.0 8.6 8.2 7.9 7.6
Pay TV Gross Revenue, BRL bn 27.2* 27.2 27.1 27.1 27.1 27.0
Pay TV Gross Revenue, y/y change, % -4.6* -0.2 -0.2 -0.1 -0.1 -0.1
Trunking Gross Revenue, BRL bn 0.1* 0.1 0.1 0.1 0.1 0.1
Electric and Electronic Industry Gross Revenue,

32.1* 27.7 28.1 28.5 28.9 29.2
BRL bn
* EMIS Insights estimates

03
SECTOR
IN FOCUS

03 SECTOR IN FOCUS CONTENTS
Main Economic Indicators
2012 2013 2014 2015 2016 2017 2018
Total Population, mn, mid-year 193.9 201 202.8 204.5 206.1 207.7 208.5
GDP, current prices, BRL bn 4,815 5,332 5,779 5,996 6,267 6,554 6,828
GDP, constant prices, y/y change, % 1.92 3.00 0.50 -3.55 -3.31 1.06 1.12
GDP per Capita, current prices, USD 12,422 12,342 12,170 8,827 8,771 9,929 8,959
Information and Communications Services

148.5 157.5 168.6 176.0 179.0 183.9 187.0
GVA, current prices, BRL bn

7.00 4.01 5.26 -0.94 -2.06 -0.97 0.33
GVA, constant prices, y/y change, %

3.08 2.95 2.92 2.94 2.86 2.81 2.74
GVA, current prices, % of GDP
Extended National Consumer Price Index

5.84 5.91 6.41 10.67 6.29 2.95 3.75
(IPCA), period-end, %
Unemployment Rate, year-end, % 6.9 6.2 6.5 9.0 12.0 11.8 11.6
SELIC Monetary Policy Rate, year-end, % 7.25 10.00 11.75 14.25 13.75 7.00 6.50
Exchange Rate USD/BRL, year-end 2.05 2.35 2.66 3.90 3.26 3.31 3.87
Total FDI Equity Capital Inflow, USD mn 60,543 49,850 56,404 58,169 53,300 60,345 46,182
FDI Equity Capital Inflow in

345.4 342.7 4,919.0 4,551.7 988.8 376.6 404.2
Telecommunications, USD mn
FDI Equity Capital Inflow in

0.57 0.69 8.72 7.82 1.86 0.62 0.88
Telecommunications, % of Total
FDI Equity Capital Inflow in Information

704.2 591.2 1,188.0 1,004.6 523.5 707.3 1,906.4
Technology Services, USD mn
FDI Equity Capital Inflow in Information

1.16 1.19 2.11 1.73 0.98 1.17 4.13
Technology Services, % of Total
Source: CEIC, IBGE, Central Bank of Brazil, IMF, OANDA

Main Sector Indicators
2012 2013 2014 2015 2016 2017 2018
ICT Sector Gross Revenue, BRL bn 215.0 230.0 236.9 233.8 226.5 233.1 176.6a
ICT Sector Gross Revenue, y/y change, % 6.7 7.0 3.0 -1.3 -3.1 2.9 2.9a
Number of Subscribers of Telecom Services,

346.0 360.0 372.0 347.7 332.4 324.7 316.2
mn, year-end
Number of Mobile Telephony Subscribers, mn,

261.8 271.1 280.7 257.8 244.1 236.5 229.2
year-end
Mobile Telephony Density Rate per 100

131.4 134.9 138.0 125.7 118.0 113.9 109.9
Inhabitants, year-end
Number of Prepaid Mobile Telephony

210.9 211.6 212.9 184.5 164.7 148.5 129.5
Subscribers, mn, year-end
Number of Postpaid Mobile Telephony

50.9 59.5 67.8 73.3 79.4 88.0 99.7
Subscribers, mn, year-end
Number of Mobile Broadband Subscribers, mn,

59.2 103.1 157.9 180.5 183.7 188.9 184.6
year-end
Number of Fixed-Line Telephony Subscribers,

44.3 44.9 45.0 43.7 41.8 40.8 38.3
mn, year-end
Fixed-Line Telephony Density Rate per 100

22.2 22.3 22.2 21.4 20.3 19.6 18.3
Number of Fixed Broadband Subscribers, mn,

19.8 22.2 24.0 25.5 26.8 28.9 31.0
year-end
Fixed Broadband Density Rate per 100

10.0 11.0 11.8 12.5 13.0 13.9 14.8
Number of Pay TV Subscribers, mn, year-end 16.2 18.0 19.6 19.1 18.8 18.1 17.6
Pay TV Density Rate per 100 Inhabitants,

8.1 8.9 9.6 9.3 9.1 8.7 8.4
year-end
Number of Enterprises in ICT Sector, period-

4,052 4,488 5,306 6,273 7,146 7,960 8,146b
end
Number of Employees in ICT Sector, thou,

315.3 311.5 304.1 306.5 308.3 302.3 309.0b
period-end
a January-September 2018, b September 2018
Source: ANATEL, TELEBRASIL, Teleco

Number of Subscribers
Comments Number of Subscribers of Telecom

Services, year-end
Since end-2014, the number of subscribers of
telecom services in Brazil has followed a 360.0
372.0
downward trend. This has partly been due, at 346.0 347.7

332.4
least until recently, to an economic recession 8.4% 324.7
316.2
that reduced Brazilians’ disposable incomes.
Another factor, especially for mobile telephony 4.0%
3.3%
subscribers, was the elimination of fees for
calling the network of another mobile operator,
-2.3% -2.6%
which meant that multiple subscription plans
-4.4%
were no longer necessary. Despite the uptick in -6.5%
the economy in 2018, subscriber numbers
continued to fall, dropping 2.6% y/y to 316.2mn at
2012 2013 2014 2015 2016 2017 2018
end-2018. All subsectors were subject to this
downward trend in 2018 – except fixed broadband, Number of Subscribers, mn y/y change
whose subscriber numbers rose by 7.4% y/y.
Number of Subscribers by Service, mn, year-end

400 2.7
3.8 1.6
3.9 19.6 0.9
350 18.0 0.4 0.1
16.2 19.1
24.0 18.8 18.1
22.2 17.6
300 19.8 25.5
44.9 45.0 26.8 28.9
44.3 43.7 31.0
250 41.8 40.8 38.3
200
150 280.7
261.8 271.1 257.8 244.1 236.5 229.2
100
50
0
2012 2013 2014 2015 2016 2017 2018
Mobile Telephony Fixed-Line Telephony Fixed Broadband Pay TV Trunking
Source: ANATEL, TELEBRASIL

Gross Revenue
Comments ICT Sector Gross Revenue

In 2017, the gross revenue of Brazil’s ICT sector 230.0 236.9 233.8 233.1
226.5
stood at BRL 233.1bn, 2.9% up y/y. This was 215.0
entirely attributable to the improved financial
176.6
performance of the local electric and electronic
appliances industry, stemming from the nascent 6.7% 7.0%
economic recovery. As the economy continued to
strengthen in the first nine months of 2018, the 3.0% 2.9% 2.9%
gross revenue of the sector rose by 2.9% y/y. This
was explained by a 29.9% surge in the revenue -1.3%
from fixed broadband, mainly due to expansion of -3.1%
its subscriber base. The turnover from mobile
telephony also grew by 3.2% y/y, supported by 2012 2013 2014 2015 2016 2017 Jan-Sep
2018
higher demand for mobile broadband services,
which offset decreases in both the usage of Gross Revenue, BRL bn y/y change
mobile voice services and average prices.
ICT Sector Gross Revenue by Service, BRL bn

250.0
29.6 28.3 32.5

26.7 27.5
200.0 22.8 4.5 1.4 0.7
6.9 2.7
29.0 26.1
8.2 24.9 29.3 29.2 28.5
20.2 30.6 0.1
150.0 28.5 31.6
33.2 41.3
26.2 20.8
41.3 39.9 38.5 36.9
47.4 32.6 32.1
100.0
21.8
50.0 90.2 101.7 103.3 103.4 98.3 97.4

75.8
0.0
2012 2013 2014 2015 2016 2017 Jan-Sep 2018
Mobile Telephony Fixed-Line Telephony Fixed Broadband Pay TV Trunking Electric and Electronic Industry

Gross Revenue
(cont’d)
ICT Sector Gross Revenue by Type of ICT Sector Gross Revenue by Type of
Services,* BRL bn Services*
100.0%
203.3 207.3 205.5 199.0 200.5 90.0%
192.1
80.0%
51.2% 53.4% 52.0% 51.6% 50.1% 48.9% 50.4%
150.5 70.0%
108.5 107.8 106.1 99.7 98.1 60.0%
98.4
50.0%
75.8
40.0%
30.0%
48.8% 46.6% 48.0% 48.4% 49.9% 51.1% 49.6%
99.5 99.4 99.3 102.4 20.0%
93.8 94.8
74.7 10.0%
0.0%
2012 2013 2014 2015 2016 2017 Jan-Sep 2012 2013 2014 2015 2016 2017 Jan-Sep
2018 2018
Fixed-Line Ser vices Mobile Services Total Fixed-Line Ser vices Mobile Services
* Excluding electric and electronic industry. Fixed-line services include fixed-line telephony, fixed broadband and pay TV;
mobile services include mobile telephony and trunking
Comments
The breakdown of the gross revenue of the ICT sector illustrates the rising importance of fixed-line
telecom services for the financial performance of domestic telecom operators since 2012. Over 2012-
2017, the revenue from fixed-line services expanded at a CAGR of 1.8%, driven by increasing proceeds
from both fixed broadband and pay TV services. These in turn stemmed from growing subscriber
numbers – especially for fixed broadband – and the consistently high prices of pay TV plans. Another
factor was the increasing availability of triple-play and quadruple-play bundled plans from the main
mobile operators, as they strove to increase their shares on a fiercely competitive market. On the
other hand, the proceeds from mobile services fell at an annual average rate of 0.1% over the same
period. This was related to the fight for market share among mobile operators, which pushed down
overall prices, coupled with a decline in the usage of voice services. Partial relief came from higher
proceeds earned by data services, explained by the ongoing voice-to-data transition, where traditional
voice services are being replaced by social media messaging apps, such as WhatsApp, Facebook
Messenger and Telegram. This trend continued in the first nine months of 2018, with the revenue from
fixed-line services rising by 4.9% y/y, compared to a 2.5% growth in the turnover from mobile services.

Taxes
Comments ICT Sector Gross Revenue vs Net

Revenue, BRL bn
Among the major constraints on the development
of the ICT sector in Brazil is the excessive tax
burden, which is transferred to end-users in the
form of high prices for telecom services. At end-
2018, taxes accounted for 43.2% of the end price
of mobile telephony and fixed broadband plans in
the country. According to the latest available
207.3
205.5
203.3
200.5
199.0
192.1
data from TELEBRASIL, telecom service providers
150.5
139.7
138.3
138.1
138.0
134.6
130.9
paid a total of BRL 60.8bn in taxes, fees and
102.4
social contributions in 2017, which corresponded
to 44% of their net revenue. The bulk of these
taxes are imposed by state governments through 2012 2013 2014 2015 2016 2017 Jan-Sep
the value-added tax ICMS. The latter accounted 2018
Gross Revenue, BRL bn Net Revenue, BRL bn
for more than half of the tax burden on the ICT
sector in both 2016 and 2017.
ICT Sector Total Taxed Paid* Revenues from ICMS Tax on

Telecommunications Services
62.9 60.8 35.1 34.8 34.8
58.5 60.5
58.1 57.7 33.0 32.9 32.8
23.6
10.0%
46.7% 9.4%
46.4% 8.5% 8.7% 8.4%
43.8% 44.0% 7.3% 6.9%
42.1% 41.3%
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Jan-Sep
2018
Total Taxed Paid, BRL bn
Revenues from ICMS Tax on Telecommunications Ser vices, BRL bn
Total Taxes Paid, Share of Net Revenue Share of Total ICMS Tax Revenue
* Includes taxes, fees and social contributions. Excluding electric and electronic industry.
Source: ANATEL, TELEBRASIL, Ministry of Finance

Investment
Comments ICT Sector Investment*

In 2017, investment by Brazil’s ICT companies fell
31.5 31.7
for the third year in a row, affected by economic 30.1
28.1 28.0
recession in the country, which reduced sector 25.8
revenue. In line with the uptick in the economy in 22.3%
20.5
the first nine months of 2018, the investment of
the sector recovered during that period, rising by 12.9% 12.6%
12.6% y/y. Fixed-line services, especially fixed
broadband, continued to be the main area of
investment of for telecom operators, as they tried 0.6% -0.6%
to meet the growing demand for value-added -5.0%
-6.6%
internet-based services. On the other hand,
investments in mobile services were mainly 2012 2013 2014 2015 2016 2017 Jan-Sep
2018
allocated to expansion of the country’s 4G
Investment, BRL bn y/y change
network, which covered 95.4% of the population,
as of December 2018 – up from 86% at end-2017.
ICT Sector Investment by Type,* BRL bn ICT Sector Investment,* % of Total
2.83% 2.82% 2.89% 2.85%

2.76%
12.2 12.9 2.58% 2.57%
13.1
12.3 11.4
10.1
19.3 18.8
15.6 17.1 15.8 16.6
0.54% 0.59% 0.55% 0.50% 0.45% 0.43% 0.41%
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Jan-Sep
2018
Investment, % of Gross Fixed Capital Formation
Fixed-Line Ser vices Mobile Services
Investment, % of GDP
* Excluding electric and electronic industry
Source: ANATEL, TELEBRASIL, CEIC, IBGE

Global Positioning
Comments Top 10 Mobile Telephony Markets, 2017

In 2017, Brazil was among the six largest telecom Number of y/y change
Rank Country
markets in the world in terms of number of Subscribers, mn 2017/2016
subscribers of fixed broadband (6th), mobile

1 China 1,469.9 7.7%
telephony (5th) and fixed-line telephony (5th),
2 India 1,168.9 3.6%
according to the latest available data by the
International Telecommunication Union (ITU). 3 Indonesia 435.2 12.9%
However, the Brazilian ICT sector retains strong 4 United States 391.6 1.1%
growth opportunities, given the relatively low 5 Brazil 236.5 -3.1%
penetration rate of telecom services, especially of
6 Russia 227.3 -0.8%
mobile telephony and fixed broadband. Notably,
7 Japan 172.8 3.6%
the country ranked 97th, 84th and 70th out of 228
countries in terms of subscribers of mobile 8 Bangladesh 150.9 11.0%
telephony, fixed broadband and fixed-line 9 Nigeria 144.9 -6.1%

telephony per 100 inhabitants, respectively. 10 Pakistan 144.5 5.9%
Top 10 Fixed-Line Telephony Markets, Top 10 Fixed Broadband Markets, 2017

2017
Number of y/y change Number of y/y change

Rank Country Rank Country
Subscribers, mn 2017/2016 Subscribers, mn 2017/2016
1 China 193.8 -6.2% 1 China 394.2 22.2%
2 United States 119.9 -1.2% 2 United States 109.8 3.3%
3 Japan 64.0 -0.2% 3 Japan 40.5 1.8%
4 Germany 44.4 -2.0% 4 Germany 33.2 3.9%

5 Brazil 40.8 -3.0% 5 Russia 31.1 13.0%
6 France 38.7 -0.8% 6 Brazil 28.9 7.9%
7 United Kingdom 33.1 -1.3% 7 France 28.4 2.6%

8 Russia 32.0 -1.0% 8 United Kingdom 26.0 2.2%
9 Iran 31.2 1.0% 9 South Korea 21.2 3.1%
10 South Korea 26.8 -4.2% 10 India 17.9 -4.3%
Source: ITU

Foreign Direct Investment
Comments FDI Equity Capital Inflow in ICT Sector,

USD mn
ICT, comprising the information technology and
telecom services segments, was the service
sector’s fourth-largest recipient of FDI in the form
of equity capital in 2018, attracting a total of USD
2.3bn of FDI – exceeded only by the financial
services, trade and utilities sectors.
1,906
4,919
Over the 2016-2017 period, foreign investor
4,552
1,188
interest in the ICT sector was dampened by the
1,005
989
still weak economy and by heightened political
707
704
591
523
404
377
345
343
uncertainty. However, as the economy returned to

growth in 2018, while investor confidence
2012 2013 2014 2015 2016 2017 2018
improved after the October 2018 elections, FDI in
the ICT sector began to recover. Among the most Telecommunications Services Information Technology Ser vices
attractive segments for foreign investors were
fixed broadband – the fastest growing telecom
subsector in the country – as well as data centre Share of ICT Sector in Total FDI Equity
and online-based technology services. Among the Capital Inflow
biggest foreign investments in 2018 were the
acquisition by US real estate investment trust 8.7%
Digital Realty of Brazil’s largest data centre 7.8%
service provider Ascenty for USD 1.8bn in

December and the USD 500mn equity funding
raised by Brazilian on-line food delivery platform 4.1%
iFood in November.
2.1%
Moreover, investments in the ICT sector are set to 1.2%
1.2% 1.7% 1.9%
1.2%
1.0% 0.9%
increase in the medium term, supported by 0.6% 0.7% 0.6%
incumbent telecom operators’ strategy of 2012 2013 2014 2015 2016 2017 2018
expanding their 4G networks and fibre optic Telecommunications Services
infrastructures. Indeed, Telefonica Brasil and TIM Information Technology Ser vices
alone plan to invest a total of USD 11.6bn over the
2018-2020 period.
Source: CEIC, Central Bank of Brazil, EMIS DealWatch, Company Data

Main Investment Projects

Main Investment Projects Announced in Brazil’s Telecommunications Sector in 2018
Country of Investment Investment, Municipality

Date Investor Investment Project Start Year End Year
Origin Type USD mn (State)
Investment project for sharing of telecom

infrastructure between Brazilian power
generation and transmission firm
Eletrosul and the National Education and
Research Network (RNP) – Brazil's
academic internet backbone. Using the
fibre optic network of Eletrosul, RNP will
Mar 2018 Eletrosul, RNP Brazil Expansion expand the high-speed internet network 9.3 Various 2018 2020
to R&D and educational centres in the
states of Parana, Santa Catarina, Rio
Grande do Sul and Mato Grosso do Sul.
The project covers the expansion and
modernisation of 5,280 km of fibre optic
network in the South and Central-West
Regions of Brazil.
Expansion of the fibre optic network and

the mobile internet signal in the
Various
Mar 2018 Oi Brazil Expansion municipalities of Urucui, Sao Raimundo 24.7 2018 n/a
(Piaui)
and Bom Jesus, all located in the state of
Piaui.
Expansion of the Tambor 1 data centre in

the municipality of Santana de Parnaiba
(Sao Paulo state). The project will double Santana de
Telefonica
Mar 2018 Spain Expansion the service capacity of the data centre, 38.6 Parnaiba 2018 n/a
Brasil
allowing Telefonica Brasil to expand its (Sao Paulo)
portfolio of digital services for both
individual and corporate clients.
Investment in expansion and

modernisation of the company's postpaid
mobile telephony and broadband
services, as well as in digitalisation of the
customer service. The focus will be on
expansion of the infrastructure for fixed-
Mar 2018 TIM Italy Expansion 3,703.7 Various 2018 2020
line and mobile telecom services, with the
goal of bringing 4G coverage to more
than 4,200 municipalities in Brazil and
covering 13 cities with ultra-high-speed
fixed broadband via FTTH technology by
2020.
Source: MDIC, RENAI

Main Investment Projects (cont’d)

Main Investment Projects Announced in Brazil’s Telecommunications Sector in 2018
Country of Investment Investment, Municipality

Date Investor Investment Project Start Year End Year
Origin Type USD mn (State)
Expansion of eight data centres and

construciton of six new data centres in
Brazil by the end of 2019. Two of the
data centres will be located in the state
Ascenty United Expansion,
May 2018 of Rio de Janeiro and in the 117.6 Various 2018 2019
(Digital Realty) States Construction
municipality of Vinhedo (Sao Paulo
state). The first phase of the
investment project demands an
investment of BRL 500mn.
Deployment of ultra-high-speed fixed

broadband network via FTTH
technology in the municipality of Maua
(Sao Paulo state), called TIM Live
Ultrafibra. It will offer video streaming
Maua
May 2018 TIM Italy Construction and on-demand content at internet 2.9 2018 2020
(Sao Paulo)
speeds ranging from 100 MB/s to 2
GB/s. The company’s goal is to cover
60% of the inhabitants of the
municipality of Maua (or 277,203
people) by 2022.
Expansion of the fibre optic network

Expansion, and construction of two new offices in
Jul 2018 Mob Telecom Brasil 4.8 Various 2018 2018
Construction the cities of Brasilia (Federal District)
and Sao Paulo (Sao Paulo state).
Deployment of a fibre optic network in
Various
Sep 2018 Oi Brazil Expansion 20 municipalities in the state of 5.5 2018 n/a
(Amazonas)
Amazonas.
Implementation of the Connected
Pernambuco project, which envisages
the deployment of a new telecom
infrastructure for mobile and fixed-line n/a
Nov 2018 Embratel Mexico Modernisation 48.0 2018 n/a
telephony, fixed broadband, Wi-Fi, and (Pernambuco)
data transmission services for
government entities in the state of
Pernambuco.
Investment in refarming of the

Nextel United company's 2.1 GHz band in the state n/a
Nov 2018 Modernisation 1.3 2019 2019
(NII Holdings) States of Sao Paulo, leaving half for 3G and (Sao Paulo)
half for 4G technology-based services.
Expansion of the company's 4.5G

mobile telephony infrastructure and the
national fibre optic network (FTTH).
Dec 2018 Oi Brazil Expansion 5,555.6 Various 2019 2021
The company’s goal is to cover 10mn
households with its FTTH network by
2021.
Source: MDIC, RENAI

Number of Enterprises
Comments Number of Enterprises in ICT Sector,*

period-end
Brazil ended September 2018 with a total of 8,146
8,146
providers of telecom services, up from 4,052 at 7,960
7,146
end-2012. The increase in the number of
6,273
companies was favoured by regulatory changes
5,306
that aimed at promoting competition, mainly in
4,488
the fixed-line services market. Notably, thanks to 4,052
a resolution of ANATEL adopted in May 2013, 18.2% 18.2%
16.9%
which simplified licensing procedures and
13.9%
lowered the authorisation price for provision of 11.4%
10.8%
fixed broadband services, the number of 8.5%
companies in the subsector rose by more than
75%. The bulk of the new entrants were small and 2012 2013 2014 2015 2016 2017 Sep-18
medium-sized companies, targeting clients in
under-served areas outside the Southeast Region. Number of Enterprises y/y change
Number of Enterprises in ICT Sector by Segment,* period-end

9,000
351 408
8,000
277 399 456
7,000
253 274
6,000 239
192
5,000 145 204
173 187
4,000 176 7,179 7,251
6,564
3,000 5,750
4,879
2,000 3,672 4,125
1,000
0 31 31 31 31 31 31 31
2012 2013 2014 2015 2016 2017 Sep-18
Mobile Telephony Fixed Broadband Fixed-Line Telephony Pay TV
* Excluding electric and electronic industry

Source: TELEBRASIL

Employment
Comments Number of Employees in ICT Sector,

period-end
In 2017, the employees in the ICT sector fell by
315.3
1.9% y/y, as several companies pursued their 311.5 304.1 306.5 308.3 302.3 309.0
restructuring plans, including lay-off programmes

in response to falling household purchasing 4.2%
power and to fierce competition in the sector. The
only exception to the overall downward trend was 2.2%
the implementation services segment, which
preserved employment levels thanks to the entry 0.8% 0.6%
of new companies in the ICT sector and the new
focus of telecom operators on expanding their -1.2%
-1.9%
fixed-line infrastructure. In line with the uptick of -2.4%
the economy in 2018, local ICT companies
2012 2013 2014 2015 2016 2017 Sep-18
resumed investment plans, creating 6,680 new
jobs in the first nine months of the year. Number of Employees, thou y/y change
Number of Employees in ICT Sector by Segment, period-end

350.0
300.0 40.8 36.0 29.8 27.1

35.4 30.3 27.3
250.0 65.9
75.1 80.8 80.8 80.8 80.8
73.8
200.0
150.0
100.0 199.4 209.6 195.0 195.4 197.8 194.3 201.2
50.0
0.0
2012 2013 2014 2015 2016 2017 Sep-18
Telecommunications Services Implementation Services Electric and Electronic Industry
Source: TELEBRASIL

04
COMPETITIVE
LANDSCAPE

04 COMPETITIVE LANDSCAPE CONTENTS
Timeline 1877 Development Milestones
Brazil ICT Sector

The first phone call in Brazil is made by Emperor Pedro II of
Brazil.
1935 Development Milestones

1881 Market Players
The first public phone terminal is installed in Brazil. Telephone Company do Brasil, controlled by US
capital, is the first company authorised to install
and operate telephone lines in Brazil.
1965 Market Players
The state-run fixed-line telephony operator

Empresa Brasileira de Telecomunicacoes
1972 Market Players
(Embratel) is created. The state-run fixed-line telephony operator

Telecomunicacoes Brasileiras SA (Telebras)
is created.
The first mobile telephony network is

installed in the city of Rio de Janeiro. 1997 Development Milestones
The government adopts the first General

Telecommunications Law, which creates the
National Agency of Telecommunications (ANATEL).
The government liberalises the telecom sector. Privatisation of

the state-run telecom operators Telebras and Embratel.
2004 Market Players
Telefonica Brasil introduces the first 3G

commercial network in Brazil.
The government introduces mobile

telephony number portability.
2012 Market Players The government adopts the National Broadband Plan.
Claro launches the first commercial

4G network in Brazil.
2017 Market Players
Claro is the first mobile operator in Brazil to launch the
2018
4.5G technology (LTE-Advanced Pro). TIM is the first mobile
Market Players operator to introduce voice over long-term evolution
Singaporean sovereign wealth fund GIC (VoLTE) services in Brazil.
Private Limited acquires a 25% stake in local
telecom operator Algar Telecom for BRL 1bn. Brazil launches its first own geostationary satellite SGDC-1.
Development Milestones
Source: ANATEL, TELEBRASIL, Company Data, EMIS DealWatch, Museu das Telecomunicacoes

Highlights
Overview
Brazil’s ICT sector is dominated by four companies: Telefonica Brasil (a subsidiary of Spanish telecom
group Telefonica), Claro (a unit of Mexican conglomerate America Movil), TIM (controlled by Italy’s
Telecom Italia) and Brazil’s national telecom company Oi. Yet, there is fierce competition between
them, marked by attractive promotional fees and bundled plans. The competition has further
intensified since June 2016, when the incumbent Oi filed for bankruptcy protection, which encouraged
the other players to compete for its subscribers. Moreover, a revival of the economy in 2018 prompted
the entry of new players, especially in the fixed broadband market – the fastest growing ICT subsector.
Market Structure
According to ANATEL, the Herfindahl-Hirschman index of the mobile telephony market in Brazil stood
at 2,615 points at end-2017, indicating high levels of concentration. This translates into a monopoly in
some regions, such as the North and the Northeast, as well as in municipalities far from big urban
centres. The consequence of such a market configuration is uneven development of the ICT sector,
which is marked by relatively high prices in some regions, underdeveloped fixed-line infrastructure
and an under-served population outside large urban centres.
Main Players
At end-2018, the four major players – Telefonica, Claro, TIM and Oi – accounted for 97.4% of mobile
telephony subscriber numbers. There was a similarly high concentration in the fixed-line telephony
market, where the same four companies controlled 95.8% of the subscriber base. The fixed broadband
subsector is less concentrated and increasingly competitive; however, it is still dominated by three
companies – Claro, Telefonica and Oi – with a combined market share of 73.9%. On the other hand, the
pay TV market showed the highest level of concentration, with Claro accounting for 48.9% of the
subscribers at end-2018, followed by Sky – a unit of US media and telecom group AT&T (30.1%).
Market Entries
The weakened market position of incumbent player Oi, which began the execution of a judicial
recovery plan in early 2018, coupled with a pickup of economic activity, has sharpened foreign
investor interest in Brazil’s ICT sector. In July 2018, Singaporean sovereign wealth fund GIC Private
Limited acquired a 25% stake in local telecom operator Algar Telecom for BRL 1bn, with the goal of
supporting its expansion strategy. Moreover, US private equity firm Acon Investments continued its
ambitious growth strategy in Brazil by acquiring three regional fixed-broadband providers in 2018,
with the objective of creating a leading provider of fixed-line telecom services in the country.
Source: Company Data, Teleco, ANATEL, TELEBRASIL, IPEA, EMIS DealWatch, EMIS Insights, Reuters

Mobile Telephony Subscribers by Comments

Company, year-end
Brazil’s mobile telephony market is dominated by
31.9% four major companies: Telefonica Brasil operating
24.6% under the Vivo brand, Claro, TIM and Oi. Together,
24.4%
these companies accounted for 97.4% of the
16.5%
2018 mobile telephony subscribers in the country at
1.4%
0.56% end-2018, down from 97.9%, as of December 2017.
0.03% The fifth-largest player – Nextel, controlled by US
0.59% wireless communications services provider NII
Holdings – had a 1.4% market share, up from 1.2%
31.7%
at end-2017. In fact, Nextel was the only telecom
25.0%
24.8%
operator among the top five, with a net increase
16.5% in the number of subscribers in 2018 (of around
2017 Vivo
1.2% 510,000).
0.56% Claro
0.03% TIM Between 2015 and 2018, Telefonica Brasil (Vivo),
0.33% Oi the leading mobile operator, increased its market
Nextel
share over the runner-up, Claro. This was thanks
30.2%
to Vivo’s strategy of increasing the number of
24.7% Algar
26.0%
postpaid subscribers and expanding its presence
Sercomtel
17.3% in the Northeast Region – hitherto dominated by
2016 MVNOs
1.1% the debt-laden Oi, which filed for bankruptcy
0.55% protection in June 2016.
0.03%
0.23% While the prepaid market is fairly well balanced
among the four major players, Vivo has managed
28.4%
to achieve a comfortable lead in the postpaid
25.6%
25.7%
segment as of end-2018, thanks to its active
18.6% marketing strategies and its popularisation of
2015
1.0% “control plans”. These are postpaid plans with a
0.50% cap on the monthly bill, allowing customers to
0.03%
plan their monthly spending better. The company
0.16%
was also the leader in terms of mobile broadband
subscribers, on the strength of its attractive
bundled plans for both voice and data services.
Source: ANATEL


(cont’d)
Prepaid Mobile Subscribers by Company, Postpaid Mobile Subscribers by

Dec 2018 Company, Dec 2018
TIM 27.6% Vivo 40.5%
Claro 23.6%
Claro 25.4%
TIM 20.3%
Vivo 25.3%
Oi 10.5%
Oi 21.0%
Nextel 3.3%
Algar 0.62%
Algar 0.49%
Sercomtel 0.04%
Sercomtel 0.01%
MVNOs 0.05% MVNOs 1.3%
Mobile Broadband Subscribers by 4G Subscribers by Company, Dec 2018

Company, Dec 2018
Vivo 30.1% Vivo 31.3%
Claro 26.4%
TIM 26.6%
TIM 25.0%
Oi Claro 23.1%
16.1%
Nextel 1.8% Oi 16.4%
Algar 0.64%
Nextel 2.5%
Sercomtel 0.03%
MVNOs Algar 0.18%

0.003%
Source: ANATEL

Fixed-Line Telephony Competition
Fixed-Line Telephony Subscribers by Comments

Company, year-end
The fixed-line telephony market in Brazil is
33.8% controlled by three companies, which between
32.5% them accounted for 93.5% of the subscriber base
27.2% at end-2018 (down from 94.6%, as of December
2018 3.0% 2017). Telefonica Brasil (Vivo) and Oi were the
2.3% leaders – with market shares of 33.8% and 32.5%,
0.6% respectively – followed closely by Claro (27.2%), as
0.8% of December 2018.
34.7% Over the 2015-2018 period, the three main players

33.2% lost subscribers to smaller companies, which
26.7% launched active marketing strategies to attract
2017 2.7% new customers, such as plans with unlimited calls
Vivo
1.7% for both residential and corporate clients.
Oi
0.6% Notably, Brazilian telecom operator Algar
0.7% Claro
consolidated its position as the fourth-largest
Algar fixed-line telephony provider, with a market share
34.3% TIM of 3% as of December 2018, up from 2.2% at end-
34.1% Copel 2015. In turn, TIM – the fifth-biggest player –
26.5%
Others expanded its presence in the fixed-line telephony
2016 2.3%
market through active promotion of telecom
1.6%
packages that bundle multiple services, such as
0.6%
voice (fixed-line and mobile), fixed broadband and
0.5%
pay TV.
34.3% Since 2015, ANATEL has promoted cuts in
34.6%
interconnection fees to make fixed-line telephony
26.6%
services more affordable to consumers. The latest
2015 2.2%
price cuts were in February 2019, when the
1.4%
regulator approved a 7.75% reduction of the
0.6%
average tariff for local calls from fixed-line to
0.5%
mobile phones. This is expected to intensify still
further the fight for market share in the fixed-line
telephony market.
Source: ANATEL

Fixed Broadband Competition
Fixed Broadband Subscribers by Comments

Company, year-end
The fixed broadband market also presents high
30.2% levels of concentration. The three leading
24.4% operators – Claro, Telefonica Brasil (Vivo) and Oi –
19.3%
accounted for 73.9% of the subscriber base at the
1.9%
2018 end of 2018.
1.6%
1.1%
Nevertheless, in recent years, all three major
1.0%
players have been losing market share, as
20.5%
competition has intensified and small regional
30.8% operators have expanded vigorously. Among the
26.3% top three companies, the incumbent Oi has seen
21.8% the biggest drop in subscriber numbers, as
1.9%
2017 Claro excessive debt limited its capacity to invest in
1.4%
1.3% Vivo expanding and modernising its fixed-line
0.8% Oi infrastructure.
15.7% Algar
This competitive environment was promoted by
31.8%
TIM regulatory changes enacted by ANATEL, which in
27.9% Sky May 2013 simplified licensing procedures and
24.0% Sercomtel reduced the authorisation price for provision of
1.9%
2016 Others fixed broadband services, thus promoting the
1.2%
1.2%
entry of new players. This has led to a
0.6% proliferation of new companies willing to tap the
11.4% robust demand for fixed broadband in Brazil.
Between December 2013 and September 2018, a
32.3%
total of 3,126 fixed broadband providers began
28.6%
25.0%
operations. They relied on the offering of high-
1.8% speed connection based on fibre optic networks at
2015
1.0% competitive prices, targeting under-served
1.0% municipalities outside the Southeast Region.
0.6%
9.7% As a result, the market share of smaller players
(those outside the Top Seven ranking) rose to
20.5%, as of December 2018, up from 9.7% at end-
2015.
Source: ANATEL

Pay TV Competition
Pay TV Subscribers by Company, year- Comments

end
The pay TV market in Brazil is dominated by two
48.9% companies that accounted for 79% of the
30.1% subscribers at end-2018: Claro (a subsidiary of
9.1%
Mexican conglomerate America Movil), and Sky (a
8.9%
2018 unit of US media and telecom conglomerate
0.5%
0.3% AT&T). Taking into consideration Telefonica Brasil
0.3% (Vivo) and Oi, the combined market share of the
1.9% four largest players was 97%, as of December
2018.
50.1%
29.6% In its General Plan for Competition Goals from
8.3% July 2018, ANATEL admitted that there was a high
8.8%
2017 Claro level of concentration in the pay TV market in
0.5%
0.7% Sky Brazil. Among the main factors behind this are the
0.3% Oi extremely high tariffs local content providers
1.7% Vivo demand from small pay TV operators – up to ten
Algar
times higher than those charged to Claro and Sky.
52.7%
This situation has forced smaller companies
27.9% Nossa TV
6.9%
either to increase their prices to remain
Cabo
9.1% profitable, or to offer fewer TV channels than
2016 Others
0.5% incumbents.
0.7%
0.3% To promote market competition and the entry of
1.9% new players in the telecom market, ANATEL
amended the definition of a “small telecom
52.6%
service provider” in July 2018. Hitherto it had been
28.5%
6.1%
a carrier with fewer than 50,000 subscribers.
9.4% Afterwards, it became a carrier with less than 5%
2015
0.6% of the subscriber base in the respective market.
0.7% Moreover, ANATEL pledged that it would gradually
0.3%
ease the tax and regulatory burden for small
1.8%
carriers by relaxing the rules for measuring
quality of service and by removing the
requirement for provision of 24-hour customer
Source: ANATEL, Teletime support services.

Top M&A Deals

Top 15 M&A Deals in Brazil’s ICT Sector,* 2017-2018
Country of Deal Value, Stake,

Date Target Company Deal Type Buyer
Buyer USD mn %
Ascenty Data Centers Locacao e Digital Realty Trust Inc; Brookfield Canada; United 1,800.0
Sep 2018 Acquisition 100.0
Servicos SA Asset Management Inc States (Official Data)
South Africa;
iFood.com Agencia de Restaurantes Movile Internet Movel SA; Naspers Ltd; 500.0
Nov 2018 Acquisition Brazil; United 84.5
Online SA Innova Capital Partners LLC (Official Data)
States
Lojas Americanas SA; Undisclosed 370.3

May 2017 B2W - Companhia Digital SPO Brazil 21.3
investor(s) (Official Data)
Minority Stake GIC Special Investments Pte Ltd; GIC 302.0

Jan 2018 Algar Telecom SA Singapore 25.0
Purchase Pte Ltd; Archy LLC (Official Data)
181.0
Jul 2018 Televisao Anhanguera SA Acquisition Zahran Group Brazil (Market 100.0
Estimate)
152.9
Aug 2018 Lot 1 of fibre optic assets of Cemig Privatisation American Tower Corp United States 100.0
(Official Data)
111.0
SoftBank Vision Fund; Softbank Group
Oct 2018 Loggi Tecnologia Ltda Acquisition Japan (Market 76.6
Corp
Estimate)
Telefonica Data SA; Telefonica Brasil 76.1
Jul 2017 Terra Networks Brasil SA Acquisition Brazil 100.0
SA (Official Data)
Kaszek Ventures; General Atlantic LLC;

Quinto Andar Servicos Imobiliarios United States; 64.3
Nov 2018 Acquisition Qualcomm Ventures; Ruane Cunniff & 92.3
Ltda (QuintoAndar.com) Argentina (Official Data)
Goldfarb Inc; QED Investors
Minority Stake 50.0

Jun 2017 Nextel Telecomunicacoes Ltda AINMT Holdings AB Sweden 30.0
Purchase (Official Data)
40.3
May 2017 Aceco TI SA Acquisition R2C Gestora de Investimentos Ltda Brazil (Market 100.0
Estimate)
Produban Servicos de Informatica 31.6
Feb 2018 Acquisition Banco Santander Brasil SA Brazil 100.0
SA; Isban Brasil SA (Official Data)
22.0
Minority Stake
Aug 2017 Aloo Telecom Ltda Cartesian Capital Group LLC United States (Market n/a
Purchase
Estimate)
20.9
Aug 2018 Lot 2 of fibre optic assets of Cemig Privatisation Algar Telecom SA Brazil 100.0
(Official Data)
16.6
Descomplica Produtora de Video e Minority Stake
Mar 2018 Undisclosed investor(s) n/a (Market 53.9
Ensino a Distancia Ltda Purchase
Estimate)
* NAICS codes: 515, 517, 518, 519
Source: EMIS DealWatch

M&A Activity, 2017-2018
Number and Value of Deals in Brazil’s ICT Deals by Deal Value, USD
Sector*
20
0-50mn;
15 39.2%
14 14
12
10 10
9 695
469
392 398
120 50.1-100mn;
13 28 43
2.0%
Undisclosed;
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
56.9%
2017 2018 > 100mn;
2.0%
Value of Deals, USD mn Number of Deals
* NAICS codes: 515, 517, 518, 519
Deals by Deal Type Deals by Region of Investor

North
Minority America
Stake 22.0%
Purchase
42.5%
Merger
1.8% EMEA
14.6%
Privatisation
1.8% South
America
SPO 4.9%
0.9% Brazil
56.1%
Asia
2.4%
Acquisition
53.1%
Source: EMIS DealWatch

05
COMPANIES
IN FOCUS

05 COMPANIES IN FOCUS CONTENTS
Highlights Income Statement, Consolidated, BRL mn

Spanish telecom group Telefonica SA entered
Brazil in 1998, when the Brazilian government 41.0%
ended the state monopoly over the telecom

33.0% 33.5%
sector and privatised Telebras, the state-run
telecom operator. Telefonica bought
Telecomunicacoes de Sao Paulo SA (Telesp), one
43,463
43,207
42,508
of the divisions of Telebras, and founded

Telefonica Brasil.
8,928
Since the early 2000s, the company has pursued a
17,825
4,609
4,085
14,486
14,022
strategy of becoming a leading telecom operator

in Brazil through organic growth and acquisitions.
Over the years, Telefonica Brasil has taken 2016 2017 2018
control of TVA, a cable TV service provider (now Net Revenues EBITDA

Net Pr ofit EBITDA Margin
called Vivo TV); the mobile telephony operator
Vivo; Terra, a fixed broadband provider; and GVT,
a provider of fixed-line telephony, fixed Balance Sheet, Consolidated, BRL mn
broadband, cable TV and VOIP services.
At end-2018, Telefonica Brasil, operating under 0.26 0.26
the Vivo brand, was the leading provider of fixed-

line telephony and mobile telephony in Brazil,
0.12
with market shares of 33.8% and 31.9%,
respectively. The company ranked second in the
102,561
102,066
101,383
fixed broadband market, with 24.4% of all

71,607
subscribers at end-2018, and fourth in the pay TV

69,641
69,244
market with 8.9%.

3,810
3,665
2,224
Telefonica Brasil is listed on the B3 Stock

Exchange and the New York Stock Exchange. Its 2016 2017 2018
market capitalisation amounted to BRL 77bn at Total Assets Shareholders' Equity
Net Debt Net Debt/EBITDA
the end of February 2019. Its majority
shareholder, Telefonica SA, had a 73.6% equity
stake as of December 2018.
Source: Company Data, ANATEL, EMIS Company Database

(cont’d)
Highlights Number of Mobile Telephony Subscribers,

thou, year-end
In 2018, the ARPU of Telefonica Brasil reached
BRL 28.6, an increase of 0.5% y/y. This was the 73,778 74,940 73,160
result of a 24.1% y/y drop in the ARPU from voice
services to BRL 6, which was fully offset by a 32,754
38,168
40,387
10.1% y/y surge in the ARPU from data services to
BRL 22.6.
In 2018, Telefonica Brasil invested BRL 8.2bn,

equivalent to 18.9% of the company’s net
40,406
operating revenue, in improving the capacity and 33,391 36,772
coverage of its 4G and 4.5G networks, expanding

its fibre optic infrastructure and developing of
new digital IT solutions (e.g. sales of products 2016 2017 2018
and services through digital channels, expansion Postpaid Pr epaid Total

of self-service centres, e-invoicing, etc.). This was
part of the company’s BRL 24bn investment plan
for the 2018-2020 period. Net Revenues by Segment, 2018
In March 2018, Telefonica Brasil announced an
additional investment of BRL 2.5bn by 2020 in
expansion of the fibre optic network in Brazil, Fixed-Line
with the goal of meeting the country’s strong Services
37.1%
demand for ultra-high-speed fixed broadband
(with internet connections above 34 Mbps).
As of December 2018, Telefonica Brasil had 4G

coverage in 3,100 municipalities, equivalent to
Mobile
88% of the population. The company also Sale of
Services
provided 4.5G coverage in 1,000 municipalities, up 58.5% Devices and
Equipment
from 819 at end-2017. In terms of fixed-line 4.4%
infrastructure, the company’s fibre optic network
reached 241 municipalities, as of December 2018,
up from 91 at end-2017.
Source: Company Data, ANATEL

Claro Telecom
Participacoes SA

Claro Telecom Participacoes SA was founded in
37.5%
2004 as the Brazilian subsidiary of Mexican
telecom conglomerate America Movil SAB de CV. 30.4%
28.2%
As of December 2018, the company was the
second-largest mobile telephony operator in
32,479
32,006
Brazil, with 56.4mn subscribers and a market
24,216
share of 24.6%. It was also the third-biggest fixed
line telephony operator (with a market share of
9,727
9,156
9,073
27.2%) and the leading provider of both fixed
broadband and pay TV services, with market
-164
-1,371
shares of 30.2% and 48.9%, respectively, at end-
-1,678
2016 2017 Jan-Sep 2018

2018.
Net Revenues EBITDA
At present Claro, through its subsidiaries, offers Net Pr ofit EBITDA Margin
services as diverse as mobile telephony, fixed-
line telephony, pay TV, telecom equipment sales,
fixed broadband, data centres, cloud computing, Balance Sheet, Consolidated, BRL mn
teleconference services and content publishing.
0.72
The company operates under the following
brands: Claro (mobile telephony), Embratel (fixed- 0.42
line telephony, fixed broadband, B2B services),

Net (cable TV and fixed broadband), NOW and 0.06
Claro Video (video-on-demand streaming
67,465
64,761
64,064
services).
15,797
15,183
14,517
In August 2018, US consultancy Ookla recognised

6,487
4,084
Claro as the telecom operator with the fastest

527
mobile and fixed broadband internet in Brazil. As

2016 2017 Sep-18
of December 2018, the company covered 66.7% of Total Assets Shareholders' Equity
the population with its 4G+ network (LTE Net Debt Net Debt/EBITDA
Advanced) and 63% with its 4.5G network (LTE
Advanced Pro).
Source: Company Data, Ookla, ANATEL, EMIS Company Database

Claro Telecom
Participacoes SA (cont’d)
Highlights Number of Subscribers by Service, mn,

year-end
In August 2018, Jose Felix, CEO of Claro, said in an
interview with local newspaper Valor Economico, 89.7 87.9 84.8
9.9
that the company plans to raise its investments 9.1 8.6
8.5
in Brazil by additional 10% y/y in 2019. In 2018, 8.9
9.4
11.1 10.9
the capital expenditure of the company was set 10.4
at BRL 8.8bn, a 10% growth compared to 2017.
The bulk of the investment will be directed to

60.2 59.0 56.4
enhancement of the 4G and 4.5G networks of
Claro, which reached 1,667 and 153 municipalities
in Brazil, respectively, as of August 2018. The
company will also invest jointly with ANATEL in 2016 2017 2018
testing and standardisation of 5G technology- Mobile Telephony Fixed-Line Telephony
based services over the 3.5 GHz band, using the Fixed Broadband Pay TV
infrastructure of the technology reference centre Total
of Claro in the city of Rio de Janeiro. Moreover,

the company will continue its strategy of Gross Revenues by Segment, 2018
expanding the number of postpaid mobile
telephony subscribers with the offering of bonus
plans for mobile broadband and unlimited data
usage for OTT apps, such as WhatsApp.
Mobile
Claro’s second investment pillar is fixed Services
broadband. In 2018, the company added around 30.6%
Fixed-Line
450,000 new fixed broadband clients, the fastest- Services
growing segment being that of ultra-high-speed 64.6%
Sale of
plans with internet connections of over 34 Mbps. Devices and
At end-2018, the company had 4.4mn subscribers Equipment
3.1%
with ultra-high-speed broadband plans,
equivalent to a market share of 54.4%. Claro will Interconnection
also invest in the development of its video-on- Fees 1.7%
demand services NOW and Claro Video, in order
to compete effectively with OTT service providers.
Source: Company Data, ANATEL, Teleco, Valor Economico, TeleSintese


TIM Participacoes SA was founded in 1998, as a
subsidiary of Italian telecom group Telecom Italia 38.6%
SpA. Initially operating in the South and 36.6%
33.5%
Northeast Regions of Brazil, TIM expanded its
national presence through acquisitions of other
mobile operators, such as Intelig (2009) and AES
16,981
16,234
15,617
Atimus (2011).
As of December 2018, TIM was the third-largest
2,545
mobile telephony operator in Brazil, with 55.9mn
6,563
5,949
1,235
5,230
subscribers and a market share of 24.4%. It was

750
the leader in the pre-paid mobile telephony

segment, with a market share of 27.6%. TIM also 2016 2017 2018
ranked fifth in terms of fixed-line telephony and Net Revenues EBITDA (adj.)
fixed broadband subscribers, with market shares
of 2.3% and 1.6%, respectively, at end-2018.
The company offers mobile and fixed-line Balance Sheet, Consolidated, BRL mn
telephony and access to the internet via modems,
tablets and mobile phones running on 3G, 4G and
0.52
VoLTE technologies, in addition to ultra-high- 0.45
speed broadband internet.
0.22
TIM is listed on the B3 Stock Exchange and the
New York Stock Exchange. Its market
34,656
32,600
31,958
capitalisation stood at BRL 28.6bn at the end of

19,795
February 2019. It is the only telecom company

18,151
17,188
2,721
2,697
included in the Novo Mercado listing segment of

1,465
the B3 Stock Exchange, which is a reference in

terms of corporate governance and transparency 2016 2017 2018
in Brazil. TIM’s majority shareholder is Telecom Total Assets Shareholders' Equity
Italia SpA, with a 66.6% stake of its total capital,
as of December 2018.

(cont’d)
Highlights Number of Subscribers by Service, thou,

year-end
In 2018, TIM invested BRL 4bn, of which 85% was
allocated to improving the capacity and coverage 64,410
59,764 57,287
of its 4G network (this included refarming of the 306
392
2.1 GHz band for the provision of 4G). The 686
738
467
897
remaining 15% was earmarked for the
development of new IT solutions and expansion
of the fibre optic network on the basis of 63,418
58,634
backbone, backhaul and FTTH technologies. 55,923
In March 2018, TIM announced an investment

plan worth BRL 12bn for the 2018-2020 period,
with the goal of becoming the leading provider of
2016 2017 2018
ultra-high-speed broadband in Brazil. In
particular, the company aims to improve the Mobile Telephony Fixed-Line Telephony
Fixed Broadband Total
capacity and coverage of its 4G network to 4,200
cities in Brazil, expanding its offer of wireless
broadband to include households and small and Net Revenues by Segment, 2018
medium-sized enterprises via the WTTx
technology, and deploying its fibre optic network
on the basis of FTTH technology outside the Sao
Paulo-Rio de Janeiro axis.
Fixed-Line
At end-2018, TIM was the leading mobile operator Services 5%
in Brazil in terms of 4G coverage, with its service
available in 3,272 towns. The company had 34.5mn Sale of
4G subscribers, 24.9% up y/y. TIM also ended 2018 Devices and
Mobile Equipment
with around 500,000 fixed broadband subscribers Services 5%
under the TIM Live brand. This offers ultra-high- 90%
speed broadband with connections between 35

Mbps and 1 Gbps, based on the FTTH and FTTC
technologies, in 14 cities in Brazil, including five
state capitals, which are home to 4.3mn
households.
Source: Company Data, Reuters, Convergencia Digital

Oi SA

Oi SA, founded in 1998, is the fourth-largest
27.5%
mobile telephony operator in Brazil, with 37.7mn 25.8% 26.2%
subscribers and a market share of 16.5%, as of
December 2018. The company operates as an
27,958
25,996
integrated telecom services provider with a
23,790
6,697
6,244
16,695
4,594
nationwide presence, offering fixed-line and
mobile telephony, fixed broadband, pay TV, data
transmission and internet provider services.
Oi is listed on the B3 Stock Exchange and the New

York Stock Exchange. Its market capitalisation
-6,656
-8,206
stood at BRL 10.7bn at the end of February 2019.

2016 2017 Jan-Sep 2018
In April 2014, Oi combined its operations with Net Revenues EBITDA
Portuguese telecom group Portugal Telecom (PT Net Pr ofit EBITDA Margin
Portugal), through a capital increase worth BRL
14bn, which was partially paid-in through the
assignment of all shares issued by PT Portugal, Balance Sheet, Consolidated, BRL mn
valued at BRL 5.7bn. In June 2015, Oi divested the
7.63
operations of PT Portugal in Portugal and 6.02
Hungary to Luxembourg-based telecom group 2.39
Altice for USD 8.5bn.

26,263
68,639
67,231
65,972
10,976
47,621
Oi retained the operations of PT Portugal in Africa

40,342
and Asia, which were classified as assets held for

sale, as of December 2018. These include Africatel
Holdings, which provides fixed-line and mobile
-6,666
-13,513
telephony services in Mozambique and Sao Tome,

as well as equity stakes of 25% in Unitel and 40%
2016 2017 Sep-18
in Cabo Verde Telecom, which provide telecom
services in Angola and Cape Verde, respectively. Total Assets Shareholders' Equity
In Asia, the company offered telecom services in
East Timor through its subsidiary Timor Telecom.

Oi SA
(cont’d)
Highlights Number of Revenue Generating Units by

Segment, thou, period-end
In June 2016, Oi filed for bankruptcy protection to
63,554
restructure its total debt of USD 19.2bn, 59,685 58,832
642 640 640
accumulated as a result of several past
6,617 6,512 6,565
acquisitions and the economic recession in Brazil,
which affected the company’s financial 39,870 36,648 36,454
performance. In December 2017, after a year-and-
a-half of negotiations, the creditors’ committee
approved a plan to restructure the company’s
16,425 15,885 15,173
debts. This envisages the payment of BRL 14.5bn
in overdue regulatory fines to ANATEL – Oi’s 2016 2017 Sep-18
largest creditor – in 20-year monthly installments,
Public Telephone Terminals
and an option for the company’s creditors to Cor porate
swap their debt for up to 75% of the company’s Personal Mobility (Mobile Telephony)
Residential
capital. The plan also includes a BRL 4bn capital Total
increase to sustain the company’s operations and
investments. In January 2018, the debt
restructuring plan was approved by the court. Net Revenues by Segment, Jan-Sep 2018
In July 2018, Oi completed a debt-to-equity swap

and a series of debt swaps, thus reducing its total
debt to BRL 18.8bn, down from BRL 64.3bn at end- Personal
Corporate
Mobility (Mobile
2017. In January 2019, the company also closed a Telephony) 27.2%
BRL 4bn capital increase in line with the debt 32.5%
restructuring plan. Following the transaction, US

hedge funds GoldenTree Asset Management and
York Global Finance Fund became Oi’s largest
shareholders, with a combined 27.2% equity International
Operations
stake. The funds raised will support Oi’s plan to 0.9%
Residential
increase investment in expansion of the fibre
38.3%
Others 1.0%
optic network and enhancement of the 4.5G
network. Oi plans to invest a total of BRL 21bn
over the 2019-2021 period.
Source: Company Data, Reuters, Valor Economico, Teletime

Algar Telecom SA

Algar Telecom was founded in 1954 under the
name of CTBC – Companhia de Telecomunicacoes
33.4%
do Brasil Central – as the telecom services unit of
Brazil’s industrial group Algar. As of December 27.9% 28.7%
2018, it was the sixth-largest mobile telephony

operator in Brazil, with 1.3mn subscribers, which
2,716
represented a market share of 0.56%.
2,545
2,135
In 2007, the company issued corporate bonds,
thus becoming a publicly-traded company,
230
227
184
780
although not listed on the stock market. In 2010,
710
713
it received a licence to provide mobile telephony
services based on 3G technology in the H-Band, 2016 2017 Jan-Sep 2018
increasing its coverage from 87 to 233 Net Revenues EBITDA

municipalities. In 2013, CTBC changed its name to
Algar Telecom. In 2015, with the goal of
expanding its presence in the South and Balance Sheet, Consolidated, BRL mn
Southeast Regions of Brazil, the company
acquired local fibre-optic fixed broadband
1.78 1.80
services provider Optitel for USD 14.8mn. 1.70
At present, the company operates in three

business segments: B2C telecom services (mobile
and fixed-line telephony, fixed broadband and
4,148
3,694
pay TV for individual clients); B2B telecom

3,399
services (dedicated IP data links, VoIP services,

Ethernet services, clear channel and network
1,545
1,420
1,401
1,263
1,170
1,094
security services for corporate clients); and

business process outsourcing and IT management
2016 2017 Sep-18
services. As of September 2018, Algar Telecom
Total Assets Shareholders' Equity
operated a fibre optic network of 59,600 km in Net Debt Net Debt/EBITDA (ttm)
the Southeast, South, Central-West and Northeast
Regions of Brazil.

Algar Telecom SA
(cont’d)
Highlights Number of B2C Subscribers by Service,

thou, period-end
Thanks to its strategy of offering convergent 2,267 2,269
2,188
telecom services through triple-play and 90 82
88
quadruple-play plans (e.g. mobile and fixed-line 436 464
389
telephony, fixed broadband and pay TV), the
company ended September 2018 with 2.3mn B2C 507 535 542
subscribers, 0.4% down y/y. Compared to the
same month of 2017, the largest growth was
recorded in the number of fixed broadband
1,204 1,206
subscribers, which reached 464,000, 7% up y/y. Of 1,181
these, about 54% had broadband internet with

connection speeds of above 10 Mbps.
2016 2017 Sep-18
In the first nine months of 2018, Algar Telecom Mobile Telephony Fixed-Line Telephony
invested BRL 428.4mn, 32.6% up y/y. The bulk of Fixed Broadband Pay TV
Total
this investment was on the deployment of 11,100
km of fibre optic network, which allowed the
company to expand its presence in 16 Gross Revenues by Business Segment,
municipalities in the states of Alagoas, Espirito Jan-Sep 2018
Santo, Paraiba and Rio Grande do Norte.
In July 2018, the sovereign wealth fund of B2C Telecom

Services 31.8%
Singapore, GIC Private Limited, acquired a 25% BPO, IT
stake in Algar Telecom for BRL 1bn through a Management
Services
capital increase and the purchase of existing 26.8%
shares.
In August 2018, Algar Telecom won an auction for

the fibre optic assets of state-run electric utility
Cemig in the states of Ceara, Bahia, Pernambuco
and Goias, acquiring them for BRL 77.8mn. With B2B Telecom
Services
this transaction, the company aimed expanding 41.5%
its geographic coverage and offer of the state-run
electric utility Cemig services in the fast-growing
Northeast Region of Brazil.
Source: Company Data, ANATEL, EMIS DealWatch

06
REGULATORY
ENVIRONMENT

06 REGULATORY ENVIRONMENT CONTENTS
Key Bodies
Ministry of Science, Technology, Innovation and Communications (MCTIC)

Brazil’s Ministry of Communications (MC) was created in 1967, and until 2016 was responsible for
setting national policies on telephony, television and radio broadcasting services, postal services and
digital inclusion. In September 2016, the government merged MC with the Ministry of Science,
Technology and Innovation, creating the Ministry of Science, Technology, Innovation and
Communications (MCTIC). The change added more competences to the ministry, such as space and
nuclear policy regulation, and measures to promote innovation, automation and informatisation. At
present, MCTIC oversees several agencies and state-owned companies, such as the Brazilian Space
Agency, the National Nuclear Energy Commission, the National Council of Scientific and Technological
Development (CNPq), the state-run postal operator Correios, and the state-run telecom company
Telecomunicacoes Brasileiras SA (Telebras).
National Agency of Telecommunications (ANATEL)

ANATEL was created under the General Telecommunications Law 9,472 of 1997, as an entity
administratively and financially independent from the MC. Its main goals are to implement policies
and standards for the telecommunications sector; grant concessions and licences for all telecom
services (excluding radio and TV broadcasting services, which are in the competence of the MCTIC);
regulate the relationship between different operators; and protect the public interest. The rates for all
telecommunications services, excluding data transmission and pay TV, are subject to regulation by
ANATEL. The agency sets maximum rates for these services, which are adjusted annually by the
inflation rate. Any proposed regulation or action by ANATEL is subject to a period of public
consultation, and may be contested administratively before the agency itself or the Brazilian courts.
Telecomunicacoes Brasileiras SA (Telebras)

Telebras was created in 1972 as a state-run company that had the monopoly on the provision of
telephony services in Brazil. It was the single telephony provider in the country until 1998, when it
was divided and privatised. In 2010, the government reinstated Telebras and assigned it the
administration of the National Broadband Programme, which aims at providing broadband access to
40mn households, mainly in remote areas, through fibre optic networks or satellites. Under the
programme, Telebras acts as the backbone operator of a national fibre optic network, which had an
extension of over 28,000 km at end-2018. The state-run company is also the operator of the
Geostationary Defence and Strategic Communications Satellite (SGDC-1): the first geostationary
satellite owned by Brazil, this was launched in May 2017, after an investment of BRL 2.7bn. Around
70% of its capacity is used to provide broadband services across the country, with the remaining 30%
is used for military purposes.
Source: MCTIC, ANATEL, Telebras, Portal Brasil

Government Policy
New General Telecommunications Law

In November 2016, the Chamber of Deputies approved Law 79/2016, also known as the new General
Telecommunications Law, with the goal of improving the regulatory framework for the telecom sector.
The new regulation received the support of local telecom operators but was criticised by some parties
in the Brazilian Parliament. In essence, it introduced three major amendments:
i) Replacement of the current model of public concessions for fixed-line telephony services by a model
of authorisation under the private regime. The current model imposes a series of obligations on
concessionaires, from pricing rules to the need to universalise the service across the country.
Companies have criticised the model, claiming that it imposes large investment costs on outdated
technologies like public payphones and fixed-line telephony, which limits their capacity to invest in
4G mobile technology and fixed broadband services. The new model will promote competition, as it
will give companies more flexibility to set prices. They will also have more freedom to choose their
regions of operation, since there will be no requirements to provide the service in the entire country.
ii) Elimination of the so-called “reversible goods” rule: The current concession model determines that
once the concession contract expires (which is bound to happen in 2025 for all four major telecom
operators in Brazil), their infrastructure, including telecom towers, fibre optic networks, equipment
and even some real estate, becomes the property of (“reverts” to) the Brazilian state. According to the
latest estimates of the Federal Audit Court (TCU), there were over eight million such “reversible”
properties in Brazil, valued at BRL 105bn, at end-2013. The new regulation would allow telecom
operators to maintain ownership of these assets after the expiry of the concession contracts.
iii) Licence renewal: The new law revokes the limit on extensions for radio frequencies’ use and
satellite exploitation rights (granted for periods of 20 years and 15 years, respectively, with options
for renewal for the same periods). Under the proposed law, more than one renewal would become
possible. The bill also converts the fees due from concessionaires to the government for the use of
radio frequencies into investment commitments in infrastructure, mainly in 4G network and fibre
optic infrastructure.
In December 2016, Law 79/2016 was approved by a temporary commission of the Senate and went
directly to the president’s office for approval. However, in response to an injunction by some senators,
the Supreme Court issued a decision in February 2017 obliging the Senate to analyse the bill through
the regular legislative procedure. As of February 2019, no vote on the matter has been scheduled. In
the same month, Julio Semeghini, executive secretary at MCTIC, said that the government of president
Bolsonaro was working to gather support for the bill in the Senate, as it was badly needed in order to
provide legal certainty and promote investment in the ICT sector.
Source: ANATEL, Teleco, Chambers and Partners, Thomson Reuters Practical Law, Teletime, TeleSintese

Government Policy
(cont’d)
National Connectivity Plan

In October 2017, the government launched a public consultation on a new National Connectivity Plan
(PNC). This was to act as a successor to the National Broadband Plan, adopted in 2010 to provide fixed
broadband to 40mn households – a goal that has not been fulfilled. The main objective of the PNC is
to propose actions to extend access to high-speed internet, both fixed and mobile, to the entire
territory of the country. PNC is based on three main pillars: (i) use part of the taxes paid by telecom
companies to develop national broadband infrastructure; (ii) convert fines applied to telecom
companies into investments for improving the quality of the service; and (iii) promote investment in
fixed-line infrastructure through the liberalisation measures of the New General Telecommunications
Law. As of February 2019, the implementation of the PNC is stalled, as a result of the pending
approval of the New Telecommunications Law.
Internet For All Programme

In March 2018, the government launched the Internet for All programme, to provide cheap broadband
services to remote areas via satellite, for both the general population and public educational,
healthcare, and social assistance institutions. Under the initiative, Telebras will deploy antennae to
transmit an internet signal originating from Brazil's geostationary satellite SGDC-1. Yet, legal disputes
have stalled the implementation of the initiative. After a public auction in October 2017, which failed
to attract interested parties, Telebras signed an agreement with US company Viasat in February 2018
to build the satellite’s ground network, to ensure the delivery of broadband services. However, the
agreement was then the subject of a court appealed before by Brazilian companies demanding more
transparency in the selection procedure. In October 2018, the Federal Court ruled in favour of Telebras,
thus reactivating the programme. Over 4,000 municipalities had enrolled in the initiative by end-2018.
Measures to Promote Infrastructure Sharing
In September 2017, ANATEL approved a new regulation for infrastructure sharing between telecom
operators. It mandated local operators to share their telecom towers and support infrastructure in a
non-discriminatory way and at reasonable prices. The regulation also mandated that all telecom
towers located within 500m of one another are subject to compulsory sharing, with the exception of
towers installed prior to May 2009. Telecom operators have a transitional period of three years to
comply with the compulsory sharing rule. In line with the same policy, in July 2018, ANATEL approved
an agreement between incumbent players TIM and Oi to share frequency bands for 4G services. In
November 2018, Brazil's competition regulator CADE also gave consent to the deal, stating that
although it presents some competition concerns, it has reduced the prices for final consumers due to
the lower costs and efficiency gains achieved by the two mobile operators.
Source: ANATEL, MCTIC, Baker McKenzie, TeleSintese, Mobile Time, Folha de S.Paulo, Valor Economico

Government Policy
(cont’d)
Implementation of 5G Technology
In February 2017, the government, in cooperation with representatives of the ICT sector and of
academic and research institutions, launched the Brazil 5G Project, an initiative aiming at promoting
the construction of the ecosystem for deployment of 5G technology-based mobile services. Among its
objectives are: to develop products and engineering solutions to implement 5G technology in Brazil; to
participate in international forums in order to establish a common baseline on future global 5G
standards; and to promote the development of the Internet of things (IoT) industry. As of end-2018,
the board of directors of Brazil 5G Project has approved five guiding documents in the areas of
telecom infrastructure, use of satellite networks as backhaul for 5G, global 5G pre-standards and
standardisation of 5G networks. In February 2019, ANATEL’s president, Leonardo Euler de Morais,
announced a public tender for new frequency bands for deployment of 5G, to be held in March 2020.
The agency will offer capacities of 200 MHz on the 3.5 GHz band, 100 MHz on the 2.3 GHz band, and 10
MHz on the 700 MHz band. Morais said that the goal of the government was not to raise funds from
the auction, but to promote the development of the technology by imposing coverage requirements
for the low frequency bands and capacity requirements for the high frequency bands. The 26 GHz
millimetric wave frequency – which will be used for 5G services in other countries – will not be offered,
as the technical studies of ANATEL on it will not be ready in time.
National Plan for the Internet of Things (IoT)
In October 2017, the government presented the concept for the National Plan for the Internet of
Things (IoT), a comprehensive plan for IoT development in Brazil. In essence, it aims to provide credit
lines at preferential interest rates, from the state-run development bank BNDES and the Brazilian
Innovation Agency (FINEP), for research and development of innovative IoT products and services in
four strategic areas: smart cities, healthcare, agribusiness and industry. However, the actual
implementation of the plan was stalled by gaps in the regulation related to the main concepts for the
IoT technology. Among the key regulatory issues was whether IoT products and services should be
considered a value-added service, like fixed broadband, or a telecommunications service. Value-added
service providers pay lower taxes, of less than 20% of their income, compared to a tax burden of 40%
imposed on telecommunications services. The exact regulatory framework for the IoT industry was not
approved until end-2018, thus it was inherited by the administration of president Bolsonaro. In
February 2019, Marcos Pontes, Minister of Science, Technology, Innovation and Communications, said
that the government aimed to implement the plan in 2019, after resolving the most contested topics.
Meanwhile, after a public call for proposals – which produced keen interest among Brazilian startups
and R&D institutions – BNDES selected 15 projects for development of products and services based on
the IoT technology, which will receive subsidies for a total of BRL 30mn.
Source: ANATEL, MCTIC, TELEBRASIL, McKinsey & Company, Tech in Brazil, TeleSintese, Teletime, ComputerWorld, Baguete

07
MOBILE
TELEPHONY

07 MOBILE TELEPHONY CONTENTS
Highlights
Overview
Mobile telephony is the largest ICT subsector, accounting for 72.5% of the total subscriber base at
end-2018 and for 42.9% of total gross revenue in January-September 2018. The economic recession
over the 2015-2016 period, which restricted Brazilians’ disposable incomes, unleashed a restructuring
of the market, and the number of subscribers has been declining steadily since 2015. This was
aggravated by intensifying market competition, which forced incumbents to reduce and eventually
eliminate tariffs for calls to numbers in the networks of other operators, as well as to offer attractive
bundled plans for mobile telephony and mobile broadband. As a result, consumers were encouraged
to cancel some of their multiple mobile telephony subscriptions. Nevertheless, with 229.2mn
subscribers at end-2018, Brazil continued to be among the top five mobile telephony markets globally.
Drivers and Challenges

In line with global trends, Brazil’s mobile telephony market is living through a rapid transition from a
voice-based to a data-based revenue model. Traditional voice services are being replaced by social
media messaging apps, such as WhatsApp, Facebook and Snapchat. Moreover, with the rising use of
OTT services, including Spotify and Netflix, and video-hosting websites such as YouTube, mobile
broadband services have become the main revenue growth factor for mobile operators. In January-
September 2018, data services accounted for 71.4% of the average revenue per user (ARPU), up from
21.2% in 2012. Changing demand patterns have encouraged investment in expansion of 4G networks
and in the development of advanced technologies (LTE Advanced, LTE Advanced Pro). At end-2018,
about 95.4% of the population was covered by a 4G network, while 72.8% of Brazilians could benefit
from the higher connection speeds offered by the LTE Advanced Pro technology.
Outlook
Although the mobile telephony market is close to reaching maturity, the subsector still offers high
growth opportunities, especially regarding the use of mobile broadband services. Ongoing voice-to-
data substitution, coupled with the entry into the labour force of tech-savvy consumers, will continue
to drive the demand for value-added internet-based services through mobile devices. This, coupled
with the strengthening of the economy and the increase of Brazilians’ disposable incomes, will also
encourage the ongoing migration towards postpaid plans, which include attractive mobile broadband
packages. According to EMIS Insights estimates, the number of postpaid subscribers in Brazil will
grow at a strong CAGR of 6.2% over the years 2019-2023, to the detriment of prepaid subscribers,
whose numbers are set to decrease at an annual average rate of 2.8% over the same period.
Source: ANATEL, TELEBRASIL, Teleco, IPEA, EMIS Insights

Main Events
§ In early 2018, ANATEL created a working group with representatives of the four largest mobile
telephony operators – Vivo, Claro, TIM and Oi – for the signing of a multilateral roaming agreement
for the provision of data and voice services in municipalities with less than 30,000 inhabitants.
With the initiative, the regulator aims to increase the availability of voice and data services in
small regions covered only by one or two mobile operators. Only 30% of the 4,500 municipalities
with a population of less than 30,000 inhabitants were covered by all of the four largest mobile
telephony operators at end-2018. Thus, ANATEL proposes that, regardless of the operator that is
serving a municipality, all clients of the four mobile operators should be able to connect to the
network on a roaming basis. In February 2019, local news portal Teletime reported that ANATEL
aims to implement the roaming agreement between the four major operators by the end of 2019.
However, local mobile operators are still discussing who will incur the additional costs for using a
third-party network and whether the roaming agreement would threaten the market positions and
return on investment of companies that had invested in expansion of their networks in less
populated areas.
§ In January 2018, Brazilian telecom operator Algar Telecom said that the sovereign wealth fund of
Singapore, GIC Private Limited, had agreed to acquire a 25% stake in the company for BRL 1bn. The
transaction comprised a capital injection of BRL 352mn and the acquisition of existing shares for
BRL 648mn from the controlling shareholder of Algar Telecom – Algar SA Empreendimentos e
Participacoes. Luiz Alexandre Garcia, CEO of Algar Telecom, in an interview with local newspaper
Valor Economico, said that the company will use the funds raised to expand its presence in the
fast-growing Northeast Region of Brazil, as well as to consolidate its positions in the corporate
telecom market in the South and Southeast Regions. As a result of the investment agreement,
Algar Telecom suspended its plans to go public, which had been announced in October 2017.
Nevertheless, Garcia stated that the company did not rule out the listing of its shares on the B3
Stock Exchange in the medium term. In July 2018, Algar Telecom announced the completion of the
transaction.
§ In October 2018, Brazilian telecom operator TIM agreed to acquire the client portfolio of Porto
Seguro Conecta – the first MVNO that began operations in Brazil back in August 2013. The deal
follows the decision of Porto Seguro Conecta, a subsidiary of local insurer Porto Seguro, to
discontinue its operations. According to a report of local news portal Mobile Time, the heavy
regulatory burden on MVNOs in Brazil – which is similar to that for traditional mobile telephony
operators – was the main factor behind the exit of the company from the market. Porto Seguro
Conecta had been providing mobile telephony and mobile broadband services to 735,000
subscribers, as of August 2018, mainly in the M2M segment, on the basis of a network-sharing
agreement with TIM. At the end of October 2018, Brazilian competition regulator CADE approved
the deal.
Source: EMIS DealWatch, ANATEL, Reuters, Valor Economico, Mobile Time, Teletime

Comments Number of Mobile Telephony Subscribers,

year-end
Despite the uptick in the economy in 2018, the 280.7
number of mobile telephony subscribers fell for 271.1
261.8
the fourth year in a row, by 3.1% y/y to 229.2mn at 257.8
end-2018. This was explained by intensifying 8.1% 244.1
236.5
market competition, which forced companies to 229.2
offer plans with unlimited minutes, even for calls 3.5% 3.6%
between mobile numbers on the networks of
different operators. Thus, clients were
encouraged to cancel some of their multiple -3.1% -3.1%
mobile telephony plans. Yet, a positive sign was -5.3%
the steady increase of the share of postpaid -8.2%

customers to 43.5% at end-2018, reflecting the
2012 2013 2014 2015 2016 2017 2018
higher disposable incomes of households and
Number of Subscribers, mn y/y change
heavy demand for “control plans”.
Mobile Telephony Density Rate per 100 Mobile Telephony Subscribers by Type,
Inhabitants, year-end year-end
100%
138.0 90% 19.4% 21.9% 24.1%
131.4 134.9 28.4%
125.7 32.5% 37.2%
80% 43.5%
118.0 113.9 109.9 70%
60%
50%
40% 80.6% 78.1% 75.9% 71.6% 67.5%
30% 62.8%
56.5%
20%
10%
0%
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018
Pr epaid Postpaid


(cont’d)
Number of Mobile Telephony Subscribers by Technology, mn, year-end

300 0.01
0.02
0.10 0.00
16.4
15.3 0.00 0.00
250 13.5 17.3 0.00
17.2 18.2
22.1
200 113.0 66.0 47.6 32.4 24.8
159.7
150 195.7 52.4
83.6
119.1
100 149.1
144.7
129.8
50 94.8 102.2
52.5 60.1
25.4
0 1.3 6.8
2012 2013 2014 2015 2016 2017 2018
4G (LTE) 3G (WCDMA) GSM Data Ter minals CDMA
Mobile Telephony Subscribers by 3G and 4G Technology Coverage, % of

Technology, Dec 2018 Population, year-end
3G
(WCDMA)
22.8%
GSM
99.5%
98.6%
98.2%
10.8%
95.4%
94.9%
92.0%
90.3%
87.9%
86.0%
71.3%
55.0%
41.8%
Data
Terminals
9.7%
4G (LTE)
56.6% 2012 2013 2014 2015 2016 2017 2018
3G (WCDMA) 4G (LTE)

FOCUS POINT
Mobile Telephony Density Rate by State,* Dec 2018
> 120%
110-120%
100-110%
90-100%
109.9
National
0-90%
Average
* Per 100 inhabitants
Source: ANATEL

Mobile Broadband
Comments Number of Mobile Broadband

Subscribers, year-end
After steady growth rates in recent years, the 188.9 184.6
180.5 183.7
number of mobile broadband subscribers fell by
78.3%
2.3% y/y at end-2018. This was the result of 74.2% 157.9
deactivation of multiple SIM cards by consumers

and of a steady rise in the prices of mobile 53.2%
103.1
broadband plans. Yet, a positive sign was growth
in 4G mobile broadband connections, which
reached a share of 70%, as of December 2018. 59.2
This was favoured by the expansion of the 4G 14.3%
network in 606 new municipalities in 2018,
1.8% 2.8%
reaching a total of 4,429 municipalities, which are -2.3%
home to 95.4% of the population. In 2018, a total
2012 2013 2014 2015 2016 2017 2018
of 27.6mn new 4G mobile phones were activated,
resulting in a base of 129.8mn devices at the end
of the year.
Number of Mobile Broadband Mobile Broadband Subscribers by

Subscribers by Technology, mn, year-end Technology, Dec 2018
200 3.0 2.4

6.0 4.5
180
160 6.4 25.4 3G
60.1 (WCDMA)
140 6.8
102.2 28.4%
120 129.8
7.0
100
1.3
80
144.7 149.1
60 6.7 4G (LTE)
119.1
94.8 70.3%
40 83.6
20 52.5 52.4
0 Data
2012 2013 2014 2015 2016 2017 2018 Terminals
1.3%
3G (WCDMA) 4G (LTE) Data Ter minals
Source: ANATEL, TELEBRASIL, Teleco, TeleSintese

Mobile Telephony Revenue
Comments Mobile Telephony Gross Revenue

The mobile telephony market in Brazil is
experiencing a rapid transition from a voice- 101.7 103.3 103.4
98.3 97.4
based to a data-based revenue model. In January- 90.2
12.7%
September 2018, data services accounted for 75.8
9.5%
71.4% of the average revenue per user (ARPU), up
from 21.2% in 2012. This was due both to robust
demand for mobile broadband and to a steady 1.6%
3.2%
increase in prices. A December 2018 report of 0.1%

-0.9%
ANATEL showed that the average price of a 1GB
-5.0%
mobile broadband plan in Brazil reached BRL 50
in 2017, on a PPP basis, up from BRL 21.1 in 2015.
This upward price adjustment was in line with 2012 2013 2014 2015 2016 2017 Jan-Sep
2018
local telecom operators strategy for offsetting
Gross Revenue, BRL bn y/y change
lower usage and falling prices of voice services.
Average Revenue per User (ARPU), BRL Average Price per Minute, BRL
21.8
20.9
19.8 19.5 0.18
18.8 19.4
18.2
4.2 0.15
5.0 0.14
6.0 0.13
7.6 9.6 13.0 15.6 0.12
0.11 0.11
0.10
0.09
0.08 0.08 0.08
15.6 14.5 0.06
12.8 0.05
10.7 9.8
7.9
6.2
2012 2013 2014 2015 2016 2017 Jan-Sep 2012 2013 2014 2015 2016 2017 Jan-Sep
2018 2018
Voice Data Total Including Taxes Excluding Taxes
Source: ANATEL, TELEBRASIL, Teleco, TeleSintese

08
FIXED-LINE
TELEPHONY

08 FIXED-LINE TELEPHONY CONTENTS
Highlights
Overview
Fixed-line telephony is the second-largest ICT subsector in Brazil, accounting for 12.1% of the
subscriber base at end-2018 and for 12.3% of total gross revenue in the first nine months of 2018.
However, having a fixed telephone went from being a sign of social status in the 1980s to being old-
fashioned and redundant in the 2010s. In line with the global trend of fixed-to-mobile substitution
and the increasing demand for mobile broadband services, the number of fixed-line telephony
subscribers in Brazil stagnated between 2010 and 2014. Economic recession in 2015 and 2016 period,
combined with the fact that tariffs for fixed-line telephony had become quite high relative to those
for mobile telephony further encouraged Brazilian households to cancel their fixed-line telephony
subscriptions. As a result, as of December 2018, there were 38.3mn subscribers of fixed-line telephony,
6% down y/y, corresponding to a density rate of 18.3 per 100 inhabitants.

In recent years, the development of the fixed-line telephony subsector has been hindered by the
rising trend of eliminating fixed-line telephony services in favour of mobile ones, as a result of
changing consumer habits. An additional drag on the financial performance of local providers has
been the series of cuts in fixed-line telephony tariffs adopted by ANATEL since 2013, in an effort to
make the service more affordable for consumer. Partial relief has come from the proliferation of
bundled plans (e.g. triple- and quadruple-play packages) offered by incumbents, as well as of
attractive unlimited plans for both residential and corporate clients provided by smaller companies
aiming to grab market share. However, the underdeveloped fixed-line infrastructure has limited
players’ ability to offer bundled plans outside major urban areas.
Outlook
EMIS Insights forecasts that the number of fixed-line telephony subscribers will continue to decline at
an annual average rate of 1.3% over 2019-2023, due to the ongoing trends of fixed-to-mobile and
voice-to-data substitution. Intensifying market competition, coupled with ANATEL’s policy of reducing
tariffs on fixed-line telephony, will continue to exert pressure on the financial performance of the
subsector. EMIS Insights predicts that the gross revenue from fixed-line telephony services will
decrease at an annual average rate of 1.4% over 2019-2023. However, this downward trend could
potentially be slowed, halted or even reversed after the adoption of the new General
Telecommunications Law, which replaces the current model of public concessions for fixed-line
telephony services. The new model will grant companies more freedom to set prices and decide their
regions of operations, which could stimulate investments in expanding fixed-line services in under-
served areas.
Source: IBGE, TELEBRASIL, ANATEL, Teleco, Valor Economico, EMIS Insights

Main Events
§ In June 2017, the government announced that it would not renegotiate the concession contracts of
fixed-line telephony providers in Brazil, which set requirements for coverage, investment and
quality of service. The decision was a result of delay in the adoption of Draft Law 79/2016, also
known as the new General Telecommunications Law. In essence, the law replaces the current
model of public concessions for fixed-line telephony services with a model of authorisation under
the private regime. It also eliminates the requirement for mandatory provision of fixed-line
telephony service throughout the country and gives companies more freedom to set prices. In
exchange, local telecom operators will be subject to requirements for investment in the
development of high-speed fixed broadband networks. A potential new revision of the contracts is
scheduled for 2020. Until then – or until the adoption of the General Telecommunications Law –
local fixed-line telephony providers must fulfil their obligations to invest in providing fixed-line
telephony and public phone coverage. Over the 2017-2018 period, representatives of local telecom
operators had been calling for the approval of Draft Law 79/2016, on the grounds that it would
allow them to redirect mandatory investments in fixed-line telephony to the development of other
services for which there is strong demand, such as fixed broadband.
§ In August 2018, the state-run electric utility Companhia Energetica de Minas Gerais (Cemig) held an
auction to divest its fibre optic assets, as part of the company’s strategy of selling non-core assets
and reducing its debt. Up for auction were fibre optic networks in the Southeast and Northeast
Regions of Brazil, leased to landline telephone operators and to internet, cable TV and data storage
companies. They were divided in two lots. The first lot, comprising assets in the states of Sao
Paulo, Minas Gerais and Rio de Janeiro, was won by US telecom tower operator American Tower for
BRL 571mn, which represented a premium of 70.4% over the minimum asking price. The second lot,
which includes assets in the states of Ceara, Bahia, Pernambuco and Goias, was acquired by
Brazilian telecom operator Algar Telcom for BRL 77.8mn, equivalent to a premium of 140% over the
minimum asking price. With the transaction, Algar Telecom aims to expanding its geographical
coverage and offer services in the Northeast Region of Brazil. In November 2018, Cemig announced
the completion of both transactions after all regulatory approvals were obtained.
§ In February 2019, ANATEL announced a reduction in the maximum tariff of the interconnection fee
for calls from fixed-line to mobile phones. The regulator approved downward adjustment of tariffs
for both local and long-distance calls, of between 2.2% and 9.7%, depending on the type of call. The
average reduction in prices for local calls was set at 7.75%. The biggest cut in prices was the 9.7%
mandated for Telefonica Brasil (Vivo) – the leading fixed-line telephony operator – followed by
Sercomtel (7.6%), Oi (7.5%), Algar Telecom (7.1%) and Telemar Norte Leste (7%). The decision was in
line with ANATEL’s goal of making fixed-line telephony services more affordable for the population.
Source: EMIS DealWatch, ANATEL, Valor Economico, O Globo, Teletime

Fixed-Line Telephony Subscribers
Comments Number of Fixed-Line Telephony

Subscribers, year-end
Since 2015, the number of fixed-line telephony
44.9 45.0
subscribers in Brazil has followed a steady 44.3
43.7
downward trend, in line with the customers’
growing preference for mobile voice and data 3.0% 41.8
services. Thus, the fixed-line telephony density 40.8
1.3%
rate dropped to 18.3 per 100 inhabitants at end- 0.3%
2018. Moreover, the use of public payphones has 38.3
been decreasing steadily in line with the growing
-2.9% -2.6%
availability of mobile phones. As a result, ANATEL
-4.2%
continued to ease density requirements, which
allowed telecom operators to reduce the number -6.0%
of public payphones installed in the country.
2012 2013 2014 2015 2016 2017 2018
Fixed-Line Telephony Density Rate per Number of Public Payphones, year-end

100 Inhabitants, year-end
948.0
876.0 869.0 859.0
22.2 22.3 22.2 838.9 830.1 828.7
21.4
20.3
19.6
18.3
-0.2%
-0.8% -1.1% -1.0%
-2.3%
-6.3%
-7.6%
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 Sep-18
Number of Public Payphones, thou y/y change

FOCUS POINT
Fixed-Line Telephony Density Rate by State,* Dec 2018
> 40%
30-40%
20-30%
10-20%
53.9
National
0-10%
Average
* Per 100 households
Source: ANATEL

Fixed-Line Telephony Revenue
Fixed-Line Telephony Gross Revenue Average Price per Minute,* BRL

47.4
41.3
39.9 38.5
36.9 0.119
0.117
32.6
0.113 0.112
21.8 0.110
-3.4% -3.5% -4.2% 0.104

-8.6%
-11.6% -11.8%
-12.8%
2012 2013 2014 2015 2016 2017 Jan-Sep 2012 2013 2014 2015 2016 2017
2018
Gross Revenue, BRL bn y/y change * Including taxes
Comments
The gross revenue from fixed-line telephony has been decreasing in recent years, as a result of the
ongoing trends of fixed-to-mobile and voice-to-data substitution that have curbed the usage of fixed
telephones. An additional negative influence on the subsector’s financial performance has been the
series of cuts in the maximum tariffs for fixed-line telephony adopted by ANATEL since 2013, in an
effort to improve the competitiveness of the service relative to mobile telephony. Between 2013 and
2017, the average price per minute dropped by a cumulative 5.9%. The latest price cuts by ANATEL
were in February 2019, when the regulator approved an average decrease of 7.75% in the tariffs for
local calls from fixed-line to mobile phones. This is expected to push down the gross revenue of the
subsector still further. The financial situation of local fixed-line telephony providers is also set to
remain under pressure due to intensifying market competition. On the one hand, incumbent players
like TIM are investing in winning new customers through attractive quadruple-play plans (i.e. mobile
telephony, fixed-line telephony, fixed broadband and pay TV). On the other hand, smaller telecom
operators, such as Algar Telecom, have focused on the provision of value-added services for niche
segments (e.g. small and medium-sized enterprises) to grab market share.
Source: ANATEL, TELEBRASIL, Teleco, O Globo

09
FIXED
BROADBAND

09 FIXED BROADBAND CONTENTS
Highlights
Overview
Fixed broadband was the third-largest ICT subsector, accounting for 9.8% of subscribers at end-2018
and for 18.2% of the total gross revenue in the first nine months of 2018. For the fourth year in a row,
it was the only subsector to record an increase in subscriber numbers: these rose by 7.4% y/y to 31mn,
thanks to rising demand for value-added internet services and to intensifying market competition,
which pushed down prices. Nevertheless, the subsector’s gross revenue also continued to grow at
double-digit rates, due to expansion of the subscriber base and steady migration towards plans with
higher speeds. Indeed, the number of clients with ultra-high-speed broadband plans (i.e. those with
internet connections of over 34 Mbps) jumped by no less than 88.6% y/y in 2018, reaching a share of
26.1% of the subscriber base. The number of fixed broadband subscribers using fibre optic technology
surged by 79.3% y/y in 2018, thanks to the expansion of local providers’ fixed-line networks.

Although IBGE’s latest annual household survey, released in December 2018, showed that about 70%
of the Brazilian population above 10 years old were internet users in 2017, most of them (97%) relied
on mobile phones to access the Internet, while only 56.6% used personal computers. This was
attributable to the relatively low level of penetration of personal computers (just 43.4% of surveyed
households had them) and the shortage of fixed-line infrastructure in suburban and rural areas. in
March 2018, to address these deficiencies, the government launched the Internet for All programme
which aims to provide cheap broadband services to remote areas via satellite, using Brazil's
geostationary satellite SGDC-1. The government estimated that, at-end 2017, some 53mn Brazilians
either did not have access to the Internet or were living in areas with deficient fixed-line
infrastructures. Over 4,000 municipalities had enrolled in the programme by December 2018.
Outlook
The number of fixed broadband subscribers in Brazil will continue to grow, favoured by three factors:
rising demand for value-added internet services that require a fast and stable internet connection;
the entry into the market of new fixed broadband operators offering plans at attractive prices; and
government initiatives to expand the national fixed-line infrastructure (under the National
Connectivity Plan) and to provide cheap broadband services to remote areas via satellite (under the
Internet for All programme). A setback for the market could potentially come from the imposition of
limits on data usage on fixed broadband plans as requested by the large telecom operators – a highly
controversial measure that is being assessed by ANATEL, as of February 2019. As a result, EMIS
Insights is relatively cautious on fixed broadband subscriber numbers, which are seen as likely to
grow at a moderate CAGR of 4.9% over the 2019-2023 period.
Source: ANATEL, IBGE, TELEBRASIL, Teleco, O Globo, IPEA, EMIS Insights

Main Events
§ In recent years, US private equity firm Acon Investments has pursued an ambitious expansion
strategy in Brazil’s telecom market, through acquisitions of regional fixed broadband providers. In
2015, the company acquired local fixed broadband providers Cabo Telecom, based in the city of
Natal, and MultiPlay, with operations in the city of Fortaleza, with a total of 120,000 subscribers.
Later on, Acon expanded its presence with the purchase of local fixed broadband provider Idea
Telecom, with operations in the municipality of Caucaia, Ceara state, and with the deployment of
its own fibre optic network, based on FTTH technology, in the state of Paraiba. Over the course of
2018, Acon completed the acquisition of three more internet providers in Brazil: Direta Telecom
(serving 7,000 clients in the municipalities of Guaxupe and Guaranesia, Minas Gerais state); Alegra
Telecom (with operations in the municipality of Sao Joao da Boa Vista, Sao Paulo); and Conexao
Telecom (active in the interior of Sao Paulo state). Thus, the firm had expanded its portfolio to
more than 250,000 subscribers by end-2018. Moreover, in December 2018, it launched triple-play
services (i.e. fixed broadband, pay TV and fixed-line telephony) under the Cabo Telecom brand in
Sao Paulo state. In February 2019, Gilbert Minionis, CEO of Cabo Telecom, in an interview with local
news portal PontoISP, said that the company was planning to invest BRL 100mn annually in
expansion of its fibre optic network, with the goal of reaching 600,000 subscribers in a period of
three to four years. The target areas are high-income municipalities with under-served demand in
the interior of the states of Sao Paulo and Minas Gerais.
§ In January 2019, EllaLink Ireland, a subsidiary of Spanish fibre infrastructure provider IslaLink,
announced the start of the construction of a submarine cable system between Europe and Latin
America. The 9,200 km system will provide the first ever direct fibre pair between the two
continents, connecting data centres in Madrid, Lisbon, Marseille, Fortaleza and Sao Paulo. Alcatel
Submarine Networks, a subsidiary of Finnish telecom group Nokia, was selected to build the cable
system, which is set to begin operations in 2020. It will offer secure and high-capacity connectivity
on a low latency, through four fibre pairs with a combined capacity of 72 Tbps, serving the growing
needs of the Latin American and European markets. Until end-2018, EllaLink operated as a joint
venture between IslaLink and Brazil’s state-run Telebras. However, in December 2018, Telebras
agreed to swap its equity interest for the right to use the submarine cable once it is completed.
The transaction was motivated by the low investment capacity of the Brazilian company. The
project is set to demand an investment of over USD 185mn. In July 2018, the European Commission
granted financial support of EUR 25mn for the submarine cable system, as part of its Building
Europe Link to Latin America (BELLA) initiative.
Source: EMIS DealWatch, Company Data, PontoISP, TeleSintese

Comments Number of Fixed Broadband Subscribers,

year-end
Over the 2012-2018 period, the number of fixed
broadband subscribers in Brazil expanded at a 31.0
28.9
strong CAGR of 7.8%. This was favoured by rising 26.8
25.5
demand for high value-added internet services 24.0
22.2
that require a fast and stable connection. On the 19.8
supply side, the market was supported by
liberalisation measures adopted by ANATEL in 16.5%
2013 that reduced the entry barriers for new 11.9%

players. As a result, between 2012 and September 8.0% 8.0% 7.4%
2018, a total of 3,579 fixed broadband providers 6.4%
5.0%
began operations in Brazil, offer of plans at
competitive prices and mainly targeting areas
2012 2013 2014 2015 2016 2017 2018
with under-served demand outside the Southeast
Region.
Fixed Broadband Density Rate per 100 Internet Users in Brazil

Inhabitants, period-end
14.8
13.9 126.3
13.0 116.1
12.5
11.8
11.0 102.1
95.4
10.0
84.2 85.6 69.8%
64.7%
54.4% 57.5%
49.2% 49.4%
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017
Number of Inter net Users, mn
Number of Inter net Users, % of Population Above 10 Year s Old
Source: ANATEL, TELEBRASIL, Teleco, IBGE


(cont’d)
Number of Fixed Broadband Subscribers by Access Speed, mn, year-end
35.0
30.0
4.3 8.1
25.0 1.4 2.9
0.8
0.3
20.0 0.1
8.4 11.2 14.3 15.5 16.1 17.9

15.0
17.8
10.0
9.8 9.3
5.0 7.4 7.4 6.7 6.0
4.7
0.0 1.5 1.4 1.5 1.2 1.0 0.8 0.4
2012 2013 2014 2015 2016 2017 2018
0-512 Kbps 512K - 2 Mbps 2-34 Mbps >34 Mbps
Number of Fixed Broadband Subscribers by Technology, mn, year-end
35.0
0.8
30.0 0.7
0.4 2.1
0.3 2.1
0.3 1.9 5.6
25.0 1.6
0.3 3.1
1.3 1.7
0.4 1.1 1.3
20.0 0.9
0.8 0.7 8.3 8.6 9.0
7.6 9.4
0.3 6.6
15.0
5.8
10.0
13.0 13.2 13.3 13.4 13.1 12.2
12.1
5.0
0.0 0.4 0.5 0.6 0.7 0.8 0.9 0.9

2012 2013 2014 2015 2016 2017 2018
Others xDSL Cable Modem Fibre Spread Spectrum Ethernet
Source: ANATEL, TELEBRASIL, Teleco, IBGE

FOCUS POINT
Fixed Broadband Density Rate by State,* Dec 2018
> 60%
45-60%
30-45%
15-30%
44.6
National
0-15%
Average
Source: ANATEL

Fixed Broadband Revenue
Fixed Broadband Gross Revenue
41.3
33.2 32.1
30.6 31.6
28.5
26.2
29.9%
24.2%
15.1%
9.0%
7.2%
5.2%
3.3%
2012 2013 2014 2015 2016 2017 Jan-Sep 2018
Gross Revenue, BRL bn y/y change
Comments
In 2017, the gross revenue of the fixed broadband subsector rose by 24.2% y/y to BRL 41.3bn, according
to TELEBRASIL. In the first nine months of 2018, the subsector’s growth accelerated, with turnover
expanding by 29.9% y/y. This positive development was supported by a steady increase in the number
of subscribers and by migration of customers towards plans with higher speeds: indeed, as of
September 2018, 26.1% of subscribers had plans with speeds of above 34 Mbps, up from 10.9% at end-
2016. As ANATEL does not regulate the price of fixed broadband services, average price levels are
defined by market forces. Notably, according to a study by Brazilian consultancy Teleco dating from
July 2018, Brazil had the fourth lowest price for a 1 MBps fixed broadband plan – among 23 countries
surveyed in the Americas, Europe, Asia and Australia – with Russia, Turkey and India alone enjoying
lower prices. The survey was based on the so-called ‘Popular Internet’ plan in Brazil, which provides
fixed broadband with a download speed of at least 1 Mbps and data consumption of not less than 1
GB. The plan, which is exempt from the ICMS state tax, had an average price of USD 8.5 per month.
Nevertheless, it should be noted that fixed broadband plans with higher download speeds and data
consumption remain relatively costly for Brazilians in purchasing power parity terms, due to the high
tax burden on fixed broadband services (on average 43.2% of net revenues in 2018).

Fixed Broadband Prices
Average Price of 1 MBps Fixed Average Price of 30 MBps Fixed

Broadband Plan,* USD/month Broadband Plan,* USD/month
Australia 51.1 South Africa 73.5
Germany 46.5 Australia 58.5
Italy 33.6 Canada 49.6
South Korea 32.6 Germany 46.5
Ar gentina 28.3 Peru 42.8
Portugal 26.7 Colombia 42.1
Canada 26.7 Indonesia 41.9
United Kingdom 26.3 United States 39.0
Japan 25.3 United Kingdom 34.2
United States 25.0 Japan 33.6
Colombia 23.9 Mexico 33.0
France 23.3 South Korea 32.6
Chile 23.0 Italy 31.3
China 20.5 Ar gentina 27.6
Peru 18.3 Chile 27.6
Mexico 17.8 Portugal 26.7
Indonesia 17.5 France 23.2
Spain 17.3 Br azil 23.1
South Africa 12.1 China 21.1
Br azil 8.5 Spain 17.3
India 5.5 Turkey 16.3
Turkey 3.2 India 11.3
Russia 2.4 Russia 7.2
* Fixed broadband plan with a download speed of above * Fixed broadband plan with a download speed of above
1 Mbps and data consumption of at least 1 GB 30 Mbps and data consumption of at least 1 GB
Source: TELEBRASIL, Teleco

10
PAY TV

10 PAY TV CONTENTS
Highlights
Overview
Pay TV was Brazil’s fourth-largest ICT subsector, accounting for 5.6% of the number of subscribers at
end-2018 and for 11.8% of total gross revenue in the first nine months of 2018. Despite the uptick in
economic activity in 2018, the number of pay TV subscribers continued to decline, by 3% y/y. Three
main factors explain this development. A shift of consumer habits in favour of customised content at
convenient times has increased demand for online video-on-demand platforms. Second, high prices
for the service – the result of a high level of market concentration – have discouraged households
from having pay TV subscriptions. Third, the widespread use of pirate decoders have turned Brazil into
the country with the second-highest TV piracy rate in Latin America. On the other hand, high prices
have supported the gross revenue of the subsector, which has remained relatively stable since 2015,
despite the decrease in subscriber numbers.
Challenges
In line with global trends, the pay TV business model in Brazil is undergoing a deep transformation,
provoked by intensifying competition from OTT services, in particular Netflix. The success of Netflix in
Brazil is due to the provision of video-on-demand services at very low prices: these start from USD 5.4
per month, compared to an average of USD 24 per month for pay TV plans, according to the figures of
Argentine consultancy BB-Business Bureau. Since it entered Brazil in 2011, Netflix has expanded its
customer base to around 10mn subscribers (at end-2018). Moreover, a July 2018 report of British
consultancy Ampere Analysis showed that some 8% of Brazilian households were already using
subscription video-on-demand service as their main form of TV viewing. Another challenge is the
widespread use of pirate TV decoders in Brazil, which reached 3.3mn devices at end-2018.
Outlook
EMIS Insights predicts that the number of pay TV subscribers in Brazil will return to growth,
expanding at a CAGR of 0.6% over the 2019-2023 period. The acceleration of economic activity,
coupled with an improving job market and rising household incomes, will drive demand for pay TV
services, mainly in the form of the more affordable triple- and quadruple-play packages. On the
supply side, local regulator ANATEL’s stance of promoting competition in the pay TV market by means
of lower tax and regulatory burdens for small carriers is set to promote the entry of new players, thus
resulting in a gradual reduction of prices. Nevertheless, the rising popularity of OTT services and high
levels of TV piracy will be the major restraining factors explaining why the growth of the domestic
pay TV market will not be more pronounced in the medium term.
Source: ANATEL, TELEBRASIL, ABTA, Teleco, Ampere Analysis, BB – Business Bureau, EMIS Insights

10 PAY TV CONTENTS
Main Events
§ In March 2016, the government initiated the process of transition from analogue TV to digital
broadcasting. Under the timeframe adopted, the analogue TV signal is set to be switched off in
Brazil’s major cities by end-2018. This “analogue shutdown” will free the 700 MHz band, which will
be used for expansion of 4G technology-based voice and data services. In order to help low-income
groups, the government has been distributing kits allowing the reception of digital signals by
analogue TV sets: over 14mn households had received them as of December 2018. In January 2019,
the MCTIC announced the successful completion of the first stage of the process, with the
analogue TV signal switched off in 1,378 municipalities – including all state capitals – which are
home to 138mn Brazilians. Transition in the remaining 4,229 municipalities will be carried out in
stages, with the process completed by end-2023.
§ In July 2018, British consultancy Ampere Analysis announced its assessment that the US online
video streaming group Netflix had become the largest pay TV services provider in Brazil. According
to the estimates of the consultancy, the US company should have over 10mn subscribers in Brazil
at end December 2018, well above those of the leading traditional pay TV providers Claro (8.6mn),
Sky (5.3mn), Vivo (1.6mn) and Oi (1.6mn). As a result, Brazil became the world’s second-largest
Netflix market – after the US. Among the reasons for the success of Netflix on the Brazilian market
are its low monthly subscription prices (starting from BRL 19.9) and changing consumer habits,
especially higher demand for customised content and the proliferation of “binge-watching”.
Moreover, Ampere Analysis calculated that some 8% of Brazilian households already used a
subscription video-on-demand service as their main form of TV viewing. Nevertheless, Netflix was
lagging behind the traditional pay TV providers in Brazil in terms of revenues: Ampere Analysis
estimated that, of each BRL 100 Brazilians spent on pay TV services, Netflix accounted for only BRL
5.5. Most went to the largest players: BRL 36.4 to Sky, BRL 29.4 to Claro, BRL 8.4 to Vivo, and BRL 6.9
to Oi. Ampere Analysis also warned that “cord-cutting” is gaining speed in Brazil: for every three
new subscriptions to video-on-demand services in 2017, there was one cancellation of a plan for
cable TV or satellite TV.
§ In September 2018, a study was published by British consultancy Comparitech, showing that Brazil
had the world’s third-lowest price for Netflix video-on-demand services, at USD 5.4 per month for a
basic subscription plan – higher only than those of Turkey (USD 3.3) and Argentina (USD 4.7). In
comparison, the highest prices were in force in Denmark (USD 12.4) and Switzerland (USD 12). In
February 2019, Netflix announced an upward price adjustment of its plans in Brazil, the first one
since 2015. It raised the price for watching on two and four screens to BRL 27.9 and BRL 37.9 per
month, respectively, effective from July 2019. However, the company retained the price of its basic
monthly subscription at BRL 19.9.
Source: ANATEL, Ampere Analysis, Comparitech, O Globo, CanalTech, Uol, Desta, TecMundo

10 PAY TV CONTENTS
Pay TV Subscribers
Comments Number of Pay TV Subscribers, year-end

In 2018, the number of pay TV subscribers in
Brazil dropped for the fourth year in a row, falling
3% y/y, to 17.6mn as of December 2018. Apart 27.5% 19.6 19.1 18.8
18.0 18.1 17.6
from the economic recession over the 2015-2016 16.2
period, which reduced the purchasing power of
the population, a major negative for the market
was the increasing use of pirate decoders. 11.3%
8.6%
According to the Brazilian Association of Pay TV
Providers (ABTA), there were over 3.3mn pirate TV
decoders in Brazil at end-2018, which were -2.3% -1.6%
-3.7% -3.0%
causing annual losses of BRL 4bn for local pay TV
providers. An additional blow has been the
2012 2013 2014 2015 2016 2017 2018
exponential rise of online video streaming
services, such as Netflix.
Pay TV Density Rate per 100 Inhabitants, Pay TV Subscribers by Technology, Dec
year-end 2018
Cable TV
9.6 42.0%
9.3
9.1
8.9
8.7
8.4
8.1
DTH
(Satellite TV)
54.0% FTTH
4.0%
2012 2013 2014 2015 2016 2017 2018 MMDS

0.002%
Source: ABTA, ANATEL, TELEBRASIL, Teleco, O Globo

10 PAY TV CONTENTS
FOCUS POINT
Pay TV Density Rate by State,* Dec 2018
> 40%
30-40%
20-30%
10-20%
25.3
National
0-10%
Average
Source: ANATEL

10 PAY TV CONTENTS
Pay TV Revenue
Pay TV Gross Revenue Average Price of Basic Pay TV Plan in

Latin America, June 2018, USD/month
24.3%
23.2% Uruguay 34.0
29.0 29.3 29.2 28.5 Chile 33.0
24.9 16.3% Costa Rica 31.0
20.2 20.8 Ar gentina 26.0

Ecuador 25.0
Br azil 24.0
Peru 23.0
1.0% Bolivia 22.0
-0.3%
-2.2% Dominican Republic 19.0
-4.6%
Colombia 18.0
Mexico 17.0
2012 2013 2014 2015 2016 2017 Jan-Sep Nicaragua 13.0
2018
Hondur as 13.0
Gross Revenue, BRL bn y/y change Venezuela 0.1
Comments
Brazil’s pay TV market is highly concentrated, with two players accounting for 79% of subscribers at
end-2018. These were Claro (a subsidiary of Mexican conglomerate America Movil) and Sky (a unit of
US media and telecom group AT&T). The price of pay TV services is not regulated by ANATEL in Brazil,
and service providers are able to set their rates in accordance with the level of competition. Low
levels of market competition have, therefore led to high prices for this service. The latest annual
household survey of IBGE, released in December 2018, showed that about 55.3% of the households
with no pay TV subscription could not afford the service due to its high price. According to a study of
Argentine consultancy BB-Business Bureau, as of June 2018, Brazil had one of the highest prices for
pay TV services in Latin America – averaging USD 24 per month for a basic plan, compared with a
regional average of USD 21. This has led to a proliferation of pirate TV decoders – Brazil had a TV
piracy rate second only to Bolivia’s among Latin America countries – as well as to an exponential
growth of online video streaming platforms, such as Netflix. The high prices prevailing in the market
also explain why the gross revenue of pay TV companies in the country has remained fairly stable
since 2015, despite a decrease in the number of subscribers.
Source: ANATEL, TELEBRASIL, IBGE, BB – Business Bureau

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EMIS Insights - Brazil ICT Sector Report 2019 - 2023

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BRAZIL

An EMIS Insights Industry Report

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CONTENTS Sector in Numbers

02 SECTOR OUTLOOK p.12

03 SECTOR IN FOCUS p.21

04 COMPETITIVE LANDSCAPE p.35

05 COMPANIES IN FOCUS p.45

06 REGULATORY ENVIRONMENT p.56

07 MOBILE TELEPHONY p.61

08 FIXED-LINE TELEPHONY p.69

09 FIXED BROADBAND p.75

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229.2mn 31.0mn 17.6mn

43.5% 184.6mn 95.7%

USD 6.2% 4.9%

Note: Data for 2018

BRAZIL ICT SECTOR 2019/2023 6

BRAZIL ICT SECTOR 2019/2023 7

MOBILE SERVICES FIXED-LINE SERVICES

KEY PLAYERS MARKET SHARES*

BRAZIL ICT SECTOR 2019/2023 8

BRAZIL ICT SECTOR 2019/2023 9

BRAZIL ICT SECTOR 2019/2023 10

BRAZIL ICT SECTOR 2019/2023 11

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Real GDP, y/y change Private Consumption and Investment, y/y

Source: IMF, CEIC

BRAZIL ICT SECTOR 2019/2023 13

Consumer Price Index, y/y change Unemployment Rate, % of Labour Force

Volume of Total Exports and Imports,* Current Account Balance

* Includes goods and services

BRAZIL ICT SECTOR 2019/2023 14

Comments Business Confidence Index,* net balance

labour market and household disposable income.

Business Confidence Index by Industry,* Consumer Confidence Index, July 2010-

* Figures above 50 points indicate positive expectations

BRAZIL ICT SECTOR 2019/2023 15

Number of Mobile Telephony Number of Mobile Telephony Subscribers

242.3 246.2 249.9

Number of Subscribers, mn y/y change Pr epaid Postpaid

Source: EMIS Insights

BRAZIL ICT SECTOR 2019/2023 16

Sector Outlook (cont’d)

Mobile Telephony Subscribers by Type, Number of Fixed-Line Telephony

100% 38.3 37.8 37.2 36.8 36.3 35.9

Pr epaid Postpaid Number of Subscribers, mn y/y change

Number of Fixed Broadband Subscribers, Number of Pay TV Subscribers, year-end

7.4% 0.6% 0.6% 0.6% 0.6% 0.6%

5.6% 5.3% 5.0% 4.8% 4.5%

Number of Subscribers, mn y/y change Number of Subscribers, mn y/y change

Source: EMIS Insights

BRAZIL ICT SECTOR 2019/2023 17

Sector Outlook (cont’d)

Comments ICT Sector Gross Revenue

ICT Sector Gross Revenue by Service, BRL bn

Source: EMIS Insights

BRAZIL ICT SECTOR 2019/2023 18

Sector Outlook (cont’d)

Mobile Telephony Gross Revenue Fixed-Line Telephony Gross Revenue