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FEATURE: Brazil's Spectrum auction reshuffles mobile map

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Brazil's telecoms regulator Anatel succeeded in changing the country's mobile telephony map with its auction of leftover 2G spectrum on September 25 and 26.

The most notable result of the auction was the attainment of national coverage, in terms of permits, by Vivo and America Movil unit Claro, putting them on equal footing with TIM Brasil in this respect. With total coverage of Brazil, Vivo and Claro no longer need to rely on third party roaming agreements that prove more expensive for their roaming customers.

However, they now need to engage in extending their services to these new areas and attracting new clients.

The question now is whether the three operators have equal ability to leverage these coverage rights. Vivo, as a unit of Spain's Telefonica, and Claro as part of the empire of one of the world's richest men, Carlos Slim, already have significant muscle for achieving economies of scale when it comes to network building, handset purchasing and marketing. TIM does not have as big an advantage in this respect.

The financial clout of the parent companies is also becoming more important since the relative size of the three firms, in terms of client base, is lessening. TIM and Claro are now almost neck and neck, 2.3 and 3.2 percentage points, respectively, below Vivo's 28% leading market share.

Then there is the lucrative market of Sao Paulo, which thanks to the auction is now poised to gain its fifth operator in the form of Oi. In fact, Anatel pointed out even on the first day of the auction that each operating region was consolidated with at least four operators. Since four operators is likely to be the norm around the country, there is little doubt that a market as vibrant as Sao Paulo's can handle five operators, which bodes well for Oi.

3G Positioning

With the success of this spectrum sale, Anatel was upbeat about the likelihood of auctioning 3G spectrum before year-end. The regulator's private services director Jarbas Valente has said he expects the board to approve the auction plan in October.

The 2G leftover license sale has been hailed as a final opportunity for operators to maximize coverage and clients, putting them in an improved position when it comes to launching 3G services.

Oi in particular highlighted its forthcoming 2G presence in Sao Paulo as important for eventually obtaining a 3G permit for its other coverage areas. This is because Anatel is expected to tie the Sao Paulo 3G license with an obligation to provide the service in the north and northeast of Brazil, and Oi would be a natural candidate.

Anatel is expected to auction 3G spectrum before the end of the year, but has not specified a date yet. Pressure to do so is building since some operators, such as Telemig in Minas Gerais state, have announced plans to launch 3G service over 850MHz spectrum by year-end, which Anatel cannot prevent them from doing.

2G Leftovers: Who got what

Anatel raised a total of 570mn reais (US$310mn) from the two-day spectrum sale, selling 77 licenses out of 105 originally available.

Claro picked up 26 licenses in all and Oi got 23. TIM Brasil won 14 and the country's largest mobile operator Vivo took 13, all on the first day. One newcomer, Options Computadores, picked up a single license, for the city of Paranaíba in Mato Grosso do Sul.

Prior to the auction Vivo was missing coverage of the northeast and took licenses in the states of Alagoas, Ceara, Paraiba, Piaui, Pernambuco and Rio Grande do Norte. However, the great bulk of the 170mn reais spent by Vivo went to increasing spectrum in areas it already covers, particularly parts of Sao Paulo state. Claro was interested in parts of northern Brazil and targeted licenses in Amazonas, Amapa, Para, Maranhao, Roraima and Parana states.

Oi snapped up the two most expensive licenses, 80.6mn reais for coverage of Sao Paulo city and 42.3mn reais for other parts of Sao Paulo state. The firm admitted that it had avoided attempting to enter Sao Paulo in the past because the business case was too weak. The difference today is that handset prices have fallen and the dollar is weak, Oi said.

By positioning itself as a capable rival for Vivo and Claro, Oi adds weight to the eventual benefit of merging with Brasil Telecom, a move that has been under discussion in government circles for some time.

As many commentators have said this week, the real winners are the general public that now have more operators to choose from.

Get ready for those market share figures to cluster even closer together.

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