Telecom Companies in Brazil Can Make Investments to Avoid Fines

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By Ed Taylor

Nov. 1 — Brazil's telecom regulator, Anatel, will allow service providers to exchange fines for investment pledges under a policy shift.

The regulator routinely fines telecom companies for failing to meet the requirements set by the country's telecommunications law. But Brazilian telecom companies rarely pay the fines. According to the regulator, companies paid less than 10 percent of fines it issued between 2011 and 2015. Oi, Brazil's largest fixed line phone company, racked up fines totaling 14.4 billion reals ($4.5 billion).

On Oct. 27, Anatel announced an agreement with Telefonica Brazil, a subsidiary of Spain's Telefonica, S.A. that is the leading mobile phone operator in Brazil and number two fixed phone company. Telefonica, which does business in Brazil as Vivo, agreed to invest 4.8 billion reals and Anatel will write off 2.1 billion reals in unpaid fines.

Under the agreement, Telefonica must install fiber optic broadband connections to 1.4 million homes in 100 cities over the next four years. It also committed to upgrade its mobile phone network to replace second generation (2G) services with 3G in 39 cities, offer 4G service in another 152 cities and expand its support system for its fixed line service, affecting 260 cities. Finally, the company must raise its quality of service rating from the current 68 percent to 100 percent.

Nonsensical Fines

Over the last year, the issue of unpaid fines came to a head, with Anatel threatening to punish companies that don't pay their fines and the companies arguing that the fines are nonsensical and unaffordable.

Telecom Brazil president Amos Genish told investors during an Oct. 25 earnings call that “smart” investment is helping Telefonica transition into a digital services provider. “With falling voice-based and subscription TV revenues, we don't want to invest in anything that represents the past,” he said.

With a new agreement in place, Telefonica and other companies will be able to avoid investing in what some in the industry have called irrelevant services going forward and avoid fines for failing to invest in the past.

New Investments

Telefonica released a statement Oct. 27 in which it called the agreement “positive for the country,” adding that it “will direct a substantial financial volume for investments in quality and important infrastructure projects such as an expansion of broadband service which help reduce Brazil's digital gap.”

Anatel councilor Igor Vilas Boas de Freitas, who drew up the final agreement, said Oct. 27 that it will accelerate the installation of superfast broadband service in Brazil. He added that if Telefonica fails to meet its commitment set by the agreement, the fines will be restored and doubled.

A spokesperson for Anatel said Oct. 28 the agency is interested in negotiating agreements with other telecom companies but could not state whether talks have begun with another company. The trade-off of investments for fines is supported by the Brazilian Telecommunications Association (Telebrasil), which represents the telecom industry.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at correspondents@bna.com

To contact the editor responsible for this story: Tim McElgunn at tmcelgunn@bna.com

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