Thought leadership from our experts

The modernization of the telecommunications legal framework in Brazil

After 20 years of the privatization of the telecommunications sector in Brazil, a process that ended the state monopoly of the companies belonging to the former Telebras system, the legal framework responsible for the opening of the market, creation of a regulatory agency and establishment of the competitive environment, must undergo major modifications, in accordance with the bill of law recently approved in the House of Representatives, and that only awaits final approval of the Federal Senate to take effect.

One of the main alterations is the possibility to change the modality of the license of the fixed telephony service – from the concession regime to authorization – at the request of the concessionaire. According to the approved proposal, the National Telecommunications Agency (ANATEL) must deliberate on the request, if the company engages in commitments to comply with specific requirements, such as guaranteeing the provision of services in areas without competition and the continuity of contracts already undertaken.

Currently, fixed telephony concessions impose obligations on companies, such as the universalization of services and the installation of public telephones. With the proposed change, companies will no longer have such obligations, but they must make commitments to investment in more qualified and better services. In the telecommunications sector, authorizations are already valid for the mobile, internet and pay-TV sectors. Some companies also offer fixed telephony service through authorizations.

The approved text provides for the incorporation of the assets of the concession to the companies' equity, with reimbursement to the Union. Currently, the infrastructure used by the operators must return to the Union with the end of the concession. The project also includes the possibility of extending the authorization several times and reselling the radiofrequency authorization by the operators, provided that such transactions are approved by Anatel. Under the current legislation, radiofrequency authorizations have a term of up to 20 years, extendable once for an equal period.

The change of regime is beneficial for the large economic groups that started the operations of services in Brazil from the privatization. But according to consumer protection associations, the proposed changes represent a loss to consumers, as they will allow the change of the type of license – from concession to authorization – which has implications in the way the telecommunications service is provided.

There is no doubt that the authorization regime imposes less state control. This concerns, for example, tariffs applicable to services, which can only be controlled by Anatel under the concessions; in the authorization regime, the companies enjoy full freedom in the definition of their prices. In addition, authorizing companies, unlike concessionaires, are not obliged to comply with the universalization targets if the regions to offer the fixed-line service are not economically viable and interesting, which may impact low-income regions and places where the service is not yet provided.

Criticism aside, it cannot be denied that the legal framework established at the end of the 90's no longer reflects the constant technological innovation scenario in the communication sector. Twenty years ago mobile telephony was in its infancy and the concept of universalization of services was centered on the need to offer telephony through public telephones to those who did not have any kind of access. Time has shown that universal access has been achieved through mobile telephony. According to some reports, in the year 2016, Brazil had 118.1 million customers in mobile telephony, representing 57% of the total population, summing almost 66% of total smartphones in Latin America. The forecast is that, by 2020, Latin America should reach a total of 577 million smartphones, and these devices should account for about 70% of the connections. Brazil should have 80% adoption of mobile handsets within four years.

In other words, the short term indicates that communication in all layers will be predominantly mobile, while the regulation in place was basically created for fixed telephony, imposing several and already unnecessary burdens on the providers, which end up increasing the other services offered, such as mobile and internet connection.

Another polemic aspect, but equally important, relates to the cancellation of the reversion to the Union of the assets used for fixed telephony at the end of the concession. With the technological evolution, much of the telecommunications infrastructure that once served only one service was shared with several others (see the example of the broadband connection – authorization regime – which uses the same cables and relative ducts for the fixed telephony – concession regime). If the current model is not changed, concessionaires will have the obligation to return these goods at the end of the concession and will have to decide between not to renew the agreement or duplicate the entire infrastructure in order to keep the services under the authorization regime in operation. In any case, the costs not only for the company, but for all consumers, would be extremely high and unjustifiable.

It is not very productive at this time to discuss who is to blame for this situation (whether companies or government). The fact is that it was an important model, in a historical moment, but is outdated in some aspects and deserves the change provided for in the bill. It is expected that at the beginning of 2017 the project will finally be approved and broaden the interest of new investors in the Brazilian telecommunications sector.

  1. Full Professor (Livre Docente) of Commercial Law at São Paulo Catholic University. Partner at Azevedo Sette Advogados Associados.