The Jai Group Profile Executive Summary Brazil ...cgisaopaulo.in/docs/Telecom Industry in Brazil.pdf · Unilever IBM Bayer Jai ... MACROECONOMIC INDICATORS ... Brazilian macro-economic

JAGENDA

• The Jai Group Profile

• Executive Summary

• Brazil

The Jai GroupBusiness Services for the BRICs Economies

• Brazil

• Telecommunication in Brazil

The Jai Group


Company Profile Presentation

January 2012

J

Large Companies

Focus of Jai Group-

Management Consulting

Gerdau

CVRD

Birla

Focus of incumbent consulting

companies such as

BCG, McKinsey FordUnilever

IBM Bayer

Jai: Strategic Partner for first time entrants into emerging markets …

AREAS OF POTENTIAL STRATEGIC ASSISTANCE

BPCL

IOCL

CCorrea

TATA

The Jai GroupBusiness Services for the BRICs Economies 2

Companies

Mid-Sized Companies

Developed Countries Developing Countries

Focus of Jai Group-

Co-Management / Business

DevelopmentFocus of Jai Group-

Co-Management/Management Consulting

= High degree of Globalization in Emerging Markets

= Low degree of Globalization in Emerging Markets

Thermax

Sterling

Purico

TorrentBermad

Chiesi

Kaplan

FCC Ranbaxy

Caramuru BPCL

EngevixBajajAuto

Promon BEML

Source: Jai Group Analysis

JSOME CLIENTS WHO WORK WITH US TODAYRepeat projects and long term relationships

… with a good track record in the India- Brazil corri dor …

The Jai GroupBusiness Services for the BRICs Economies 3Source: Jai Group Analysis

GOVERNMENT OF INDIA

JJAI GROUP RESOURCES

…while bringing people, process, and access edge…

• Presence in India, Brazil, North America, South Africa, China and Mexico

• Superior access to political leaders, embassies and industry leaders

• In constant dialogue with investors and generators of opportunities

GLOBAL NETWORKUNIQUE PROPOSITION

• Global strategy consulting firm dedicated exclusively to BRICS and emerging markets

• Over 40 engagements, corresponding to more than US $ 5 billion

• Experience, proprietary approaches and models in all sectors

The Jai GroupBusiness Services for the BRICs Economies 4Source: Jai Group Analysis 4

generators of opportunitiesin all sectors

• Consultants from first tier consulting firms and top executives of large BRICS companies

• iBRICS dedicated to the research, training and dissemination of business practices in BRICS

• Regularly published in newspapers and periodicals

PEOPLE AND KNOWLEDGE

• Understanding of strategy, culture, practices, and main players in emerging markets

• Full support while presenting, discussing and working with local companies

INSIGHT INTO EMERGING MARKETS

J

ManagementContractorServices

The Jai Group

ManagementConsulting

… and acting as both Management Consultant and Manag ement Contractor …

FOCUS ON INTERNATIONAL OPERATIONS IN EMERGING MARKE TS


Services

• Help emerging market multinationals – Structure and analyze complex issues involved

in international expansion in emerging markets– Numerically and using hard facts validate

intuitive hypotheses– Synthesize findings to evolve coherent strategy

• Stand in as country managers until local operation attains critical size to build a local team

– Implement strategies /structure partnerships

– Coordinate investment projects

– Recruit and manage other service providers

– Provide basic infrastructure and logistical support


J … having served clients in 5 countries …

GEOGRAPHIC COVERAGE

US

Corporate partnerships/ actively prospecting

Permanent offices

Relevant experience

Alliance partners


Brazil

Mexico

US

South Africa

India

JSCOPE OF ACTIVITIES

Auto

Services

Pharma

… in a variety of projects for several sectors …

Service BreakdownIndustry Breakdown

Target and/or Partner Search

Sourcing Analysis & Optimization

Opportunity Scan


MiningAgro

Retail

Energy


Market Analysis & Segmentation

& Optimization

Investment Evaluation

JMANAGEMENT TEAM

RAKESH VAIDYANATHAN – JAI GROUP’S FOUNDER AND MANAGING DIRE CTOR• Rakesh Vaidyanathan co-founded The Jai Group after years of experience in Management consulting

first with late Dr. Jaikumar of the Harvard Business School in the United States and Mexico and laterwith Mckinsey and Company in their Miami and Madrid offices and most recently with The BostonConsulting Group in their São Paulo office

• A graduate from the Indian Institute of Management, Calcutta and MBA from The Wharton School, Rakesh also holds an Electrical Engineering degree from the College of Engineering Guindy inChennai India. In addition, he obtained an M.A. in International affairs specializing in Latin Americafrom the University of Pennsylvania

When not helping clients, Rakesh is either writing Tamil Poetry or trekking in the mountains of the south of Brazil

… with a highly experienced and knowledgeable leader ship team…


PRASHANTH NAYAK – PARTNER & HEAD INDIA OFFICE• Prashanth is a partner of The Jai Group. Before, he had a long tenure with the Tata Group, in their auto

component business. Part of the initial start up leadership team, Prashanth has held Group HeadPositions of Human Resources and Business Planning and for four years, also ran the wiring harnessJV (Indo Japanese Joint Venture) of Tata Group, as its CEO. He was based in Mumbai and Pune inIndia.

• Prashanth graduated from the National Institute of Technology at Surathkal, Karnatake in 1992. He hasan MBA from IIM Calcutta in 1995 and was awarded the Bharat Chamber of Commerce Medal for mostbalanced and progressive outlook on Management Problems, on his graduation. He speaksEnglish, Hindi, Kannada and Konkani fluently and understands Japanese.


When not helping clients, Prashanth is learning from his kids how to be a child again.

JCOMMERCIAL REFERENCES

Brazilian Executives / Authorities

• Tropico Mr. Raul Delfiol, Chief Executive Officer 55 19 3707 3465

• FCC Mr. Valentino Reichert, President 55 54 2129 2200

• Gerdau Mr Ruy Lopes, Executive Director 55 51 3323 2339

• Engevix Mr. José Antunes, Partner 55 11 2106 0101


Indian Executives / Authorities

• Aditya Birla Dr. Bharat K. Singh, Board Member 91 22-6652 5000

• Tata International Mr. Kaul, President, CEO 91 22-66652200

• Bharat Petroleum Mr. R K Mehra, Executive Director 91 22 2218 5144

• Rajshree Sugars Mr. Varadarajan, COO 91 42 2258 0981

• TVS Mr. Dinesh R, Executive Director 91 44 6679 3222

• Torrent Mr. H. Balakishna, Exec. Director of Mktg 91 97 9411 2222

JSAMPLE PROJECTS

• Aditya Birla Opportunity landscape for investments in Latin America

• Tata International Opportunity landscape for investments in Brazil

• Bharat Petroleum Project 1: feasibility study for investments in ethanol capacity


Project 2: partner search and valuation of selected companies

• Rajshree Sugars Feasibility study for investments in ethanol capacity, target search and valuation

• TVS Partner search and negotiations to leverage Brazilian banking automation capabilities in India

• Torrent Market entry strategy for Mexico

JAGENDA



• Brazil


• Brazil


J

Customer Segment

Market Realities Technology Trends Products purchased and Purchase Process ?

Implications for Indian suppliers

Large Telecom Operators

1. Consolidation in to three large and two mid sized operators ( GVT and CTBC-ALgar) for fixed

2. Consolidation to four largest players in

Many operators were still focusing on 3G andattracting customers to basic mobile internet.LTE trials started in 2010, operators keen to get as much mileage

Global Sourcing, standard sourcing across countries, decisions favors multinational suppliersLocal suppliers preferred when it comes to Brazilian standards, customization, local support,

Opportunities: mobile phones, corporate virtual private network services; new revenue-generating mobile services; various broadband services; intelligent networks and services;

Executive Summary (1/3)

Indian suppliers should focus on larger Telecom ope rators ….


largest players in mobile

3. Reduced ability to invest by subsidiaries of European majors such as TIM, Telefonica and Portugal Telecom, Embratel being a strong player

much mileageout of their networks with HSPA+ upgrades before shifting to LTE.4G spectrum auctions held in June 2012

customization, local support, Mix of old and new technology equipment, Synchronous Digital Hierarchy as well as Optical Transport Network, Typical OSS/ BSS applications, MVNO, Mobile Banking, E- Health etc

intelligent networks and services; services merging voice, data, and video; telemedicine equipment; security-related telecom equipment; and system integration services.Strategy: Where possible sell in global HQ, seek partnerships locally for support and roll out

J

Customer Segment



Small Telecom Operators and Internet Service Providers

1. Losing market share due to new technologies that overcome the dis-economies of scale ( mobile broad band for example)

Low cost sourcing from Asian suppliersVery direct and informal, based on relationships, credit is often a major driver of sales

Opportunity: various cost effective broadband access related equipment/ value added services for remote areas;Strategy: Low cost, direct access sales, lots of financing


Tie up funding from sources such as Exim Bank for g etting orders from small Telecom operators and ISP providers


Providers for example)2. Government trying

to help them by providing greater interconnectivity with a back bone, by

a. Establishing its own back one ( PNBL)

b. Lowering the cost of access with a private back bone by regulation

J

Customer Segment



Brazilian Government

1. Telebras is spearheading a mass access broad band project, expected to be complete by 2014

ABI Research recently pinpointed Latin America as the leading backhaulinvestment zone for the next five years.The real bottleneck is in

Prefer National suppliers where possible Brazilian Government has introduced a bill that will provide for up to 25 % price advantage for local innovation through the

Opportunities: Optical networking equipment, E- Governance applications, antennasStrategy: Partner with local firms, to become part of their portfolio


Tie up with local suppliers to win order from Gover nment


complete by 2014 The real bottleneck is in outlying areas, where backhaul is either insufficientor lacking altogether

for local innovation through the temporary measure 495, Law number 12.349/2010, MPV 563/2012, and eliminating sales and excise duty for national manufacturers and service providers in the construction of the network

JAGENDA



• Brazil


• Brazil


JBrazil - Overview

•Brazil is a ~ 200 million people , 2.5 trillion econ omy

• Sixth in the world, ahead of UK and breathing down France

• Larger area than the continental United States

• Democracy and private sector capitalism

• One of the BRICS, relatively less affected by crisi s

•Growth driven by:

In an uncertain world, western , democratic and w ith a large domestic market that is growing, Br azil is a very attractive proposition


•Growth driven by:

•Commodity trade, Rise of a new middle class

•Strong Macro-economic fundamentals: fiscal surplus, trade surplus, inflation under control, lot of space to lower interest rates

•Upcoming sporting events and huge Oil finds, ongoin g investment cycle

•Problems exist, and have to be managed

•Taxes and Bureaucracy

•Corruption

•Market Concentration


Klp-pnr 14/08/2012 07:36

JMACROECONOMIC INDICATORS

CAGR**: 8%

PURCHASE POWER PARITY IN USD TRILLION IN BRAZIL

Brazilian macro-economic indicators positive

2.2

2.4

… and trading more … … and despite the appreciation of

the exchange rate, reserves are

growing …

… as the economy becomes stable

200

250

Dollar reservesin December2011 reached

25%

30%

35%Projected Interest Rate

Projected Inflation Rate*** (IGPM)

Exchange R$/US$

Imports

2.5

3

3.5

250

300

350

400

Reserves US$

Brazil is growing …

17The Jai Group

Business Services for the BRICs Economies

* PPP rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods.. Using a PPP basis is arguably moreuseful when comparing differences in living standards on the whole between nations because PPP takes into account the relative cost of living and theinflation rates of different countries, rather than just a nominal gross domestic product. Brazil is ranked number 9th as an economy in PPP terms. NominalGDP is USD 1.6 trillion which puts Brazil in the 10th position. Only China, India, Japan, and the US have grown at higher pace over the last hundred years

** Compound annual growth rate. *** Annualized 12 month moving average.Source: Central Bank of Brazil

1.2

1.6

2000 2005 2010 2011

0

50

100

150

1996 1998 2000 2002 2004 2006 2008 2010 2011

2011 reachedUSD 354 bi

-5%

0%

5%

10%

15%

20%

2002 2004 2006 2011

0

0.5

1

1.5

2

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010 2011 2008

JINVESTMENT TRENDS

Brazil is a favorable destination for foreign direct investment and expected to remain so

Brazil

China

OCTOBER, 2010

FDI* (USD billion)FDI Destination Ranking

45

48

67

52 54 55

Favorable macroeconomic conditions

• Credit is growing

• Interest rate lowering

Growing demand

• Growing population with rising income

forecastevolution

Driving forces


Bloomberg provides a quarterlyinsight into how business menperceive markets for FDI*.

1o 2o3o 4o

China

India

US

* Poll is carried out among investors, analysts, and traders. Source: Bloomberg, BACEN (Central Bank of Brazil), Link Investimentos

10

18

15

19

35

45

26

48

42

2003 2005 2007 2009 2011 2013 2015

• Growing population with rising income

and huge housing deficit

Growing supply

• Specific investment-heavy projects

• World cup (2014)

• Olympic Games (2016)

• Government-led programs and state-

controlled company investments

• Luz para Todos (Energy)

• Minha Casa Minha Vida (Housing)

• PAC (Civil Infrastructure)

• Petrobras oil platforms

31% of the investment goes to heavily regulatedindustry (Electrical, Transport, Metallurgy, Mining, andTelecom)

JStrong and accelerating growth rate in the past, ex pected to accelerate

4.3

5.7

4

6.1

5.2

7.5

4.5

5.56

4

5

6

7

8International

CrisisInternational

CrisisInternational

CrisisInternational

Crisis

No international crisis has held it back in the las t decade and Brazil is recovering smartly from this crisis as well ..

The Jai GroupBusiness Services for the BRICs EconomiesSource: Brazilian Institute of Geography and Statistics (IBGE), Ministry of Finance.

00.3

1.3

2.7

1.1

3.2

-0.3

2.7

-1

0

1

2

3

4

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012** 2013** 2014**

JBILATERAL TRADE WITH BRAZIL

Trade with Asia increasing

USD MILLION (FOB BASIS) NUMBERS ARE NOT ON THE SAME SCALE

7734

CAGR*=26%

Brazil to India

India to Brazil

Brazil to China

China to Brazil

CAGR*=39%

56379 82255

CAGR*=14%

Brazil to Europe

Europe to Brazil


* Compound annual growth rateSource: Unctad, Secex, Indian Department of Commerce, Jai Group Analysis

1227

Major Indo-Brazilian Joint Ventures

• Steel: Gerdau and Kalyani Auto Parts: COFAP and Endurance

• Buses: Tata and Marcopolo Automation: Perto and Lipi

All joint ventures have

happened over the last

5 years

4073

29103

J

30

2625 24

21 21 20 2020

25

30

35

Top 30 Sectors for FDI Inflow into Brazil Cumulativ e (2001-10)US $ Billion

Torrent Pharma, Dr ReddysLabs,Glenmark, Zydus Cadila, Neelam America,Pidlite, Aurobindo Pharma, Stride Arcolab,

Wipro, Infosys, TCS, Hcl, Mahindra Satyam, Genpact

RenukaSugars

Aditya BirlaNovelis,

L&T

Mahindra Automotive, TVS, Motherson Sumi, Minda

Vijai Electrical, Crompton Greaves,

…Investors including emerging market ones continue t o invest across diverse sectors in Brazil …


13 13

11

76 6

4 4 3 3 2 2 2 1 1 1 1 1 0.9 0.7 0.4 0.30

5

10

15

Source: Central Bank Of Brazil, Jai Group Analysis

Crompton Greaves,KEC, Kalpataru

ONGC CRI Pumps,Thermax

Aditya Birla Carbon Black United

Phosphorus

JBRAZILIAN CHALLENGES: ECONOMY AND DOING BUSINESS

…

• Abundant low cost, low quality talent pool

• Entry in to mature sectors next to impossible

• Multinationals face competition in unregulated sect ors in asymmetric ways

• Regulation and Government costs however could also choke you

• Brazilian entry has to be driven by opportunity INSP ITE of costs

… and businesses in Brazil are impacted by themBrazil faces several issues …..

• Uneven income distribution, Poor public education

• Significant imbalance of market concentration

• Informal economy that hinders tax collection

• Tariff barriers, a complex custom system, overload ed legal system, heavy taxes, bureaucratic procedures and onerous product licensing raise costs for doing business in Brazil

• The World Bank ranks Brazil 127 out of 183 economies

Brazilian challenges are similar to many emerging ec onomies, but taxes and market concentration is a ke y area of concern …

The Jai GroupBusiness Services for the BRICs EconomiesSource: Jai Group Analysis 22

of costs• The World Bank ranks Brazil 127 out of 183 economies in the world in terms of ease of doing business

• Bureaucracy

• Poor Infrastructure

• Corruption

• Preference to Local Companies

• Heavy Import Taxes

• Labor taxes

• Unions

Challenges on doing business …..

• Don’t spare on legal and administrative costs

• Build redundancy, locate right for reliability and ease of access

• While being flexible, draw clear ethical lines

• Be open to partnerships, JVs, local face strategies

• Source right, adopt creative taxation structures

• Minimize labor, plan for liabilities

• Locate, manage

…. And Solutions have to be thought through

J Contrary to popular perception Growth driven by ris e of the consuming middle class

Brazilian Economy

Brazilian Economy

GDP(US $)GDP per Capita (US

$)

2002 500 Bn 2,800

2012* 2.6 Tn 13,300

26.727.2

27.1 26.425.1 24.4

28.1 25.4 22.819.3 18.3 16 15.3

60%

70%

80%

90%

100%

Distribution of Economic Classes in Brazil

(% Population)

46.6

44.5

28.9


Note: Monthly household per capita income by class at 2009 prices: Class A/B: more than R$ 4,800.00; Class C: R$ 1,115.00 – R$ 4,800.00; Class D: R$ 804.00 – R$ 1,115.00; Class E: up to R$ 804.00.* IMF ForecastSource: Brazilian Institute of Geography and Statistics (IBGE). Preparation and estimates by the Ministry of Finance.Getúlio Vargas Foundation/National Household Sample Survey. Prepared and estimated by the Ministry of Finance

Composition of Social

Classes (Mn People)

Enhanced income distribution has added 29 million t o middle class (Class C).

7.6 7.7 8.3 9.4 9.7 10.4 10.6

37.6 39.741.8

44.9 46.949.2 50.2

26.726.7

27.2

0%

10%

20%

30%

40%

50%

60%

2003 2004 2005 2006 2007 2008 2009

Class A/B Class C Class D Class E

14.5

67.5

46.1

20

95.0

188

Mn

175

Mn

JAGENDA



• Brazil


• Brazil


J Evolution of Telecom Sector in Brazil

98

11

03

95

Regulation

� Construction of the Regulatory Framework

� Focus on universal access and service quality

� Focus on Competition

� Convergence in the initial stage

Pre-Privatisation

Post-Privatisation

Present

Brief History


Tecnology� Fixed: mainly analogue� Mobile: only analog

� Fixed and mobile expanding� Platform clearly differentiated

GSM Release

� Convergence in the initial stage� Launch of 3G� 4G auctions done� Quadruple-play initiatives

incipient

Competitive Environment

� Government monopoly� 26 integrated (fixed and mobile)

operators and an LD

� Multiple players, after privatization

� Difficult in mobile; increase in broad-band, less intense in fixedconsolidation Trends

Market� Pent-up demand in fixed and

mobile� Dial-up internet access only

� Strong growth in the penetration of fixed and mobile

� Top of wide-bandPay TV incipient

� Market Maturity� Increase in the mobile market

and broadband� Expansion Bundle services with

the objective one-stop-shop

JTelecom Industry Evolution

0.42

0.370.36

0.380.39

0.4

0.34

0.290.3

0.35

0.4

0.45

Average price of a minute with taxes

Telecom sector revenues are growing but price compe tition is increasing

5%

6%

6%

6%6%

6%

6%

6%

6% 6%

5%

5%

5%

5%

6%

7%

200

250

Industry Revenue (R$ Bn.) and as a Share of Brazil’s

GDP since 1998


0.260.25

0.240.23

0.22 0.22

0.190.2

0

0.05

0.1

0.15

0.2

0.25

0.3

31

51

66

80 84

99

115

132142

154

175 176182

201

3%

0%

1%

2%

3%

4%

0

50

100

150

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Gross Revenue of Industry (U.S. $ Billions) % of Total GDP

JGross Revenue by segment ( R$ B)

100

150

200

Clearly Celular growth has dominated the last decade , broad band ( fixed and mobile) will be the new sta r of this decade


0

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

SME (trunking) 0.2 0.5 0.8 0.6 0.8 1.1 1.6 2.1 4.4 4.2 6.2 9.4

Cable TV 2.1 2.5 3 3.5 4 4.7 5.5 6.7 9.3 10.7 12 16.8

Fixed Broadband 3.4 4 4.2 5 6.6 8.6 10.9 13 16.7 19.2 21.4 23.2

Fixed 32.9 41.4 45.7 51.1 56.1 59.3 58.2 57.9 58.9 58.4 54.4 51.8

Cellular 16.6 19 21.6 27.6 34.2 42 48.7 56.9 64.4 65.6 71.6 80.3

Source : Telebrasil

JSubscribers of telecommunications services

200

250

300

350

400

Subcriber growth in mobile broad band has doubled in the last year alone


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

TVA 3.4 3.6 3.6 3.6 3.9 4.2 4.6 5.3 6.3 7.5 9.8 12.7

Fixed broadband 0.2 0.3 0.7 1.2 2.3 3.9 5.7 7.7 10 11.4 13.8 16.7

Mobile Broadband 2.1 7 18.9 37.6

Fixed 30.9 37.4 38.8 39.2 39.6 39.8 38.8 39.4 41.3 41.5 42 43

Cell Phones 23.2 28.7 34.9 46.4 65.6 86.2 99.9 121 150.6 174 202.9 242.2

0

50

100

150

Source : Telebrasil

JBrazilian telecom operator market shares

(% Share) Mobile Fixed Internet Television

Vivo/Telefonica/TVA 30.1 (1) 27.1%(2) 24.2 (3) 5.6 (3)

Claro/Embratel/Net 25.4 (2) 15.4 (3) 25.3 (2) 53.9 (1)

TIM 24.5 (3)

Oi 19.5 (4) 50.0 (1) 35.1 (1) 3.1 (4)

CTBC 0.3 (5) 1.5 (5) 1.8 (5)

European and Mexican origin companies dominate Brazi lian Telecom


Sercomtel 0.04 (6) 0.4 (6)

Aeiou 0.01 (7)

GVT 4.2 (4) 7.2 (4)

SKY +DirecTV 25.9 (2)

Abril 2.0 (5)

Others 1.5 6.6 9.6

Total Number of Connnections

191,472,142 (82% of which pre-paid)

41,613,000 12.268,000 8,426,000

Source : Teleco,

JBrazilian Market Players

Vivo, 30%

Oi, 19%

Others, 0.3

%

Vivo is the biggest operator in Mobile

Access

Financial Overview of operators

US $ Mn Vivo TIM Oi

GrossRevenue

14287 11288 8148

Net Revenue 10059 8032 5808

Mobile market in Brazil is a oligopoly


Vivo, 30%

Claro, 25%

TIM, 25%

EBITDA 3240 2330 1965

EBITDA Margin

32.3% 29% 33.8%

Net Profit 1052 1229 1134

Investments 1383 1576 535

Net Debt 969 547 -

Source : Teleco, Anatel, Epoca

JMarket Share and Concentration, 3Q11

50%

60%

70%

80%

90%

100%

0.25 0.32 0.51 0.54

HerfindahlIndex

Despite this, in the region, Brazil is probably one of the most competitive countries in the region, wh ich are full of monopolies


0%

10%

20%

30%

40%

50%

Brazil Argentina Colombia Mexico

America Movil Telefonica Miilicom Telecom Italia

Telecom Personal Oi Others

Source : Informa Telecoms and Media

The Herfindahl index (also known as Herfindahl–Hirschman Index , or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them

JBrazil has total of 42 Million Fixed Lines

Three groups dominate the fixed line market• Brazilian fixed line market has been privatized since

1998 and is fully open to competition but the bulk of the overall market is divided into 3 groups

– Spain’s Telefonica, which owns Telesp.Portugal telecom that controls Vivo

– Mexican Telmex and American Movil, which are the owners of fixed line incumbent Embratel and TO

AM

PA

AP

ACRO

MA

PI

CERN

PB

AL

RR

Region IIncumbent :

Oi and CTBC Mirror Co :Vesper

(Embratel)

Fixed line market is divided between three large co mpanies, Oi is dominant


the owners of fixed line incumbent Embratel and Claro respectively

– Oi, controlled by Brazilian investors; following its acquisition of Brazil Telecom in January 2009

• In order to create some competition, the Brazilian regulator, Agencia Nacional de Telceomunicacoes(Anatel) auctioned in 1999 to “mirror companies” responsible for providing local and long distance telephony in competition with incumbents

• Oi with 52% is the market leader operator for fixed telephones in service, followed by Telefonica(27%) Embratel(15%) and GVT (5%)

32

MT

MG

SP

SC

ES

RS

PR

MS

GO

TO

BHTO

ROAL

SE

RJ

Region IIIncumbent :

Sercomtel and CTBC Mirror Co :GVT

Region IIIIncumbent :

Telefonica and CTBC Mirror Co :Vesper

(Embratel)

Source : Teleco, Anatel, Bubblecom

JPenetration of Telecommunication across sectors acr oss Countries

comparison with the world proves the potential for increased penetration and integration of telecom services in Brazil

77%

70%

121%

100%

0% 50% 100% 150%

Brazil

US

Peru

UK

Fixed Line

125%

88%

106%

137%

0% 50% 100% 150%

Brazil

US

Peru

UK

Mobile Voice


0% 50% 100% 150% 0% 50% 100% 150%

30%

42%

75%

82%

0% 20% 40% 60% 80% 100%

Brazil

US

Peru

UK

Broadband Households

23%

48%

87%

61%

0% 20% 40% 60% 80% 100%

Brazil

US

Peru

UK

Pay TV

Source : Anatel, Pyramid

JOpportunities in LATAM Market

Argentina

Peru

Broad band penetration in region, could allow, inte resting business platforms such as banking …..

The Jai GroupBusiness Services for the BRICs Economies 34Source : Telefonica Internal Analysis

Peru

Brazil

Colombia

Mexico

JE – Health Globally

United Kingdom

Brazil ChileSpain

……. Or e-health

The Jai GroupBusiness Services for the BRICs Economies 35Source : Telefonica Internal Analysis

JBrazilian Companies interested in launching an MVNO (mobile virtual network operator)

Further opportunities could exist in bundling servi ces

The Jai GroupBusiness Services for the BRICs Economies 36Source : Sisteer, Datora, Informa Telecoms and Media

JOnline Activity Brazil

Brazilians Surf 41 hours Monthly

86 % 82%

• Social • 67% Express Opinion• 59% Take of someone else's opinion• 86% are active social network users

• Live• Follow live any single event• Multiscreen, anytime, anywhere• Live video is killer content on the internet

.. Or consumer oriented internet applications


86 %Access Social

Networks

5h 20m Doing Social

Activity

82% Watch Videos

Online

11h 35m

60%Access Terra

7h 07m Reading News

37

• Live video is killer content on the internet • Video

• Class A/B : 96% watch videos online, 87% offline

• 15-30 yrs : 31% watch TV series online , 27% offline

• Music• 2nd reason to have a home computer

(internet is 1st)• Digital is the first income revenue for music

industry in Brazil

JType of access to high bandwidth

30000

40000

50000

Mobile clearly is the preferred broad band vehicle


Source : Operators, ABTA and Teleco, does not include satellite and dedicated IP. Data before 2008 did not include 3G broadband.

2003 2004 2005 2006 2007 2008 2009 2010 2011

Other (radio) 40 50 75 115 375 420 570 1,000 1,350

Cable TV 203 342 629 1,200 1,753 2,589 3,132 3,824 4,710

ADSL 993 1,907 3,152 4,341 5,590 7,007 7,678 8,976 10,440

3G handsets 0 0 0 0 0 0 4,091 14,614 33,240

0

10000

20000

JBROAD BAND PROVDERS AND THEIR MARKET SHARE

Medium, 11%

Large, 11%

Market Share of Providers

1934 providers of Internet80% connections by the six major providers

Broadband market too is consolidated

Fixed Broad Band:

Oi (36 %), Net ( 26 %), Telefonica ( 24 %), GVT (8%)


Small, 78%

Small <20 000 clientsMedium 20 000 ~ 900mil clientsLarge> 900 000 clients

Source : CGI.BR – Pesquisa TIC Provedores 2011

Cable TV:Embratel TV

Mobile Broad Band:

Vivo, Claro, OI

J

Operator Core Access Equipments

Vivo Ericsson Ericsson and Huawei

Tim Ericsson Ericsson Huawei and Nokia-Siemens

Claro Ericsson and Nokia-Siemens

Ericsson Huawei and Nokia-Siemens

… Smaller operators prefer Asian equipment

Asian Equipment sourcing


Siemens Nokia-Siemens

Oi Nokia-Siemens Nokia-Siemensand Huawei

CTBC Huawei Huawei

Sercomtel Huawei Huawei

40Source : Teleco

JRecent crisis in Brazilian Telecom Industry

• Anatel the regulatory agency prohibited some cell phone operators from selling new lines until they present a investment plan which would put the sector back on track– TIM was most affected by the decision, suspended in 18

states– Oi in 5 States– Claro in 3 states– Vivo escaped

7860474889 73819

53790

50000

60000

70000

80000

90000

Number of complaints in the first semester of this year

… this could intensify with recent crisis of custome r dissatisfaction in the Telecom industry


– Vivo escaped

• 7 out of 10 companies that provide the worst service to consumers are from Telecom Industry

• Top complaints, service offered in call centers and bad billing

• 380 Billion reals of investment needed, increasing by 80 % all investments made in the sector

– 240 billions to implement 4G– 140 billions to take broad band and IPTV to 30 Millions of

Households in Brazil

41

41519

0

10000

20000

30000

40000

50000

Cell Phone Credit Card Commercial Banks

Fixed Telephony

Financial Services

J

1.26

1.35

1.86

1.4

1.6

1.8

2

Brazilian Telecom as a % of GDP

… which was caused by stagnant or falling investment as subscriber base kept growing much faster than G DP

Operators are constrained by their parent company problems,

3 of the 4 largest operators are subsidiaries of European companies with significant financial problems in head quarters

Repatriation of dividends between 2010 to 2011 doubled from R$ 1.1 billion to R$ 2.5 billion, vis-à-vis profits of each operator below and investments, that is a big jump

Orders for the 4G equipment that need to be ready by 2014 for the soccer world cup have not yet been placed


0.95

0.6

0.880.81

1.26

1.15

0.7

0.59

0.750.7

0.55 0.52

0.63

0.54

0

0.2

0.4

0.6

0.8

1

1.2

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

42

JSector Wise Investments 2001-10

37

13

9

3

Rail Transport

Airport

Ports

Waterways

Total Investment 2001-10

Despite this, Telecom one of the largest investors in the last decade ….


293

280

135

129

37

0 50 100 150 200 250 300 350

Telecommunications

Electric Energy

Road Transport

Sanitation

Rail Transport

JBrazilian National Broad Band Programme

200

250

300

350

(R$)

19,800householdsProjection of R $ 58 average without PNBL

10.2 miDomicílios

R $ 96(Media, 20

09)

39,800household

s$ 15

PNBL and reduction

in tax

35 200 household

s$ 35

average with PNBL

R$ 45.85

Monthly average fixed broadband postpaid 1 Mbps in

the combo (phone and / or TV) and PNBL

Government has stepped in , in the meanwhile to inv est in a backbone of its own


0

50

100

150

- 10 20 30 40 50

Households (milhões)

Mon

thly

Pric

e (R

$) PNBL

+ 20 milhões

+ 15 milhões

Source: IPEA (2010) / CGI (2009)

R$ 34.36

jun/11 ago/11 nov/11 jan/12

Fora do PNBL PNBL

JWhat Matters to Customers Most

Price

• General Plan Competition• Regulation EILD• Reduction Value terminal• Submarine cables

Several measures are being taken to ensure price, c overage and speed to the end consumer


Consumer

SpeedCoverage

• Bid of the 450 MHz band• Telebrás: National Backbone• Geostationary Satellite• Decree Joint Implementation

and Right of Way• General Law of Antennas

• Quality of broadband• Bid Band 2.5 GHz• Bid Band 3.5 GHz• major events coverage (live)

JICT Global Market and BRIC Share

EU5, 19%

Share of BRIC countries in 2009 Global ICT Market

Independent of this , Brazilian Telecom sector is la rge by any standards for most vendors at around USD 23 Billion per annum

Worldwide ICT market 2010 : 2523 Bn(+4.7%)


Rest of EU, 8%

USA, 29%Japan, 9%

Brazil , 1%

Russia, 2%

India, 2%

China , 8%

Rest of workd, 23%

EU 5 : Germany, UK France, Spain, Italy

Source: EITO, IDC, PAC, and Idate, EITO (2011)

JICT Segment Share

Office equipment

Manuf, 6% Electrical Material, 4%

Electronic Materila, 2%

Office equipment

rental, 0%

IT Services, 18%

ICT Market Segments by Market Share

Telecom equipment is almost half of this…..


TV Radio, 12%

Sound Recievers, 5%

Test and Measurement

Equip, 2%Industrial

Process

Control, 0%

Compute, telephony and

communication, 8%

Telecommunications, 43%

rental, 0%

JDeveloping a greater array technologically

BSS / OSS

SDP

VoIP SMS MMS VMAIL IN OTT

Control TDMControl NGNIPTV 7IPIMS

SSwMSS TDM SwMSC

Typical network of a large operator and projects pl anned at each level ….

Voip scale for all segments

increase to 25% local content caching

broaden the optical


SSwMSS TDM SwMSC

Transport IP Transport TDM

4G WiFi 3G 2G

SGSN OLT AGW DSL

FTTx DSLRadio / Sat

broaden the optical Backbone to supportincreased data traffic

to expand the mobile customer

FTTN 1.5m to implement more customer Velox

over 2.5 m of homes with FTTH and IPTV catapult

JSome Telecom Equipment Companies of Brazilian ori gin

Potential partners for Indian Telecom Equipment com panies


JJai Group – Contact Details

Please feel free to contact us at our India or Braz il office as below :

• Mr Prashanth Nayak (Pune, India)– Email – [email protected]– Ph – +91 20 66458901– Cell – +91 9822036738


• Mr Rakesh Vaidyanathan (Sao Paulo, Brazil)– Email – [email protected]– Ph: +55 11 3254 3524– Cell: +55 11 8339 5983

50

Documents

The Jai Group Profile Executive Summary Brazil ...cgisaopaulo.in/docs/Telecom Industry in Brazil.pdf · Unilever IBM Bayer Jai ... MACROECONOMIC INDICATORS ... Brazilian macro-economic