As many investment opportunities in Brazil, telecoms infrastructure can be as challenging as rewarding. Complex regulations and tax uncertainties are some of the hurdles, to name just two. Nevertheless, it is an infrastructure sector dominated by private players, rather than state owned companies, which reduces political risks. Also, the need for investment is huge, profits are almost guaranteed, and users continue showing appetite for new services and faster connections, even during the pandemic. Good news is that RAN sharing may bring costs down and new investors to the market, and regulators are happy with that.
Since the privatization of the telecom sector in Brazil, in the mid-90s, the telecoms regulatory agency (ANATEL) has been encouraging the sharing of infrastructure among players in the market. To this end, many regulations have been, but with limited success, as operators for a long-time have favored to control their own infrastructure, even if that would lead, at some point, to an excess of offer and less efficiency in the sector. That trend started to shift after the 2008 crisis, which impacted the investment capacity of major operators. The first wave of outsourcing involved antennas and the growth of "tower companies" in Brazil. Nowadays, according to the main association of the sector (www.abrintel.org.br) there are circa 65000 towers in Brazil, 65% owned by infrastructure companies. Now, we are seeing telecom companies outsourcing the construction of network, to be built and owned by a third party, and then leased back to the operator. Recent agreements between major operators have also involved the sharing of existing infrastructure, including spectrum facilities. Indeed, with the prospect of the 5G auctions in early 2021 (hopefully), RAN sharing seems to be a natural path for operators going forward.
RAN (Radio Access Network) sharing means both the sharing of network infrastructure (stations, radios, antennas) and the sharing of spectrum itself. Since 2013, regulatory authorities have reviewed more than nine RAN sharing agreements between mobile operators, all approved. The scope of such agreements is becoming more and more broad. Arguably, the last one involving Telefonica and TIM, executed in 2019, was the most comprehensible, aiming at not only expanding network but also eliminating duplicity and establishing single grid networks.
When reviewing infrastructure sharing agreements, authorities have been considering aspects like the limitation of the agreements, both in terms of technology and geography, the safeguards regarding sensitive commercial information, the fairness and reciprocity of the conditions, how the efficiency gains will be transferred to users and the possibility of other competitors enter into similar arrangements.
The effects on the market of those agreements are huge. They are opportunities to new developments in telecom infrastructure, especially on the verge of the 5G auction. Some analysts estimate a 25% to 40% reduction in Capex costs and 20% to 30% in Opex costs (https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/network-sharing-and-5g-a-turning-point-for-lone-riders), thus allowing for much more infrastructure with considerable less investment. In a continental country like Brazil, with vast areas not covered by internet access, any way to reduce the costs of infrastructure shall be welcomed by the market and the government.
And there is 5G, which can be an alternative to Fiber to the Home (FttH) access for broadband services. FttH will face 5G alleged capabilities to deliver high speed access to remote areas. One could say that building fiber networks will continue to be cost-effective, as many small internet providers all over the country are successfully doing. However, it is important to bear in mind that many of these small providers are financially viable only because they lack the same regulatory and tax controls that large operators face. So maybe 5G becomes a cost-effective solution to expand networks even throughout small cities and rural areas of Brazil.
In any case, infrastructure investments will be more than welcomed. In this scenario, a variety of investment opportunities may arise. Major operators themselves should be open to partnerships with infrastructure providers to share the costs of laying down fiber or building radio stations. Such partnerships might include spectrum sharing, which could be made available to many operators, in the most efficient arrangement. Operators with greater capacity to extract the most of their transmission assets, directly or through strategic partnerships will have the edge on the market. There will also be opportunities to develop public partnerships with the government, on the three levels, municipal, state, and Federal.
For investors and infrastructure providers, the regulatory challenge remains. Also, in order to structure the right deal with a telecom operator, making sure long-term agreements in such a dynamic environment remain profitable for all parties will be challenging, but surely rewarding as well.
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