TELECOMMUNICATION SECTOR IN BRAZIL

The chart below shows the main figures achieved in the telecommunication sector before 1994:

The TELEBRÁS system is made up of a holding company and 28 subsidiaries. Among these subsidiaries, twenty-seven operate local calls and one, EMBRATEL, operates international and inter-city calls. 'Me TELEBRÁS system is responsible for more than ninety-five per cent of both the fixed assets and the investment capacity of the country’s Telecommunication Sector.

The TELEBRÁS system is responsible for 12.9 million out of 14.2 telephone points installed in the country before 1994, equivalent to 91%.

Among the twenty-eight companies operating in the TELEBRÁS system, eighteen were among the 500 largest companies in Brazil in 1994, according to Conjuntura Econômica magazine, a Fundação Getúlio Vargas publishing, in its August/l995 edition, as shown below:

The 500 Largest Companies in the Telecommunication Sector - 1994
Classification in the sector	General Classification	Name	Net income R$ million (**)
1	7	Telesp	1,846.50
2	15	EMBRATEL	1,271.46
3	31	Telerj	700.69
4	38	Telemig	474.23
5	53	CRT*	ND
6	55	Telepar	393.13
7	85	Telebahia	240.45
8	119	Telesc	210.93
9	134	Telebrasília	192.52
10	152	CTBC (Borda do Carnpo)	134.67
11	1-56	Telegoiás	147.41
12	159	Telpe	144.59
13	178	Teleceará	128.78
14	202	CTBC (Brasil Central)*	ND
15	217	Telest	105.93
16	303	Telemat	66.41
17	390	Telemazon	52.17
18	425	Telpa	50.30
19	472	Telern	42.80
20	479	Telasa	39.37

Source: Conjuntura Econômica - August 1995
(*) These companies do not belong to the TELEBRAS System
(**) TELEBRAS System Economic and Financial Performance Evaluation - Economic and Financial Directory.

In the 1990-1994 period, the investment in the Telecommunication Sector was between 0.51% and 0.84% of the GDP. In 1994, for the TELEBRÁS system alone, the overall economic investment was R$ 3.2 billion which corresponds to 0.66 of the GDP.

The TELEBRÁS system is responsible for approximately 90% of the investment effectuated in the Brazilian Public Network. In addition to this, significant investments were made in the Private Networks and Terminals, the value of which is R$ l billion Reais.

The 1994 relative median per sector, corresponding to the 18 largest companies in the telecommunication sector, indicated the following main figures:

Source: Conjuntura Econômica - August 1995
(*) This figure represented 10.06% in 1993

When considering the TELEBRAS system alone, the degree of debt represented 8.4% of its own capital (December 1994 figures) with a rate of financial expenditures corresponding to 10% of the adjusted operational income.

However, the country’s needs in terms of infrastructure and public telecommunication services are greater than the degree of services provided by the current operational structure.

TELEBRÁS’ investments in the sector over the last three years - around US$ 3 billion on average per year - have provided to be insufficient to meet the real needs of the country. Not only must such investments be significant enough to fulfill the Networks growth demands, but also allow for its modernization.

There is a need to perform an "up-grading" of the current installations through a broad digitalization programme. It is known that the currently existing Analogical Centres and even Step-by-Step are impeding the improvement of the quality of service and supplying new user facilities. In December 1994, the digitalization rate of the TELEBRÁS System was only 34.3%

Liabilities, as a factor of financing in the sector, have played an important role. TELEBRÁS’ capital structure in December 1994 was as follows:

The telecommunication Sector participation in the country’s Gross Domestic Product (GDP) has increased. In 1994, there was a 13.l% increase in relation to 1993. This increase could have been even more significant if the charges had increased accordingly. Therefore, the Exploitation Income, the Rotation of Operational Assets - and consequently the 1994 Revenue - and the profitability figures were all jeopardized.

The charges issue has long since deserved government attention. There is no intention to increase the charges, but to establish a realistic charge system which is tied to the cost of the services and to the elimination of crossed subsidies. Therefore suitable conditions must be created for the sector’s sef-sustained growth.

The introduction of the Real Plan along with economic stabilization has provided the additional basis and has given rise to, among other things, security for the sectors potential investor. The fall in the inflation rates and the financial system stabilization doubtlessly bring serious consequences to the economic and financial soundness of the companies, with, for example, the reduction in financial spending.

The Brazilian telecommunication System is among the most important in the world when considering those of similar proportions. In 1993, the Brazilian telephone network was placed 11th in the world, the installation of public telephones was 4th and the cellular network will soon be among the top four. Nevertheless, the level of public services is still low which is perceived by the low telephone density. This emphasizes the need for massive investments in the sector corresponding to the market needs.

Some installation figures have already been presented in this paper. On the whole, there are some items which deserve particular attention.

Brazil’s national satellite communication network is modern, which provides various facilities - voice, video, data and texts - to the most remote regions of the country. This system serves almost all 4,974 Brazilian cities and towns.

Nowadays, Brazil has one of the largest Automatic Roaming Systems (a confirmation system for cellular users outside their registered area) in the world.

The service integrates all States in the country, forming one of the main networks in the world operating under standard IS-4lB.

Optical fiber had been increasingly used in the country in the local, intra-state, inter-state, and international segments.

In the local segment, which represents access networks, optical fiber has been used in the connections between Local Digital Centers as well as Optical Rings in the Access Network. Me first High Speed Metropolitan Network and a High Speed National Network have also been implemented.

In the intra-state segment, several Basic Systems are being set up (Inter-City Intra-State Systems) using optical fibres OPGW (Open Ground Wire) and transmission equipment with SDH (Synchronal Digital Hierarchy) technology.

In the international segment, EMBRATEL has participated in various associations, responsible for the contracting, installation, start-up and operation of the following international systems:

Source: EMBRATEL
(*) The Americas cable is connected to the Columbus cable in Central America, which goes to Europe.

In the inter-city sector, before December 1994, the country installed 1354 km of optical fibers, equivalent to 1.4 times the London-Berlin flying distance, and 2.6 times the Berlin-Vienna flying distance.

The first High Speed Borough Networks are being installed, which will supply wide band commuted and non-commuted services, thus meeting the growing demand in the data transmission area (text, images and video).

The REMAVs will be connected through RENAV - Rede Nacional de Alta Velocidade (High Speed National Network), currently under purchase.

The REMAV will have national geographic coverage, including, in the early stages, Florianópolis, Brasilia and Salvador. It will be based on ATM (Non-sinchronal Transference Mode) commutation equipment using Cell Relay technique and optical transmission Systems, essentially based on SDH (Synchronal Digital Hierarchy).

	Unit	Value
Telephone Density	Access/ 100 inhabitants	9,20
Fixed telephones	Access x 106	13,04
Mobile telephones	Access x 106	0,80
Public messaging service	Boxes x 106	0,20
Public telephones	Telephones x 106	0,36
Data transmission	Users x 106	1,00

Current Ratio	= 0.83
Degree of Indebtedness	= 0.31
Gross Margin	= 43.89%
Return on Equity (ROE)	= 3.60% (*)

First Generation:	A 1 (1985) (undergoing deactivation process) A2 (1986)
Second Generation:	B1 (1994) B2 (1995)

AMERICA Cable:	United States Central America Europe (*)
UNISUR Cable:	Argentina Uruguay Chile