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Related Themes to the Implementation of 5G in Brazil and the Telecommunications Company HUAWEI Are Strategic Highlights for the Coming Years
The Brazilian telecommunications sector requires greater regulatory flexibility, legal security, and a reduction in the tax burden to support investments in the country. Although these demands are not new, they have become more urgent with the arrival of 5G, as it will require more resources and infrastructure than previous technologies. The increasing use of the Internet as a result of the pandemic is another factor.
“We collect over 65 billion reais (US $ 12.3 billion) in taxes and contributions annually. Since 2001, only 8% of the resources from telecommunications funds have been invested in telecommunications,” said Vivien Suruagy, president of Feninfra, the national association of infrastructure and maintenance companies in telecommunications, during the summit of Telebrasil Panel.
“Meanwhile, Brazil leads the world in taxation in the sector and, with a tax burden of 47%, has nearly double the taxes and fees on telecommunications than the second-ranked country,” she added.
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According to Suruagy, taxes in the sector have increased by 224% over 20 years, while revenue increased by 123% in the same period.
Regarding the tax reform proposals under discussion in Congress, Suruagy stated that taxation needs to be simplified but should avoid increasing indirect taxation. She supported the proposal currently in the Chamber because it would be more comprehensive.
The executive also endorsed the Congress vote to overturn President Jair Bolsonaro’s veto on extending the tax exemption tied to payroll to another 17 sectors, including the ICT industry.
The president of América Móvil for Brazil, José Felix, echoed the criticisms. At the event, he said, “we are talking about digital transformation in a country where the consumer has the second highest tax burden in the world. The ceiling [the digital transformation] is discussed without taking care of the fundamentals [regulation and taxes].”
Julio Semeghini, Deputy Minister of Communication, stated that most of the tax burden comes from the ICMS, which is collected by the states, not by the federal government.
In response to Felix, Semeghini explained how the government is trying to build the foundations: with the approval of a reformed general telecommunications law last year in Congress, which should make broadband investments more flexible for fixed-line telephone companies; and new rules for the General Plan of Universalization Targets (PGMU), which sets goals for mobile coverage.
The ruling also cited the recently issued antenna decree-law by the president, which facilitates the installation of cell antennas in cities; and the potential tax exemption for IoT devices.
“Yes, tax reform is lacking, but we are working on the foundations,” said Semeghini.
Carlos da Costa, special secretary for productivity, employment, and competitiveness of the Ministry of Economy, said the government will present a new legal framework for startups to Congress next week.
Da Costa also mentioned upcoming regulations aimed at accelerating innovations for industry 4.0, as well as the 5G auction (“always respecting our sovereignty”).
And he referred to a program being carried out in partnership with the micro and small business service of Sebrae to train young people in technology. According to him, the goal is to reach 1 million companies by 2022.
But telecommunications players have more to say about the market.
DIGITIZATION AND INTERNET TV
“What happened in the last few months has led everyone to rethink business models, processes, etc. What used to be complicated, in a blink of an eye that everyone did, like remote work, telemedicine, distance education,” said Felix from America Movil.
The executive said that Claro Brazil is preparing to launch an “alternative” pay TV service for customers who do not have access to its subscription in the coming weeks.
This move comes after the telecommunications regulator Anatel determined that live linear channels over the internet are not a telecommunications service and are not subject to pay TV rules.
“Claro is not a company focused on connection. We want to grow in the value chain. Solutions beyond connections are our main goal,” he said.
Implementation of 5G
Felix highlighted that although Claro already operates a 5G-type technology through the DSS system, which offers speeds close to fiber (250Mb/s), greater bandwidth capacity is needed with more spectrum, making the 5G frequency auction scheduled for the first half of next year crucial.
The executive promoted 100 MHz as the minimum bandwidth required for large operators to have 5G networks with quality of service. He also stated that the auction rules must be “fair,” with equal rules for large and small suppliers and with legal security.
For the auction, it is necessary to “suppress this lobby from broadcasters for the migration of the Ku band due to the high cost it represents.”
Felix was referring to an option that is being studied to avoid interference between open satellite TV and 5G in the 3.5 GHz frequency. The band designated for 5G is currently occupied by broadcasting services.
According to Felix, the filters are cheaper (around R $ 500 million) and have proven sufficient to mitigate potential issues, while the process of transferring satellite TV to other bands, which operators would have to partially finance, would cost about R $ 3.5 billion.
“These are discussions in which much time is wasted in the country without a clear and sensible objective. The result is that you do not do what you need to do,” said Felix.
He also mentioned that the terms of the bidding should address the risk of spectrum acquisition by “adventurers and/or speculators seeking to enter the acquisition and resale process of spectrum,” referring to the possibility of non-operators participating in the auction and even buying licenses.
In this sense, the mining company Vale requested this week from the regulator Anatel authorization to acquire spectrum frequencies to facilitate the installation of private telecommunications networks in its mines.
Consolidations
Regarding the competition for Oi’s mobile assets, the joint proposal from Claro with TIM and Telefônica Brasil would be the best option to help Oi exit the judicial recovery process, according to the executive.
Felix stated that an acquisition by the other three operators would eliminate the risk of discontinuity of Oi’s mobile and fixed services. He also said that the proposal “preserves regulation by increasing competition,” avoiding the concentration of customers and frequencies in a single operator.
He again referred to “adventurers” who might be interested in the rival, such as the telecommunications infrastructure company Highline. An ideal mobile phone market would support three large companies instead of four, referring to the U.S. market as a model.
HUAWEI’s Presence in Brazil
The president of Huawei for Brazil, Sun Baocheng, said that the company paid 1.4 billion reais in taxes last year.
Without mentioning a potential ban, Baocheng stated that the company has been in the country for 22 years and employs over 1,200 people directly, about 80% of them Brazilian.
“Huawei is in Brazil for Brazil. We hope to work together with a shared responsibility.”
Baocheng mentioned that the company operates in various sectors in Brazil, including agriculture, mining, automation, and media.
He also praised the government’s North Connected program to bring fiber to the Amazon region, stating that the company is open to collaboration. Huawei is expanding its fiber network in the Amazon, bringing broadband to 200,000 homes, he said.
Huawei also plans to train 30,000 students in Brazil in ICT in the coming years.
Carlos Roseiro, Huawei Brazil’s solutions director, stated that 5G “is not everything,” but rather another technology that assists in the digital transformation of companies and people.
“Fiber, AI, cloud are other technologies that, combined with 5G, will enable digital transformation and increase productivity and efficiency gains in the economy.”
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