Brazils privatization attracts attention

Sept. 1, 1997

Brazil`s privatization attracts attention

By PETER HOWARD WERTHEIM and DAYSE ABRANTES

Brazil`s Congress overwhelmingly passed a General Telecommunications Law last June that will allow the government to sell almost all of Brazil`s telecommunications system. Foreign investors are watching closely to see how this major event in worldwide telecommunications will unfold.

Telecomunicacoes Brasileiras S.A. (Telebras), the Brazilian holding company that oversees the country`s 27 state-owned local operators and one international carrier, is the largest tele communications operator in the southern hemisphere. Telebras ranks among the 20 largest operators in the world, with 1996 net profits surpassing $3 billion. This figure represents a threefold increase over 1995.

"However, it is not realistic to expect Telebras to be ready to face the new scenario in Brazil`s telecommunications after almost 25 years of state monopoly, a culture that crystallized itself in habits and practices that need to be radically changed," says Fernando Xavier Ferreira, Telebras`s president. "Thus, our main challenge is retraining, investing in corporate changes, and increasing productivity, not only of the holding, but of the whole Telebras system."

After the passage of the bill, Brazil`s Communications Minister Sergio Motta predicted that Empresa Brasileira de Telecomunicacoes S.A. (Embratel) and Telecomunicacoes de Sao Paulo S.A. (Telesp), the Sao Paulo state telephony operator, will be the first Telebras holdings to be privatized. The target is June of next year.

These two holdings are both large and active. For example, Embratel, the state-owned long-distance and international services carrier, has an infrastructure that includes a 30,000-km microwave network, a 20,000-km terrestrial and submarine fiber-optic cable system, and a satellite system, the Brasilsat, with three satellites in orbit and another to be launched in December 1997. Embratel`s rate of digitization for long-distance telephony network was at 81% by the end of 1996 and is expected to reach 96% by year-end 1997.

Embratel plans to invest approximately $1 billion by 2001 in its three-phase fiber-optic transmission network project. The estimate covers just the deployment of 20,480 km of fiber-optic cable and associated equipment, but not the necessary switching stations.

The first phase of the project is already under way (see figure). The company has installed most of the main routes, which will serve the largest cities. These routes comprise 10,451 km of cables, which connect the existing Unisur cable (south) and the Americas I undersea cables (north) at a cost of $56,920 per kilometer and a total cost of $595 million (see Lightwave, September 1996, page 18).

The second phase will expand and improve system reliability with the closing of several rings. It will require a $225 million investment for 6315 km of cables at a cost of $35,620 per kilometer. The third phase will include new routes and rings, comprising 3714 km at $33,000 per kilometer for a total investment of $122.7 million.

According to Reynaldo Gomes Levy of Embratel`s planning department, in the beginning Embratel had little experience with fiber builds of such grand proportions and was not familiar with the potential contractors. However, he also pointed to the evolution in production and installation of fiber-optic cables as reasons for reducing costs per installed kilometer. "Since Embratel started its fiber-optic network program in 1993, cable costs have been reduced from $33 (imported) to $9 per kilometer," he says (see Lightwave, November 1993, page 1).

"In the second phase, the distance between repeater stations ranges from 120 km to 140 km, and all contracted fibers are of the [singlemode] type," explains Levy. "Also, due to equipment evolution, we are again using common fibers, not dispersion-shifted fibers. However, we already installed dispersion-shifted fibers in some routes, and since we will use Pirelli`s wavelength-division multiplexing [wdm] technology in the next phase, we will have problems with the number of optical windows in these stretches."

Pirelli won a $32.7 million contract from Embratel to install the first 5-Gbit/sec transmission system in South America using wdm technology to link Rio de Janeiro to Natal, the capital of Rio Grande do Norte state in northeastern Brazil. The system will have 120 Synchronous Digital Hierarchy (sdh) terminals at 2.5 Gbits/sec and 60 wdm multiplexers installed in 16 Embratel stations along the coast. A management system will operate parallel to the present sdh system running at 622 Mbits/sec.

According to Ludgero Pattaro, director of telecommunications energy division of Pirelli Cabos Brasil, "The company is so optimistic about Brazil`s potential that it recently inaugurated a new $16 million fiber-optic cable plant in Sorocaba, Sao Paulo state, to increase production capacity from 60,000 km to 300,000 km per year."

Pattaro estimates that the Brazilian market will absorb 500,000 km of fiber this year. By 2000, Pirelli expects the new facility to produce 600,000 km/year. "We are not talking about market potential, but more or less the total number of contracts that were already inked or will be signed soon," adds the executive.

Besides Pirelli, Alcoa is also supplying fiber-optic cables, while Equitel, Alcatel, and Pirelli are Embratel`s main suppliers of optical equipment.

Sao Paulo prepares

For its part, Telesp, located in Brazil`s financial, industrial, and commercial center, is the largest state operator of the Telebras system. It possesses an estimated $15 billion of assets.

"We do not have the know-how for competing," acknowledges Sampaio Doria, the company`s president. "State-owned companies face a veritable maze of bureaucracy that makes it impossible to face competition and does not provide the efficient and [cost-effective] services required by its subscribers."

To prepare itself for competition, create new market-oriented tariff policies, expand its range of services, and streamline commercial procedures, the company is in the process of downsizing and restructuring the marketing and sales sectors. In addition, it is exchanging information with other international operators to assimilate as quickly as possible the best means to operate in the upcoming competitive environment.

"Telesp considers competition to be very healthy because it will inevitably result in tariff reduction, improvement in service quality, closer relations with subscribers, and a wider range of services," concludes Doria.u

Peter Howard Wertheim and Dayse Abrantes write from Rio de Janeiro.

Brazil and Portugal ink international fiber-optic cable contract

Brazil and Portugal inked an accord July 22 to construct and maintain Atlantis II, a 12,000-km undersea fiber-optic cable that will link South America with Europe and Africa. On the same day, Pirelli and Alcatel signed supply contracts for the cable. Alcatel won the lion?s share of the deal, worth $208 million. Pirelli?s contract is worth $23 million.

Embratel inked the accord as one of the 24 international operators that together will invest $270 million in the first digital optical cable to directly connect South America with Europe and Africa. Embratel will invest $55 million in the project, a company spokesperson told Lightwave.

Atlantis II will be connected to all other undersea cables in the northern hemisphere and will start operating in June 1999. With Atlantis II, Embratel and the Mercosul trade pact (Brazil, Argentina, Uruguay, and Paraguay) will be able to meet all international telecommunications needs to Europe and Asia for the next 15 years, affirmed Embratel officials.

Starting with 10-Gbit/sec capacity, equivalent to 120,000 voice channels, the cable system will be used for transmitting data, voice, text, and video. Atlantis II terminal stations will be located in Las Toninas, Argentina; Fortaleza, Brazil; Praia, Cape Verde; Dakar, Senegal; Canarias, Spain; and Lisbon, Portugal.

The international consortium responsible for the project includes Embratel (Brazil), Deutsche Telekom (Germany), Telintar (Argentina), Marconi (Portugal), Telecom Italia (Italy), Telefonica (Spain), France Telecom, Sonatel (Senegal), Cabo Verde Telecom, Belgacom (Belgium), BT (UK), cat (Thailand), ctc Mundo (Chile), Dacom (South Korea), Korea Telecom, Polish Telecom, Singtel (Singapore), Swiss Telecom, vsnl (India), and at&t, mci, Sprint, Teleglobe usa, and Worldcom (all usa).

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