Brazil raises US$8.5bn in 5G auction

Brazil raised some 47.2bn reais (US$8.5bn) in its 5G spectrum auction, making it the second-largest auction of assets in the country’s history.

Most of that total will be converted into investments and the government will therefore only collect a small sum. The total raised includes licensing fees, investment commitments and premiums. 

The tender, which lasted two days, was second in value only to the 2019 pre-salt tender that brought in nearly 70bn reais, communications minister Fábio Faria told a press conference.

In nominal terms not adjusted for inflation, the funds raised for four frequency bands were also higher than the total collected in the privatization of the telecom sector in the 1990s and in the 3G (7bn reais) and 4G (12bn reais) auctions combined.

Around 85% (43) of the range of spectrum blocks offered were sold, Abraão Balbino, board member of regulator Anatel and chair of the bidding committee, said in a statement.

On the second day of the tender, Anatel sold licenses in the 26GHz band. Six of 10 national blocks of 200MHz in that band were sold, totaling 1.2GHz of contracted network capacity, out of 2GHz available. Twelve of 42 non-national (regional) 200MHz blocks were also sold.

Although not all the lots were awarded, which was expected as some were “redundant,” according to Balbino, the auction prices were 218% (5bn reais) over the minimum price established for those sold.

Source: Anatel

Anatel expects to sign the concession terms with the winners in the second half of December, according to Balbino. Faria said the government was working on a tender for bands that were not sold, which will probably be launched in 2022.

THE WINNERS

Overall, 11 operators bought frequencies: the three market leaders Telefônica Brasil (Vivo), Claro and TIM, regional operators Algar Telecom and Sercomtel (controlled by the Bordeaux fund), and six new entrants in mobile services.

Claro's purchases totaled over 1.7bn reais, while those of Telefônica were more than 1.1bn reais and TIM's just over 1bn reais, in the 2.3GHz, 3.5GHz and 26GHz bands. The 3.5GHz spectrum is considered the prime one for 5G.

Algar Telecom paid 64.7mn reais for regional lots in the 3.5GHz, 2.3GHz and 26GHz bands. The company bought almost the entire 26GHz spectrum on offer for its area of operations, becoming the operator with the greatest amount of spectrum available in a single location in this band.

Sercomtel paid 82mn reais for a regional block in the 3.5GHz band.

NEW PLAYERS

The new players are Winity II Telecom (controlled by the fund Pátria), Brisanet, Fly Link (a Minas Gerais state-based ISP), Neko Serviços e Comunicações and Entertainment and Education (controlled by MVNO and B2B services provider Surf Telecom), Consórcio 5G Sul (an ISP consortium formed by Copel and Unifique) and Cloud2U Indústria e Comércio de Equipamentos Eletrônicos (created by optical and connectivity equipment provider Greatek).

Winity paid 1.4bn reais (an 806% premium) for a national block in the 700MHz band for 4G, becoming a new national mobile player.

Meanwhile, Brisanet paid more than 1bn reais for a regional block in the 3.5GHz band in the northeast, at a premium of more than 13,000%, far outbidding its rival for this block, ISP Meganet, which only offered 9mn reais.

Brisanet also snapped up the regional block in the 3.5GHz band in the mid-western region, with a bid of 105mn reais, a premium of more than 4,000%, as well as a regional block in the northeast in the 2.3GHz band, with a bid of 111mn reais, the minimum price.

Winity intends to operate in the wholesale market, leasing frequency and infrastructure to other players, and will build around 5,000 towers by 2029.

In a statement, the company also said it was "proud of the result" and ready to take coverage to under-served localities and connect 35,000km of highways, which are the main investment obligations tied to the frequency it acquired.

Brisanet CEO José Roberto Nogueira said the company intends to combine its fiber-optic networks with 5G for bundled offerings. As a good part of the amount paid for the blocks it acquired will be converted into investments to be made by 2029, the investment plan fits into the company's capex structure.

Being the leader in terms of market share among the country's fiber optic internet service providers, Brisanet said the expansion of its network will help boost the new technology.

The company also wants to use its franchise network, Agility Telecom, to accelerate 5G deployment. Agility is present in more than 250 localities in the northeast.

Another new entrant, Cloud2U, owned by telecom equipment manufacturer Greatek, will offer the spectrum it acquired “to [internet service] providers, who have been our market partners for over 10 years,” the company said in a statement. 

Cloud2U acquired licenses for areas in Minas Gerais, Espírito Santo and Rio de Janeiro states.

The company does not have a business plan yet, but as its partners already have a fiber optics network deployed, "we understand that a large part of the network that supports connectivity is ready and able to receive 5G as of 2024."

Cloud2U/Geatrek’s headquarters are in São José dos Campos, São Paulo state, and the company has plants in Bahia and Minas Gerais states. 

Among the large operators, Telefônica Brasil focused on areas of strategic interest to expand its operations in the north, midwest and southeast regions. 

The company bought four blocks in the 2.3GHz band and two blocks in the 3.5GHz band. On the second day of the auction, it won 200MHz in the 26GHz band for national coverage.

“We are going to promote, in an accelerated way, digital access to the greatest number of people and companies possible across the country. Having a leading position in the auction is in line with our aim of digitalizing and delivering even more value to shareholders, employees, customers and partners,” CEO Christian Gebara said in a statement.

Telefônica Brasil has been investing around 8bn reais annually. 

According to the telco, its main goals are to connect households and companies with fiber and consolidate its leadership in the mobile network segment, where it has a 33% market share.

THE LOSERS

Groups like telecom infrastructure company Highline, owned by US fund Digital Bridge, promised large investments in the auction but were left empty-handed. An executive of the group, requesting anonymity, told BNamericas that the company is fine with the outcome and will focus on its key areas of datacenters, towers and fiber optics. 

"Although Highline appears to come out of it as a loser, it's actually a winner in a thriving industry where the number of mobile towers will rise by at least five times," the source said. "5G was never our main focus." 

The source also said that the “premiums paid were absurdly high” and that even if a large part of the money can be converted into investments, the company could not jeopardize the financial sustainability of its operations.

The Iniciativa 5G Brasil consortium, formed by over 400 ISPs, also failed to acquire spectrum.

In an interview with BNamericas, the head of the consortium, Suelismar Caetano, previously expressed optimism about the auction and even said the group was negotiating financing with three investment funds, two from China and one from the US.

“We're happy with the result, with our participation, because we were able to organize ourselves and build a viable project,” Caetano told BNamericas after the auction. "This, per se, has already changed the market."

“But each ISP in the consortium has its own reality. And the investments would have to be feasible,” he added.

The 700MHz (4G) and 3.5GHz (5G) bands would have to have been awarded together to avoid generating a “lame-duck” mobile operation, he said. The proposal to combine bands was not accepted by Anatel. "That doesn't make sense," said Caetano.

Now, plan B for these ISPs is to operate under an MVNO model with those who did purchase frequencies. "We should have news in the coming weeks," the executive said.

Brazilian telco association Conexis said that the auction showcases the great interest of its member operators (the largest players plus Algar and Sercomtel) and their commitment to the country's economic growth. "The auction is a milestone for connectivity in Brazil," the firm said.

According to Conexis, the investments will boost the digital economy, the implementation of the internet of things, productivity and will benefit the public.

THE CHALLENGES

The auction was crucial for the country's technological development and for industries to remain competitive globally, industry confederation CNI said in a statement. 

According to the entity, 5G will allow the expansion of the internet of things and enable digital transformation.

On the tender results, CNI's acting president Glauco Côrte said, “among the expected gains of 5G for the industry, through IoT, are the better adaptation of stocks to market demands, the customization of products in an agile way to meet customers' needs, the reduction of waste and, as such, the associated costs, in addition to the increase in worker safety through the performance of risky activities by machines.”

But CNI also echoed experts who saidmunicipal antenna laws must be reformed before 5G becomes viable.

CNI estimates that only 19 localities have adequate legislation in force for the installation of 5G antennas. The entity recommends the reduction of red tape as 5G will require up to 10 times more antennas than 4G.

Telecoms secretary Artur Coimbra said at a press conference after the auction that the government is working on two fronts to tackle the antenna issue.

At the federal level, a decree was published last year regulating the 2015 antenna law establishing the tacit licensing rule. Small cells, which should be widely used for 5G, were also exempted from licensing.

A second front involves working with municipalities to create standard legislation. 

"We have already had advances in some capitals. With these instruments, I believe there will be no problems for the rapid installation of 5G," he said.