Capex Watch: How and where do Brazil’s telcos invest?

As Brazil's major telecom players present their financial and operating results for 2Q19, BNamericas analyzes how much and where these companies allocated their capex during the period, as well as their plans for the future.

The figures cover the big four: Vivo, Claro, TIM and Oi, the latter of which was the last to release its financials on August 15.

Oi

Rio de Janeiro-based Oi invested 2.06bn reais (US$500mn) in the second quarter, up over 50% year-on-year. During the first half of the year, capex totaled 3.78bn reais, compared to 2.49bn reais in 1H18.

The company’s detailed Q2 results can be seen here.

Oi said the capex hike reflects the increase in investments outlined in its strategic plan, announced in July 2018, which focuses mostly on expansion of fiber-to-the-home, high-speed broadband and 4G and 4.5G mobile coverage.

Also read: Analysis: Oi’s ‘make-or-break’ strategic plan

A downturn in the residential market has also driven the firm's investments in fiber to increase profitability in the segment, the company said.

“We've seen a slowdown in the residential downtrend mainly due to the fiber advance, but it takes time,” CFO Carlos Brandão said in an earnings call.

The company ended July with 2.8mn homes passed with fiber. The goal is to reach 4.6mn by the end of the year and 16mn in 2021.

Oi also aims to increase the homes-passed take-up rate, which is still relatively low at 10.2%. This rate refers to the number of homes passed with fiber that actually become clients. It wants to reach a 25% rate by 2021.

The company is also concluding a major digital transformation to integrate and digitize all of its customer service channels. Oi is also consolidating most of its IT environment, planned to be ready by 2020.

Brandão said in the call that the company now expects to invest up to 7.5bn reais this year, compared to 7bn reais in a previous estimate, which was 15.2% more than it invested in 2018.

For 2020, Brandão said Oi is working with a figure of 7bn reais in investments.

Overall, the strategic plan announced in July foresees a potential impact of 14.5bn reais by 2021 from the divestment of non-core assets, including other actions.

However, according to the executive, the operator does not rule out a possible new capital increase, issuing debentures or obtaining new forms of financing from suppliers to reduce its cash burn, alleviate debt and increase investments.

Oi previously reported it aimed to invest 21bn reais over the next three years in Brazil. That compares to planned capex of 26.5bn reais for 2018-20.

TELEFÔNICA

Telefônica Brasil's (Vivo’s) capex was 2.36bn reais in Q2, up 10.3% year-on-year. It amounted to 4.05bn reais in the first half of the year, which was 18.6% more than in the same period of 2018.

Overall, Vivo invested 21.7% of its net operating revenues in Q2. Over 2bn reais of the total went to networks.

Investments were mainly focused on FTTH implementation and footprint expansion, as well as increased coverage of 4G and 4.5G technology. Fiber investments, for example, grew 34% in 1H19.

“We want to get to as many cities [with fiber] as we can. But we have guidance and consolidated capex and we can't do everything on our own,” CEO Christian Gebara said in an earnings call, referring to an infra-sharing deal with TIM.

“We're considering other types of infrastructure models. Going forward, it’s difficult to believe that we will be able to build by ourselves, as an independent player, all the network required in a country the size of Brazil,” he said, adding that nothing has yet been defined.

In a special presentation to investors on August 14, the company said it aims to invest 9bn reais this year in Brazil, compared to 8.2bn reais in 2018.

Of this year's total, 1bn reais is expected to go to what the company calls a “fiber acceleration project.”

The telco ended June with 9.5mn homes passed with fiber, after adding 900,000 since January, and now has 142 cities covered with FTTH. The company plans to launch FTTH in more than 30 cities this year.

Telefônica said it sees a remarkable opportunity with ultra-broadband (fiber, mostly) in Brazil, due to the low penetration and high demand and plans to reduce investment in legacy technologies (2G, 3G, copper and DTH).

Overall, the company plans to invest 26.5bn reais in the 2018-20 period, compared to 24bn reais in 2017-19.

TIM

TIM Brasil invested 945mn reais in Q2, down 3.7% year-on-year, with investments reaching 1.57bn reais in 1H19, which was almost unchanged from 1H18.

Over 90% of the total went to infrastructure, particularly IT projects, transport network and 4G technology through 700MHz and refarming the 1.8GHz and 2.1GHz frequencies.

TIM also wants to accelerate investments in its residential fiber offer TIM Live, develop new verticals (IoT, M2M) and deploy fixed-wireless access (FWA) so it can provide ultra-broadband through 5G in the future.

At the end of Q2, the company had 1.1mn homes passed with fiber in 17 cities. The goal is to reach 4mn by 2021. TIM also expects its national fiber backbone to reach 115,000km, up from 90,000km, and the fiber transport infrastructure (fiber backhaul) to reach 1,500 cities by 2021.

The company is also readying a wide-ranging internal digitization and automation project for next year involving artificial intelligence (AI) in areas that are labor-intensive. 

“We think we can improve even further in this regard, so next quarter we should outline a project called megaspin to increase our digitization capacity,” CTO Leonardo Capdeville said in the Q2 earnings call.

TIM Brasil’s 2019-21 industrial plan includes savings of up to 1.2bn reais.

The company’s 2019-21 strategic plan forecasts 12.5bn reais in capex, compared to 12bn reais in the 2018-20 plan.

Partly because of network preparations for 5G, by 2021 TIM expects to have 37 active datacenters for edge computing, running more processes outside the cloud, on users machines, for example.

AMÉRICA MÓVIL

América Móvil does not usually report country-by-country capex figures.

Overall, the group invested 66.3bn pesos (US$3.40bn) in the second quarter, which was 13% more than in the same period of 2018. In the first half of the year, capex was close to 95bn pesos, compared to 81.1bn pesos in the same period of last year.

Also Read: At a Glance: América Móvil investments

In Brazil, local subsidiary Claro Brasil aims to invest 10% more this year than the 8.8bn reais it invested in 2018.

Likewise, FTTH is one focus: the company expects to reach 1.5mn homes passed with the technology in nearly 100 cities this year.

But this rollout will be gradual because, unlike many of its rivals, the company still sees untapped opportunities with HFC (a hybrid of fiber with coaxial cable).

In 2018, América Móvil's consolidated global investments reached US$8bn, up about 10% from 2017. Capex earmarked for 2019 is US$8.5bn.