Capex Watch: Where Brazil’s telcos are investing

TELEFÓNICA

Telefonica's Vivo invested 1.69bn reais (US$412mn), excluding licenses, in the first quarter of 2019, up 9.6% year-on-year.

The capex growth was below the 14.3% increase of 1Q18. Still, it represented 15.5% of the company’s net operating revenues in the period, compared to 14.3% the year before.

Fiber investments increased 34% with those in 4G and 4.5G networks growing by 8%, Q1 figures show.

Broken down by segments, the line "Networks" took 1.51bn reais of the total in the quarter, up 9.5%; "Technologies and IT systems" accounted for 160mn reais (29.4%); and "Products, Services, Channels and Others," 21mn reais (-47.6%).

In a conference call, CEO Christian Gebara said investments came in line with the capex expansion expected for the year and stressed one of the company’s priorities is expanding fiber-to-the-home (FTTH) in northern Brazil.

Vivo earmarked 8.9bn reais for investments this year, up 8.5% from the year before.

Most of the total will be allocated for FTTH implementation and footprint expansion as well as increasing 4G/4.5G technology coverage and capacity.

The company plans to invest 26.5bn reais (US$7.14bn) for 2018-20, which compares to 24bn reais for 2017-19.

TIM

Telecom Italia's TIM Brasil posted a capex of 650mn reais in Q1, up 6% year-on-year.

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

Among the chief actions undertaken in Q1, TIM listed the refarming of 2.1GHz frequency to 4G; an infrastructure virtualization project, which reached about 42% of network functions in the quarter; the installation of 22 datacenters, (11 Data Center Core and 11 Data Center Edge); and the expansion of voice over LTE to over 2,700 cities.

In a first quarter earnings call, CEO Pietro Labriola said TIM wants to meet 2019 capex guidance, but not surpass it.

Overall, TIM plans to invest 12.5bn reais 2019-21, with a capex-on-revenues level below 20%, compared to an investment plan of 12bn reais for 2018-20.

AMERICA MÓVIL

Mexican AMÉRICA MÓVIL does not break down country-by-country investment figures.

In the first quarter, global capex reached 28bn pesos (US$1.5bn), which the company said was partly funded with new debt

Last August, the head of América Móvil‘s Brazilian subsidiary, José Félix, said that 2019 capex for would be 10% higher than in 2018, equalling 8.8bn reais this year.

“We have been doing good investments [in Brazil] in the network, in 4G, in 4.5G. We have the best speeds in the market,” CEO Daniel Hajj said in the Q1 conference call this month.

According to Hajj, the acquisition of Nextel for 3.4bn reais, which is expected to close in the fourth quarter, is not only meaningful from an in-market consolidation perspective but also for savings with frequency expenditures.

“We are not looking for acquisitions, but this acquisition is giving us good subscribers in the main cities in Brazil, in Rio de Janeiro, in São Paulo. It’ll give us a lot of spectrum, so we can have better network savings on capex with more spectrum,” he said.

NEXTEL

For its part, NEXTEL invested US$7mn in the first quarter, down US$1mn.

Net cash used for investments in Q1 was US$8mn reais.

The bulk of it went to the refarming of 2.1GHz spectrum bands from 3G to 4G in parts of Rio de Janeiro and São Paulo, Nextel's core markets, but the carrier is hitting the breaks.

“We are focused on maximizing our liquidity while we wait for the proposed sale of Nextel Brazil to close," CFO of controller NII Dan Freiman said in a call.

"Outside of the first annual installment of principal and interest due under our license financing in July, we expect cash burn in future quarters to decline from the level incurred this quarter."

Overall, Nextel Brasil reported a 3.6% drop in revenues to around 551mn reais in Q1.

Oi

The latest to release its quarterly earnings, Rio de Janeiro-based Oi invested 1.73bn reais in Q1, up 53% year-over-year.

The company has 7bn reais yearly in capex earmarked for this year and the next, CFO Carlos Brandão said in the earnings call.

This year‘s investment represents an increase of 15.2% over 2018, focusing on access fiber, mobile broadband 4.5G and refarming of the 1.8GHz and 2.1GHz frequencies.

In the quarter, the carrier accelerated fiber through its "Network Reuse" approach, “which strengthens the robustness of the transportation network and the capillarity of the existing metropolitan fiber network in order to expand the availability of fiber-to-the-home (FTTH), at an average cost 30% lower than the traditional approach and more commercially efficient, meeting the market demand.”

In March, the company reached 1.7mn homes passed with fiber, around 480,000 in the first quarter. Oi said it can currently build more than 200,000 homes passed per month.

Oi previously said it aimed to invest 21bn reais over the next three years in Brazil.

That compares to planned capex of 26.5bn reais from 2018-20.