Spotlight: How Brazil’s biggest ISPs are investing

Brazil’s largest internet service providers (ISPs) had a mixed performance in Q1, including revenue slowdowns and first-ever profits. 

In general, these firms continue to control spending on network expansions to focus on acquiring customers and value-added services, such as 5G.

With the ISP market still largely fragmented and highly competitive – and with saturated fiber broadband offerings in some cities and regions – the sector’s consolidation remains on course. 

This is especially the case among smaller and mid-sized ISPs. M&A deals involving larger players, such as Telefônica's reported interest in Desktop, one of the largest ISPs in São Paulo state, are also on the radar. 

V.tal is also in a due diligence process with Ligga, an important player in the state of Paraná, as first reported by BNamericas.

Among the ISPs that have been the most active buyers are Alares, Brasil TecPar, Unifique and Master Internet.

BNamericas provides an update on the investment strategies of the five largest players.

ALLOHA

The largest ISP in the country as per the number of brands it owns, the Alloha group reported its first-ever net profit in Q1 as it continues to invest in new solutions and wrap up the integration of acquired assets.

Revenues grew 3% to 411mn reais (US$79.5mn), with net profits amounting to 8.4mn reais versus losses of 8.7mn reais a year earlier

With the integration of different acquisitions now concluded, the company intends to resume its M&A plans.

According to Alloha, Q1 was marked by the “final stretch” for the completion of the migration and unification of systems from the nine brands acquired in recent years.

“We’re now integrated and ready for a new stage of growth and consolidation, with significant gains in the integration of operations,” CEO Lorival Luz said in a statement. Alloha did not provide any capex guidance. 

The company is not publicly listed, but made a request in March with Brazilian securities regulator CVM to become a local category ‘A’ issuer, a first step towards a possible IPO that it has been mulling for some years.

Alloha reports 1.6mn B2C customers, more than 4,900 B2B customers and 7.8mn homes passed in 864 localities across 22 states.

Its network spans 80,000km of backbone and backhaul, in addition to another 60,000km of access fibers (last mile).

BRISANET

The second largest ISP and leader in the northeast, Brisanet has its focus firmly on the nascent 5G network. The goal is to have synergies with its fiber operation.

Brisanet’s investment plan for 2024 is worth 800mn reais. Of the total, 550mn reais should go towards expanding the 5G and 4G networks, and 250mn reais has been earmarked to expand the fiber-to-the-home (FTTH) networks. The company is not active in terms of M&As, as it is not pursuing an inorganic growth strategy.

The firm’s 2023 capex was 464mn reais, down from 857mn reais the prior year and from 1.04bn reais in 2021, as the country’s fiber boom slowed down. 

When measured by additions to fixed assets and intangible assets, Brisanet invested 165mn reais in this year’s first quarter, up from 107mn reais a year earlier. Of the total, 56% went to 5G, 24% to additions of new fiber customers and only 2% to homes-passed deployments.

The company's entire investment to date in the 5G project is estimated at around 2bn reais.

“We’re not entering 5G testing it. We’re entering this segment in a mature way,” CEO José Roberto Nogueira told investors on the Q1 earnings call.

At the end of April, Brisanet had over 78,000 active customers in the mobile segment. 

The implemented infrastructure reaches 98 localities, covering a population of around 6mn people, and the goal is to attain 14mn in 300 localities.

Brisanet also reports over 287 mini datacenters for its own use and to serve customers, plus 77,000km of FTTH networks and 40,000km of fiber backbone.

In Q1, its net profit fell 20.1% year-on-year to 20.1mn reais, while operating revenue was up 14% to 334mn reais.

DESKTOP

São Paulo state-focused Desktop is looking at acquisitions to grow, while also being a target for potential buyers. 

It is one of the companies eyeing Oi’s fiber broadband base. Although Desktop has not confirmed it, this move would likely be backed by an investment fund given the high price of the asset. 

Other assets are also on the radar. CFO Bruno Leão told investors in an earnings call that the focus is on companies in adjacent cities to its operations. Desktop has to date made 10 acquisitions.

The company has also received an unsolicited buyout proposal from Telefônica Brasil. As previously reported, Desktop hired a bank to sell its fiber network to a fund or investor. The ISP has not confirmed receiving the offer.

Telefônica, through its Vivo brand, has its operating stronghold in São Paulo state and is the national leader in the FTTH segment. An eventual acquisition of Desktop would remove a smaller but important competitor and further strengthen its presence in its home state.

In the first quarter, Desktop also launched MVNO operations on top of TIM’s network. In the pilot phase, the service covers four municipalities in the state.

The company reported adjusted capex of 81.5mn reais in Q1, up from 74.2mn reais a year earlier. A capex guidance for 2024 was not provided, but Leão said investments will be directed to client activations and network occupation, rather than network expansions.

Revenue in the quarter was 222mn reais, up 42% year-on-year, with an adjusted net profit of 26mn reais, up 140%.

The company ended the quarter with 55,400km of networks, made up of 10,200km backbone and 45,200km FTTH, representing an annual increase of 1%.

Desktop also reported 4.4mn homes passed, up 3%, and 184 localities covered in the state, up 1%.

VERO

The merged ISP of Vero Internet and Americanet, now rebranded Vero, has an appetite for growth that includes more M&As. 

These investments could be made in other companies, involve new mergers, as well as the entry of new investors, according to CEO Fabiano Ferreira. Oi’s fiber base is one of the assets on its radar. 

Vero projects 1bn reais in synergies by 2030 through combining its operations with Americanet. 

The companies completed their merger in December, creating one of the largest ISPs in Brazil, with annual revenues of 1.9bn reais. To date, 60% of the integration between the two is said to have been completed.

The company also raised 725mn reais through local bonds known as debentures. And like Alloha, it recently obtained a registration license from CVM.

At present, Vero serves 420 localities, mostly in Brazil’s south, southeast and center-west, having ended Q1 with 1.35mn clients. 

Its first quarter revenue grew 6% year-on-year to 404mn reais, or 105% when excluding Americanet. 

As of April, Vero’s B2C and B2B client base numbered 877,000 with 1mn clients in the case of Americanet, according to figures from sector regulator Anatel.

The fiber network spans 77,000km, of which 23,700km is backbone. The company also relies on neutral networks V.tal and FiBrasil to expand its fiber network.

UNIFIQUE

Unifique's 2024 bet is to ramp up the mobile offering together with its fiber service to reach more than 100,000 mobile customers by year-end while staying cautious on the M&A front.

“Unifique has financial strength to capture these [M&A] opportunities, but we’re a little more conservative so that we can actually close a deal that generates real value for shareholders,” CEO Fabiano Busnardo told investors on a Q1 earnings call.

The listed company reported 93.3mn reais in first quarter investments, down 11.6% year-on-year. Of the total, 33.3mn reais went to equity acquisitions and 60mn reais was capex, including property, plant and equipment purchases.

To explore venture capital opportunities, Unifique is now a partner in startup-focused investment firm Bossa Nova Investimentos e Administração.

The company is also licensed to operate a 5G mobile network in Santa Catarina state. On May 11, it activated the service in the city of Tijucas, with the pilot including individual and combined plans of 5G and fiber.

Unifique is targeting a short-term market share of 10% in the cities where its mobile network is online. In terms of fiber, the 2024 goal is to add 42,000 accesses, excluding acquisitions.

The company ended Q1 with 752,900 customers in the broadband segment. In total, there were 33,600 net additions, but 28,000 came from Vex, an acquisition announced in December. It also had 3.42mn homes passed, up 19.3% year-on-year.

Unifique, which recently secured a loan of 71.7mn reais from development bank BNDES, has also been identified as one of those interested in Oi's fiber base.