Telefónica upping fiber, renewable targets for Brazil

Telefónica is upping its short and medium-term targets for two areas considered key for its operations in Brazil: energy supply via renewable sources and connection of homes with fiber optics.

Christian Gebara (pictured), CEO of Telefônica Brasil (branded as Vivo), underlined in the company's Q3 earnings call that the new goal is to have 83 renewable energy plants in operation by the end of 2022, up from the previous target of 70.

Telefônica Brasil's distributed generation program currently relies on 19 plants, mostly solar, and also includes the first biogas plant in the northeast region, in Caruaru, which has capacity to generate 18,000MWh per year.

With respect to fiber, the carrier plans to have 29mn homes passed (premises connected, not necessarily clients) in 2024, up from the previous goal of 24mn.

Gebara said that the increase in guidance is due to the faster rollout and adoption the company is seeing locally. “We’re doubling down on our fiber ambitions,” he added.

Deployment, he explained, will come both organically and from the overlay of fiber over the cable DSL network, and via FiBrasil, Telefônica Brasil's JV with Canadian pension fund CDPQ to explore the fiber market in a neutral, wholesale model, as well as to share fiber capex costs.

The company also forged fiber partnerships with American Tower in Minas Gerais state, and with Phoenix Tower.

The cost of fiber deployment dropped in 3Q21 due to efficiencies and greater expertise, Gebara said, reaching 160 reais (US$28.5) per home, down from around 400 reais two years ago.

The company reached 18.3mn homes passed in 309 cities in the end of September, an increase of 3.80mn in one year, and 5.27mn fiber clients (including IPTV), up 27.1% year-on-year.

The telco reported 978,000 net additions in the first nine months of the year, at a monthly rate of 109,000.

With that, 2021 fiber net additions have already surpassed the figures for all of 2020.

DIGITAL

The company is also looking to advance on the content front, as part of a drive to become a digital ecosystem group, and it recently signed an agreement for a 50-50 JV with educational group Anima Educação with the goal of providing remote learning services to Vivo clients and non-clients.

Overall, the telcos’s B2B operation accounted for 23% of Q3 revenues, while digital B2B revenues alone grew by 35% to 1.9bn reais, driven mainly by an acceleration in sales of cloud computing and IoT/messaging.

In cloud, Telefônica Brasil’s partners are Microsoft, AWS and Cisco.

Telefônica Brasil aims to capture opportunities in digitization by being a “one-stop shop” for corporates.

“Companies of all sizes are digitizing their business. We want to move away from being just a connectivity provider to being a digital ecosystem provider,” said the CEO.

With fiber rollouts and its digital push, along with network modernization, Telefônica Brasil’s investments reached 2.15bn reais in Q3, up 19.3% year-on-year, and were 6.34bn reais in the first nine months of the year, up 18.4%. 

Capex represented 19.5% of revenues in January-September, up from 16.8% in the same period of 2020.

Of the total spent in the nine months, 5.29bn reais went on networks and over 1bn reais on technology and IT systems. 

TIM AND COMPETITION

The company is also advancing its RAN (radio access network) sharing agreement with rival TIM, now reaching 716 cities covered with 4G as part of the agreement, 360 cities for each operator. 

The partnership is seen as a way of rationalizing capex and reducing opex.

The two rivals are now working on a “complex” single grid project as part of the deal, with pilot implementation in 50 cities completed with "proven technical feasibility," Gebara said.

The goal is to end 2022 with the combined grid in 1,160 cities. 

The switch-off of the 2G network is also part of the agreement. Systems development and a full technical solution are expected by the end of this year. 

The objective is that one carrier provides 2G to the other in areas where there is still demand for the technology, according to Gebara.

Telefônica Brasil does not even rule out the possibility of sharing 5G networks with its competitor, with the executive saying that “5G could also be an opportunity going forward.”

On the competition with internet service providers (ISPs) in fiber broadband, Gebara said, “Yes, there are many ISPs, but of different kinds. Some of them are focused on some cities and others that are very large are maybe competing head-to-head with us.”

But according to the executive, Telefónica’s assets and networks are “better” and the company is better positioned to negotiate content terms with Netflix and Disney, services Gebara said a lot of fiber broadband customers would like to have in their plans.

Furthermore, he said, many ISPs are using poor quality equipment in their networks, which he thinks will pose problems in the future as greater speeds are required by customers. 

“Then there’s the mobile business. We’re not using it, but we can,” he said, referring to the potential bundling of wireless services into fiber broadband plans. 

Citing rising inflation in the country, he indicated that prices of residential broadband plans might have to increase next year. 

“We need to be careful not to enter a price war. I don’t want to reduce prices,” he said.

5G AND TENDER

Telefônica Brasil is moving on with preparations for 5G technology, the CEO said, with fiber now reaching 90% of its sites (antennas) in the country’s 50 biggest cities. 

Vivo’s 5G DSS technology – network with 5G capabilities, but using existing 4G and 3G spectrum – is now fully operating in eight major cities in the country.

CFO David Melcón said that the 6.7bn reais in free cash flow obtained in the first nine months of the year will allow the company to invest in spectrum for 5G, as well as to fund the acquisition of Oi’s mobile assets.

Telefônica Brasil was one of the 15 companies registered to bid in the country’s 5G auction. 

Gebara did not comment on the bands and blocks that Telefônica Brasil is bidding for. However, he said that because the auction requires significant commitments and investments, Telefônica Brasil would be better positioned than many new entrants, due to having an infrastructure already in place.

“The numbers of players doesn’t say much. [Most] are well known in the market. Let’s see and wait for the auction. The tender is for 5G, but it’s a lot more than that. Some of these blocks have a different configuration, some are national before then going regional [coverage obligations are first national and then regional] and some of them are regional from the off.”

Bids in the auction will be opened on November 4.