Why the end of Telefónica’s Brazil fixed telephony concession will spur fiber demand

The end of Telefônica Brasil’s fixed telephony concession and its transition to a lighter regulatory framework, free from investment obligations tied to legacy networks, could boost the local fiber market and create new revenue opportunities for both fiber providers and the operator itself.

After years of discussions, Telefónica’s Brazilian unit signed an agreement with local regulatory bodies at the end of 2024, allowing it to migrate its fixed voice model from the concession format to an authorization format.

This transition enables the company to focus on broadband investments and phase out spending on outdated landline technologies, particularly copper.

“With the conclusion of this process, we will carry out projects to expand our 4G coverage and backhaul, with a net present value of 4.5bn reais [US$778mn], considering both opex and capex,” Telefônica Brasil’s CFO, David Melcon, said during the company’s Q4 earnings call.

Operating under the Vivo brand, Telefônica currently serves 1.2mn customers through copper networks, the majority of whom are in São Paulo state, its primary Brazilian market and former fixed concession area.

Due to legal obligations under the fixed concession, Telefônica was required to maintain and invest in its aging copper networks. While migrating customers to fiber was already possible, it remained optional.

Now, with the concession migrating to the adaptation regime, Telefônica is no longer bound by this obligation, except in specific areas. The company plans to gradually decommission its entire copper network, requiring customers to transition to fiber.

This shift allows the company to offer bundled packages including voice, streaming, IPTV and IP telephony, which could help reduce customer churn and increase average revenue per user (ARPU) through cross-selling opportunities.

“We have a four-year plan for the post-concession phase, and we are starting this year,” CEO Christian Gebara said during the earnings call.

“We now have the opportunity to migrate these customers to cutting-edge fiber technology. This transition not only impacts revenue but also creates cross-selling opportunities. Additionally, the cost of serving these customers will decrease because we will no longer rely on copper networks. We can now manage everything with fiber,” he added.

Phasing out copper

As Telefônica migrates users, it plans to accelerate a network revamp in São Paulo, freeing up around half of the 1,900 owned or rented properties that currently house copper network equipment, according to Gebara.

The company also intends to decommission and sell approximately 120,000t of copper during the process.

Executives noted that this move will generate cost savings in areas such as energy consumption, rent, property taxes, maintenance and security.

In 2024, the company reported 1.3bn reais in revenue from copper-based services.

However, “due to the high costs and capex associated with these services, the free cash flow generated was negative, diluting our overall profitability,” said CFO Melcon.

Investments and future outlook

For 2024, Telefônica reported total capex of 9.17bn reais, a 2.3% increase over the previous year.

The company is working to reduce its capex-to-sales ratio, bringing it down to 16.4% in 2024 from 17.2% in 2023, with a primary focus on expanding its 5G and fiber networks.

According to Gebara, the company’s fiber-related investments, specifically in homes passed, are currently under 200mn reais.

Looking ahead to 2025, Telefônica aims to maintain overall capex discipline while identifying opportunities for increased investment in fiber, particularly as part of its concession migration process.

Mergers and acquisitions (M&A) are also on the company’s radar.

“We continue to accelerate fiber expansion organically through our neutral network, while also exploring M&A opportunities in the digital space, as well as in B2C and B2B,” Gebara said.

In the digital B2B segment, where revenues grew by 21% in 2024 to exceed 4bn reais, Telefônica is focusing on cloud services, IoT, messaging and app-based partnerships.

Regarding fiber, the company entered negotiations and conducted due diligence in 2024 for the potential acquisition of São Paulo-based internet service provider Desktop. However, discussions did not progress further.

By the end of 2024, Telefônica had passed 29.1mn homes with fiber, an 11.2% increase over the previous year, successfully meeting its annual target. Of these, approximately 7mn are FTTH customers, up 12.7%.

Overall, the company’s net revenue rose 7.7% to 14.6bn reais in 2024, driven by a 9.1% increase in postpaid revenue. Fixed revenue grew 8.0%, led by a 12.4% rise in FTTH and a 21.1% surge in corporate data, ICT and digital Services.