Unifique: ‘We have a consolidation role in the market’

Internet service provider Unifique, based in Brazil’s Santa Catarina state, has turned into a new mobile market entrant by acquiring a regional license in the 3.5GHz band to offer 5G in the southern states of Rio Grande do Sul, Santa Catarina and Paraná.

The company participated in the auction in a consortium with Copel Telecom, the former telecom arm of Paraná state energy group Copel, recently bought by the Bordeaux fund. The consortium commitment is to expand 5G coverage in localities with less than 30,000 inhabitants.

Unifique had 1.35mn homes passed with fixed broadband fiber by end-September and 424,736 homes connected (clients). Nationwide, the company is the sixth fiber broadband player.

In Santa Catarina, it is already leader in fiber broadband, with a 25.9% market share, compared to 9.8% for Telefônica Brasil, and number two in fixed broadband as a whole, also including coaxial cable and copper cable accesses, with a 17.2% participation compared to Claro's 21%.

The company is also active in M&As to grow inorganically.

In this interview, Unifique's markets director, Jair Francisco, talks about the company's 5G plans, new business models, consolidation and fiber deployments.

BNamericas: How do you evaluate Unifique's participation in the 5G auction, through the Consórcio 5G Sul entity?

Francisco: We are pretty satisfied. By having the largest fiber optics network in Santa Catarina, with our expansion program planned for Rio Grande do Sul, Unifique could just not miss the opportunity with 5G. 

We carefully assessed how to embark on it. The auction model was less focused on raising cash for the government and more on investments instead, and this was good. But there were also massive investments tied to it.

So the partnership with Copel came in the sense of enabling us to somehow share these obligations. 

The obligations for the regional block [southern region of Brazil] involve covering 658 municipalities with up to 30,000 inhabitants only in two states [Rio Grande do Sul and Santa Catarina].

Unifique has network in 150. So we’ll connect more municipalities in the coming years than what we connected in our entire history. 

In this combination [with Copel] we find a suitable formula. I really believe in sharing infrastructure and in the complementarity of technologies. I think a very collaborative atmosphere will be created to overcome the challenges of 5G.

And we also believe that the technology will bring in revenues that will also help make these investments viable.

BNamericas: Many fixed broadband providers and equipment manufacturers, some having acquired mobile frequencies for the first time, were established 4G market players. If that synergy makes so much sense, why didn't they participate in the 700MHz auction in 2014, for example?

Francisco: We've never seen such strong expectation [in terms of technology] as now, with 5G. 5G will be a game-changer in a way 4G wasn’t.

In a way, we didn't use data in the same manner 10 years ago. Now we use it continuously, on a daily basis. There are new solutions for industry, for rural areas. 5G will be an enabler for neutral (wholesale) networks, etc.

I also believe that there will be opportunities for many types of players now through the combination of technologies and through infrastructure sharing. This has become more mature now.

Unifique itself, if it wants to offer voice, it will have to be through MVNO, combining bands. Today there is a universe of possibilities that were not so mature before.

BNamericas: The signing of concession terms is scheduled for December 14. What comes next? Have you identified your network equipment providers, for example?

Francisco: Not yet. We are studying the best conditions. 

We want a [network] core that can be very integrated, very transparent and very shareable. The idea is that it can work with different frequencies and integrate with other operations, and even be redundant to networks and systems that are already in place.

We are talking about high investments. We want the best, but nobody has to pay the most expensive price for it. We need to make rational use of these investments.

This phase of analysis, design and implementation of the technological core should be completed in the first half of 2022.

BNamericas: Are you talking to all vendors? Including non-traditional ones, for open technologies, for example?

Francisco: We are open to hearing all, to all solutions. Why not open RAN? It's not up to me to decide, but we are looking at all the solutions.

BNamericas: What will the 5G commercial strategy be? Will you work under both retail, serving end-customers, and wholesale, serving operators, models?

Francisco: We want to make the best use of our resources. As we have a quality fiber network, modern, with capillarity, this becomes a business vertical through which I can serve both our operation and that of others.

We are looking to integrate mobile into our portfolio too, offering data packages. 

Today we already have an MVNO agreement with Telefônica Brasil [the company offers some mobile telephony services using Telefônica's network], which is a good exercise for this future mobile operation.

I think the issue of voice over 5G should come to the table soon, too.

We also have the possibility of [renting] the 700MHz frequency for 4G, which we will also evaluate. 

In sum, we are not only interested in being an infrastructure company. We are prepared to offer infrastructure, but we are keeping an eye on our addressable market, with a value proposition, innovation. 

BNamericas: On the wholesale side, are you considering offering capacity to other companies on both fixed and mobile networks?

Francisco: Exactly. This will be the great differential of the business model.

BNamericas: How do you see the neutral fiber networks that are emerging, some of them championed by established national operators?

Francisco: The neutral network will make it possible to lower the cost of passing cabling through light poles, it will make it possible to take services to new regions, it will help to overcome some obstacles and challenges that are currently preventing companies from growing and reaching certain areas.

[But] the neutral network is at an early stage, at a beginning. There will be a second, third phase. Today we see some integration difficulties. Not all solutions are ready for transparent API [application programming interface] integration. [The model] has to achieve certain levels of transparency and management. All this will happen, but I believe there is still a way to go.

BNamericas: Which technologies for delivering 5G are you considering? Like small cells, for example.

Francisco: As soon as 5G solutions start to appear, we will also have investments from the private sector that will make small cells, these hotspots, a reality in many environments. 

Today we already have customers who have been asking us how they can have 5G inside their premises. For example, a supermarket, a very large store. 

They know that normally operators will not necessarily prioritize those investments. So they are willing to make a trade-off for that. I believe that will happen. 

BNamericas: What you are saying is that a company could pay you to install an antenna, or a mini-antenna, on its premises?

Francisco: Yes, I believe there will be co-participation business models that will be an accelerator for 5G. The obligations are heavy, we will have limitations and time to do it. 

Of course, we have our own particular interests to take the 5G network to a certain city within our coverage area and obligations.

But the private sector has already demonstrated that these hotspots and small cells are going to be a reality.

BNamericas: This 'antenna purchase' model is a kind of private network, isn't it?

Francisco: We are talking more about a coverage purchase. ‘I want coverage here at my company, from the factory floor up to the store. How much does it cost?’

There is an estimate that a million devices will simultaneously connect into a single 5G cell. I do not believe that this restricted and dedicated coverage [being sought by enterprises] will be possible by using the nearby cell installed in the city.

BNamericas: This model would have to be well thought out so as not to generate accesses imbalances between the private sector and the population in general.

Francisco: Yes. They are business models that we are not used to yet.

BNamericas: You've already said that Copel is a partner in 5G deployment, but that you are not formally, legally partners. Can you explain this relationship better?

Francisco: This partnership was really dedicated to 5G. The motto in the telecom market is cooperation, sharing, and we have already sought this with other operators. With Copel we will try to achieve maximum synergy in operations.

Initially, what we’ll do is to exchange information about core networks. This so-called phase one is going to be very collaborative. It might include some sharing, but we don't know yet.

In the second phase, the network implementation itself, we have our area well defined, which are the states of Santa Catarina and Rio Grande do Sul and they have theirs, which is Paraná. 

In some border regions, maybe networks can overlap and maybe we can have some integration discussion. But they have their own operation, their own portfolio and strategy, and we have ours.

BNamericas: When are you planning to activate the first 5G networks?

Francisco: Phase two, the implementation itself, we believe will start in the second half of 2022.

We are going to have two agendas running in parallel: one for [the tender] obligations and the other for the addressable market, cities in which we intend to test this implementation, the products that we are going to launch, the revenue we might obtain, etc. 

The entire suite of 5G applications will certainly come to the table for testing, such as fixed wireless access (FWA), new products.

BNamericas: Have you determined the first cities to receive 5G?

Francisco: No. It will all depend on what makes the most sense next year. Perhaps having our network engineering more established becomes a relevant factor in activating a 5G network in a particular locality, or maybe the potential revenue collection. 

There’s a market analysis for phase one. Maybe we'll find a formula in 2022 that tells us: better go to a more agricultural city, where you'll earn more money. Or the opposite, an urban area with buildings, industries. We're going to study all of this next year.

BNamericas: Are you planning to make use of financing lines to fund your investments?

Francisco: When we talk about the amount [disbursed by the consortium for the acquired block] at the auction, which was 73.6mn reais (US$13mn), only 5mn reais correspond to what Unifique must pay [regulator] Anatel in terms of license of use. And that through a concession period of 20 years. No financing line will be required here.

Now, the investment obligations, which are the remaining 90%, those are heavy. Lines of credit are important. But Unifique is not indebted, it is in a great cash position. 

We just had our IPO in July [in which 818mn reais were raised]. We made some acquisitions after that, but we still have a good cash position. Our Ebitda margin is comfortable, above 50%.

But we have all forms of credit to study, debentures, debt issuance.

BNamericas: You've been active in terms of acquisitions of internet service providers. Could this accelerate?

Francisco: We intend to move forward with consolidation. We have a consolidation role in the market. And we want to have it, to do this. Today we are able to integrate systems very quickly. The operations integration process is very agile.

We’ve made 100,000 acquisitions of broadband accesses so far this year. Our target next year is 200,000. And in the next, another 200,000. We are going to grow, in an inorganic way, some 500,000 accesses in three years.

And that’s just inorganic. Our goal for organic growth, for our own build-outs, is the same.

Unifique is looking at the organic side with a value proposition. Our entry broadband package is 20% more expensive than our competitors. On the other hand, in high-end offers, we deliver today at a much lower price than the competition. We offer a 2GB link for 249 reais, compared to 400, 500 reais from other players.

But we have the possibility of lowering prices, if necessary, without affecting our profitability.

BNamericas: Finally, is Unifique’s ambition national or regional?

Francisco: We want to consolidate southern Brazil. We have the largest fiber network in the state [of Santa Catarina] and we are the second operator there considering all [fixed broadband technologies], only behind Claro.

Claro better watch. We'll become the leading player in Santa Catarina now in the first half of 2022. And we're going to be the biggest player in Rio Grande do Sul too. And then we're going to be the biggest in Paraná.

After that, who knows. We might expand into another region. But not now, not in this stage of our investment.