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Brazil’s TIM expects return on 5G investments in 2023
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Brazilian telecom operator TIM expects to be able to monetize its 5G investments, particularly in the prime 3.5GHz band, in 2023, when 4G capex should fall, according to CEO Alberto Griselli.
“We want to trigger a virtuous cycle whereby coverage, offer and terminals provide customers with a reason to migrate to 5G,” Griselli said in the company's Q2 earnings call in response to a question by BNamericas about the expected 5G ROI.
Griselli added that TIM’s strategy comprises meaningful 5G coverage in markets deemed critical from a commercial and cost perspective – which means not only launching in state capitals, mandatory for this first stage of 5G in 3.5GHz, but potentially in other large urban centers as well.
It also means deploying much more antennas than the minimum required by regulator Anatel for this phase of the service.
According to Griselli, 5G will become more widespread in Brazil next year, when TIM will be able to “stop investing in 4G and be more efficient in its network deployment.”
TIM is betting on offering so-called booster features so clients can experience the technology while heavily promoting 5G-compatible smartphones, Griselli said. Around 70% of devices offered by TIM are 5G compatible, he added.
ROAMING
During the call, Griselli said TIM expects a favorable outcome from the negotiations with Anatel over the roaming offer for smaller telcos. Roaming was one condition imposed by Anatel and antitrust watchdog Cade to approve the 16.5bn-real (US$3.15bn) acquisition of Oi's mobile operations by TIM, Claro and Telefônica Brasil.
However, disagreements over the roaming price between the trio and Anatel triggered legal measures and a threat by Anatel’s president, Carlos Baigorri, that the acquisition could be undone.
“We met with the president of Anatel last week. The Oi deal is not at stake right now. What is pending between us is the right price of the roaming agreement,” Griselli said.
On July 29, TIM presented a new lower offer of 4.91 reais per gigabyte – still 2 reais more than Anatel demands.
5G
Like Telefônica Brasil and Claro, TIM activated 5G in the 3.5GHz band in Brasília and state capitals Belo Horizonte, João Pessoa and Porto Alegre. In São Paulo, 5G will be activated on August 4 during a special event.
Anatel's minimum coverage requirement for the city involves the installation of 462 antennas in a first phase by the three operators by end-September, translating into one antenna per operator per 100,000 inhabitants. But the number of license requests suggests 1,300 antennas could operate from day one.
Griselli highlighted TIM’s aggressive 5G coverage strategy.
In Brasília, for example, TIM installed almost 170 5G antennas in the 3.5GHz band. All three operators combined have installed 335 such antennas, while the minimum requirement for the first phase was 114 antennas from all players.
Overall, TIM invested 1.05bn reais in Q2 and 2.37bn reais in the first half, up 15.9% and 6.6% year-on-year. The increase was expected amid the 5G start-up and the integration of Oi’s mobile assets, TIM said in its financial report. In the first half, capex corresponded to 23.6% of net revenues.
Net revenue totaled 5.36bn reais in Q2, up 21.8% year-over-year, with all business lines contributing positively. TIM claimed that the quarterly growth, excluding effects from the acquisition of Oi, was “the best in over 10 years.”
But normalized debt (post-hedging effects) also soared to 18.1bn reais in June, increasing by 5.86bn reais year-over-year. Net debt overall was 2.49bn reais, of which 889mn reais related to 5G and 4G licenses.
According to the TIM, the higher debt relates to finance leases arising from the acquisition of Oi’s mobile assets worth 2.9bn reais, mostly linked to decommissioning of towers and antennas. It also includes a new 1.6bn-real loan from Scotiabank.
Flavio Conde, financial analyst at Levante Ideias de Investimentos, expects TIM's debt increase to be recovered (payback) in two or three years, with increased cash generation coming from Oi mobile customers and 5G services. But TIM's shares could be negatively impacted.
“The market is very reticent to buy stocks and shares in general. The investor who remains on the stock exchange is the one seeking a clear bright sky. They want a company that pays a whopping dividend, has low debt and grows in revenue,” Conde told BNamericas.
Although TIM’s revenue is growing, it pays lower dividends compared to its peers and has increased its debt, Conde said.
Despite delivering good operating results in recent quarters, TIM's shares have been falling. "The market is not in a good moment, but the value of TIM's share is certainly unfair," Conde added.
"The investor opens the newspaper and sees political turmoil, election, global recession. They refrain from buying stocks. Volume is low, the trading companies' phones do not ring and only the blue chips [Petrobras' and Vale's shares, for example] are performing well."
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