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Brazil Telecom Industry Makes Advances

6/25/2000 8:00 PM Eastern

Sao Paulo, Brazil-Brazil's telecommunications market advanced on two fronts last week thanks to moves by private players and the government.

Top cable operator Globo Cabo S.A. looks to become even stronger with its agreement to pay about $900 million for the 90 percent of MSO Net Sul that it didn't already own.

Separately, telecommunications regulator Anatel announced it will auction licenses in fixed-line telephony and pay television in communities with fewer than 160,000 residents, or about 500 towns nationwide. Licenses for the two services will be auctioned separately.

Prior to the special auction, companies interested in offering competing telephony services would have been forced to wait until the sector was fully deregulated in 2002.

Anatel has already begun the bidding process for fixed-line telephony licenses in 450 towns, and said it would offer similar licenses in another 450 towns over the coming months.

Separately, Anatel is auctioning wireless pay TV licenses in 350 regions and hardwire cable licenses in 280 towns. As in telephony, the agency aims to make smaller markets more attractive to investors. Operators will be allowed use their cable networks to provide both telephony and pay TV.

At the same time, fixed-line telephony licensees may offer national and international long-distance telephone services in 2002. In order to do so, local operators will have to partner with long-distance carriers, but so far, Anatel has not issued any regulation concerning this matter.

Industry executives predicted that Anatel will achieve its goal of attracting smaller, local investors to these auctions, which hold little interest for Brazil's leading pay TV and telecommunications players.

"The big players won't be interested unless they are in specific towns close to their cluster areas," said Silvia Jafet, programming director of TV Cidade, an upstart cable operator that holds licenses in 13 towns.

"The most likely scenario is that the small guys will get the licenses, then sell their operations to one of the big, established players," Jafet added.

Amid those moves, Globo Cabo agreed to take full control of Net Sul, an MSO that serves 370,000 subscribers in southern Brazil. The deal will boost Globo's subscriber base to 1.4 million homes, putting it on a par with some of Latin America's largest MSOs, such as Argentina's CableVisión, and Multicanal S.A.

Globo Cabo is controlled by local media giant Organizaçoes Globo. Microsoft Corp. holds a minority stake in the company.

Brazil's new cable-license holders currently face the crucial issue of service-launch deadlines.

Several MSOs-including TV Cidade S.A., Adelphia Communicaçoes S.A., Horizon Cablevision do Brazil, Brasil Telecom, Powerlice, ORM, Guarapuava Sat and Canbras-agreed in their license contracts with Anatel to begin operations in 57 towns by June 30.

However, reports by Brazilian trade magazine Pay TV indicated that many of these MSOs will simply not be able to do so.

Executives at many of the companies claimed that network build-outs have been delayed by disputes with power-utility companies over the use of their poles to string overhead cable.

However, Anatel officials said they will not accept this as an excuse for the delays, vowing to penalize the operators. Such penalties could range from simple warnings to fines to the withdrawal of licenses.

September