Cellular conquests

Latin CEO: Executive Strategies for the Americas, Dec, 2001 by Elizabeth A. Johnson

"BCP entered the market with a very aggressive strategy and quickly obtained 50 percent of the [Sao Paulo] market," says Dario dal Piaz, a vice president at research firm Yankee Group. "By changing the company mentality, Telesp has been able to regain market share, and now has roughly 65 percent. Today BCP looks like the incumbent, not Telesp."

The turning point for the company was its switch to CDMA (Code Division Multiple Access) handsets, which use clearer sounding, all-digital networks that are easier to upgrade with new technology For example, when telecommunications regulator Anatel approved wireless Intenet access-known as WAP--in June 2000, Telesp Celular was able to launch its WAP service one month later (See sidebar). BCP and Tess, by comparison, held off for nearly six months because they were unable to obtain handsets quickly enough that would accept WAP services.

Telesp Celular's race to offer new services is all the more critical considering that even more competition is expected next year. That's when Telemar, a dominant fixed-line player in 16 Brazilian states, and Telecom Italia Mobile (TIM), will both launch cellular services using newly available bandwidths. Both Telemar and TIM will be using GSM (Global System for Mobile) communications technology, which is used extensively in Europe, and allows much faster wireless data transmission than what is currently available. Fortunately for Telesp Celular, Telecom Italia is currently involved in a dispute with fellow shareholders at Brash Telecom and may not be able to offer the new services until 2003, giving Telesp Celular an opportunity to move first and increase its market share.

While Telesp's stronghold is in Brazil's industrial heartland of Sao Paulo, the company has moved aggressively to expand into other regions. Early this year, PT acquired Global Telecom, which offers mobile services in the southern Brazilian states of Santa Catarina and Parana. Global's market footprint contains 15 million inhabitants but has only 13 percent cell phone penetration--lots of room to expand. But with TIM the dominant player in Global's market, the acquisition has been criticized as too costly.

"Telesp Celular paid a high price per user for Global Telecom--nearly US$2,600 per person," says Bear Stears' Constantini. "And because of the competition, Telesp has been forced to invest aggressively in the region. The results have been positive, [but] it has also hurt Telesp this year."

In October, the company reported a third-quarter net loss of 317.2 million reais (US$116.4 million), blaming the disappointing results on its acquisition of Global. Even so, the Global acquisition did expand the company's national market share; within the region served by Global, market share rose from 24 percent to 32 percent, as the subscriber base rose from 1.88 million in January to 2.13 million in November--the fastest growth of any Brazilian cell phone company this year.

The economics of the cell phone business also seems to have bred strange bedfellows. In January, PT announced a US$10 billion joint venture with Spanish telecom rival Telefonica that put the two companies' Brazilian wireless units under one roof. The venture was designed to effectively control Brazil's Largest and most lucrative mobile telephone markets--Rio de Janeiro and Sao Paulo, and the wealthy regions of Parana and Santa Catarina--while at the same time creating the largest cell phone company in Latin America.