Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Thursday, January 16, 2020

Brazilian spectrum auction may be the largest individual auction in the world

The bidding model will be the key to envision the final collection that some estimate at US$ 6 billion. The Ministry of Economy will be decisive in determining the type of contest.

There is no doubt for anyone in the Brazilian telecommunications sector that 2020 will be essentially marked by the bidding of spectrum for 5G, which was originally scheduled to take place in March this year and now will surely happen in early 2021, in the best case.

Until now the controversies were around the frequencies that will be competed and the system that will be used for competition in the tender and if any sector will have any preference when making its offer.

However, there is a point where there is great coincidence between the main actors in the sector, but that may not be the final result of the contest; and is related to the final collection that will be achieved by the sale of that spectrum.

While operators, equipment manufacturers and even the majority of Board of Directors members of the Anatel (National Telecommunications Agency) argue that the contest does not have to have the priority purpose of collection, in the super Ministry of Economy no one speaks publicly, but they have high hopes that this tender will contribute a significant volume of foreign exchange to the treasury, a priority objective of the management of President Jair Bolsonaro, determined to reach a neutral fiscal level by the end of this year.

Although so far there is no minimum price stipulated for the contest, and then it must be validated by the TCU (Court of Auditors of the Union), regulators said that to set the price they will use the methodology used in previous auctions.

That is, based on a hypothetical business plan and a company that would not have any operation in the country, income, expenses, investments and capital cost are calculated; finally, those long-term numbers are contextualized to the present value. This determines the capital cost of the band. Then, they will take into account investment obligations in non-profitable areas for the company and that will become obligations.

Thus, in the Anatel the first calculations indicate that the collection could reach US$ 4.84 billion, while other studies, as is the case of one conducted by Ericsson, indicate that a delay to carry out the tender, could cause Brazil tax losses of around US$ 6 billion. Whatever the number at stake, the Minister of Economy, Paulo Guedes, anxiously awaits for this extraordinary contribution at a time when he faces the total transformation of the Brazilian state.

Of course, the global value will also have to take into account the level of coverage and service obligations that will be imposed on the winners of the different lots of the contest, which will have to make investments for compliance. For some reason Nokia executives indicated that, depending on the bidding model, the Brazilian contest can become the largest individual auction in the world for the 5G spectrum.

 

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