Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Monday, March 21, 2022

Small regional operators to face new challenges and uncertainties this year

The lack of a neutral mobile operator at the national level, the abundance of competitors in some regions and the weaknesses of the general economy, create doubts about the future of their businesses.

In several aspects, 2022 presents new challenges for small regional providers that during  last year were one of the main players in the Brazilian telecommunications market, in a clear example of diversification and levels of competition in the different regions of the country.

Now that the 5G spectrum auction is over and the sale of Oi's main businesses is almost complete, regional providers are preparing to adapt to a market that, according to specialists, will be totally different in four or five years, at the latest. An example of this is that in the last few weeks there were rumors that within five years, fiber optics and 5G will go hand in hand in a large number of businesses that operators will have to face, where mobile and fixed structures will overlap according to the circumstances and for the sole purpose of providing services to customers.

And here we have a first challenge. Most of the regional providers have fiber optic networks, but very few were able to acquire spectrum in the last auction to start offering mobile services. All this is aggravated by the lack of a neutral mobile network operator at the national level, as it was insinuated that it could appear in the tender for the 3.5 GHz band, while there are several for fixed broadband operations. Let us remember that, at the time, Highline made an offer for Oi Móvil with the clear intention of becoming the great neutral mobile telephone operator throughout the country, which was frustrated when its offer was outbid by Claro, TIM and Vivo.

For now, these operators are exploring the possibility of sharing the spectrum belonging to Oi Móvil, according to the conditions imposed by the Administrative Council for Economic Defense (CADE, in Portuguese) to approve the sale operation, but it is still premature to determine what the final result would be.

To this uncertainty we would have to add the fact that in many cities in the interior of the country there are currently five, six and even seven operators, when the logic of the market indicates that there is no room for more than three. And here comes another question. Many of them will surely receive offers to be bought by larger ones, but it is clear that during 2022, with the existing problems at the general level of the Brazilian economy, it will be very difficult for these companies to maintain the offer made last year. Moreover, several of the regional operators that in 2021 registered significant inorganic growth through the purchase of small suppliers have already indicated that they do not have sufficient economic capacity to face new acquisitions, except in some cases where the values ??requested are in accordance with their economic possibilities.

To this we must also add that, as noted above, the difficulties of the general economy, aggravated by the aftermath of the war in Ukraine on the price of oil and the main commodities, are causing a significant decline in purchasing power of the population, with a decrease in the number of customers of telecommunications services.

If we add to this the fact that the presidential elections will be held next October and that no likely winner is in sight so far, uncertainty reigns among the drivers of small suppliers regarding the future of the company.

For the moment, several of them are talking with new neutral optical network operators as a way to extend their business to a large part of the country and, in the meantime, are waiting for the offers from Claro, TIM and Vivo, of the spectrum that they would acquire from Oi Móvil and that in many cases they will have to share.

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