Brazil Plans Wireless Rules to Aid Consumers Over Profits

Brazil’s mobile-phone companies, reeling from intensifying regulatory scrutiny, must prepare for more changes as the government puts consumers’ needs ahead of corporate profits, Communications Minister Paulo Bernardo said.

“Companies need to make sure the market grows and develops. They have to make money offering quality,” he said in an interview yesterday in his Brasilia office. “Better to have four companies complaining than millions of clients, no?”

The government plans next year to begin reducing interconnection fees, which currently generate 36 centavos (18 cents) a minute in revenue for wireless companies every time they connect a call from a competitor’s network. Officials are also working on a framework to require land-line, wireless and cable companies to share infrastructure, Bernardo said.

Shares of wireless carriers Telefonica Brasil SA (TEF), America Movil SAB, Tim Participacoes SA (TIMP3) and Oi SA (OIBR4) have tumbled since July 13, when a government official said regulators would ban the sale of some wireless subscriptions to force carriers to improve quality. The ban, since lifted, signaled that wireless carriers’ Brazilian profits are under threat, according to Sanford C. Bernstein & Co.

“After two years of stellar wireless growth in Brazil, the future now looks less bright,” Robin Bienenstock, a London- based Bernstein analyst, wrote in an Aug. 22 note. “Brazilians should benefit from these changes, but the operators (and parent companies) are likely to find this type of environment more difficult in which to make money.”

Shares Sliding

Telefonica Brasil, a unit of Madrid-based Telefonica SA and Brazil’s biggest wireless company, has fallen 7.1 percent in Sao Paulo trading since July 13. No. 2 carrier Tim, a division of Telecom Italia SpA (TIT), is down 20 percent. America Movil, owned by billionaire Carlos Slim, has slid 3.7 percent in Mexico City, where it is based. Rio de Janeiro-based Oi, partially controlled by Portugal Telecom SGPS SA (PTC), has declined 17 percent.

“There’s no regulatory risk,” Bernardo said. “The market analysts look at profitability and the financial perspective of the company. They’re not concerned about the consumer. It can’t be that way.”

Brazil’s telephone regulator Anatel, which is an independent agency of the Communications Ministry, is studying how other countries have cut interconnection fees to put together a plan for a gradual reduction, Bernardo said. He said the cuts won’t be as “radical” as in France, where fees are declining from 3 euro cents (3.8 U.S. cents) in 2011 to 0.8 euro cent next year.

Cutting Taxes

Rate reductions and network-sharing arrangements should create savings that carriers can pass on to consumers, Bernardo said. He also plans to ask Brazil’s Finance Ministry and state governments to cut phone taxes, which now make up about 38 percent of the average phone bill, he said.

“If we improve regulations, if we increase competition, if we cut taxes, more people are going to be able to use a mobile phone because it’s cheaper and works better,” he said.

Mobile Internet use will grow 70 percent this year and for the next two years at least, Bernardo said. Pay-television subscriptions will grow 30 percent this year and next year, he said. Mobile-phone accounts will increase 15 percent this year, he said, a slowdown from last year, when subscriptions increased 19 percent to 242 million, according to Anatel.

“You have a consumer that’s eager to consume, but has to be treated well,” Bernardo said. “We have to establish some regulatory changes, an update for current times, a more modern regulation, because ours is clearly behind. Europe already did this. We’re lagging.”

To contact the reporter on this story: Carla Simoes in Brasilia Newsroom at csimoes1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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