Telephone-Bill Crackdown Looms for Carriers: Corporate Brazil

Brazil is stepping up efforts to improve mobile-communication services, the biggest source of consumer complaints, by letting users go online to cancel service and by making billing easier to understand.

Phone regulator Anatel will vote on new rules for customer service next month, said Joao Rezende, the agency’s president, in an interview. Difficulty canceling accounts, billing disputes and bad customer service make up 78 percent of 2.1 million gripes filed from January to August this year, according to Anatel. Oi SA (OIBR4) would be hardest hit by new rules, according to Coinvalores, since its customers complain the most -- twice as much as users of market leader Telefonica Brasil SA. (VIVT4)

Phone companies are facing increasing pressure from the government to improve quality as more than 8 billion reais ($3.7 billion) in fines have accumulated against the four primary operators. Rezende said Anatel won’t let up on regulatory oversight even as competition squeezes profit margins for the carriers, from Telefonica Brasil SA to Tim Participacoes SA. (TIMP3)

“Anatel won’t leave quality in second place to take care of shareholder dividends -- there’s no logic in that,” Rezende, whose term ends Nov. 4, said in an interview in Sao Paulo this week. “Companies with better customer service have better profits, more market share, more credibility.”

Blue Porchat

The customer service of phone companies is a common source of frustration among Brazilians. Comedian Fabio Porchat has gotten more than 11 million views on YouTube for a clip in which he endures repeated transfers and excuses as he tries unsuccessfully to cancel his phone line. He is covered in blue paint in the video, like the Blue Man Group characters who do ads for Tim.

The new rules will require operators to simplify billing, set time limits for customer service and allow clients to check their accounts and cancel service online. Investments in attending to customers, whose demand for services such as wireless Internet access will grow exponentially, is imperative, Rezende said.

Complaints have increased at all operators since last year, according to data from Anatel. Oi has a rate of 0.67 per 1,000 customers, compared to 0.30 per 1,000 for Telefonica Brasil. Among them is the case of an unnamed company that received a phone bill for 18,000 reais for calls to Yugoslavia, a country that hasn’t existed since 1991, said Anatel’s superintendent of consumer relations, Elisa Vieira Leonel Peixoto, at an event in Rio de Janeiro on Oct. 23.

‘Long Way’

The biggest complaint is about billing, and often consumers simply don’t understand the plan they’ve signed up for, Peixoto said.

“What really irks customers is expectations related to sales and that has a long way to go and evolve,” Peixoto said.

Oi, the smallest wireless provider of the top four telecommunications companies, will be hit the hardest because of its high rate of complaints, said Marco Aurelio Barbosa, an analyst with Coinvalores in Sao Paulo. Oi had 33,209 complaints in June, the most recent month for which data is available, according to Anatel. America Movil SAB’s Claro brand was second with 28,813, followed by Tim Participacoes SA with 24,541 complaints and Telefonica’s Vivo with 22,975.

“The poorer-quality carriers are going to suffer if one barrier to exit is lifted,” making it easier for customers to leave, said Richard Dineen, a New York-based analyst at HSBC Holdings Plc.

‘Direct Attack’

Oi, which is merging with Portugal Telecom SGPS SA, will put better 3G coverage in place by next year, said Chief Executive Officer Zeinal Bava on an Oct. 2 call with analysts. The company is also planning a “direct attack on churn,” or the rate at which users leave the company, with bundled offerings.

Bava said he will improve the company’s situation through a reduction in annual investments and a focus on efficiency and productivity. Oi is investing about 6 billion reais this year, compared with 24.3 billion reais for Vivo between 2011 and 2014 and 10.7 billion reais for Tim through 2015.

Oi, based in Rio de Janeiro, declined to comment, citing its quiet period ahead of the Nov. 13 release of its third-quarter earnings results.

Regulators need to work on simplifying rules on network infrastructure to encourage more investment, not on inventing new constraints, said Leila Abraham Loria, executive director of institutional relations and regulation at Telefonica Brasil, at the Rio de Janeiro event this month.

“Regulations won’t resolve this,” she said. “Punishing operators is not the right decision right now, and it won’t help the consumer.”

Better Service

A press official for Mexico City-based America Movil (AMXL) had no immediate comment. Rio de Janeiro-based Tim didn’t respond to e-mail requests for comment.

Tim has no problem investing, and must provide better customer service at its call center, said Ana Cristina Menezes Oliveira, quality director at Tim, at the Rio de Janeiro event.

“Billing is the biggest issue for consumers because it hurts their wallets,” Oliveira said. Quality issues like dropped calls result from complexities including being prohibited from installing new antennas in municipalities, Loria said.

Telefonica Brasil, based in Sao Paulo, invests “significantly” every year, Chief Executive Officer Antonio Carlos Valente said in an interview in Brasilia yesterday. While Vivo has the fewest complaints in the country, it has the most complaints in Sao Paulo, its core market, according to the Sao Paulo consumer protection agency, Procon.

Technology Changes

“For a telco, it’s part of our day-to-day,” Valente said. “A company typically invests about 15 percent of revenue every year -- it’s a capital-intensive sector in which technology changes quickly.”

Vivo stands to gain the most from the new rules, Barbosa said. Last year, Tim, Oi and Claro were prohibited for about 10 days from selling new lines because of quality problems.

“Telefonica Brasil is a step ahead of the others, which is fundamental,” Barbosa said. “This will reinforce the need for companies to invest.”

Telefonica Brasil was little changed this year through yesterday, compared with a 39 percent increase for Tim and a 54 percent decline at Oi. The Ibovespa benchmark index fell 11 percent over the period.

Most Profitable

Telefonica Brasil is the most profitable of the Brazil-based carriers, with a margin of 35 percent for earnings before interest, taxes, depreciation and amortization in the four most recent quarters reported. That compares with Oi’s 30 percent and Tim’s 26 percent, according to data compiled by Bloomberg.

Telefonica Brasil is the biggest by sales, with 34.4 billion reais over the past four quarters, compared with Oi’s 28.5 billion reais and Tim’s 20 billion reais.

“Quality for consumers is fundamental,” Rezende said. “It’s evident that the transformations of the industry are a challenge for Anatel, for infrastructure and for companies. There’s not much of a choice -- they can’t stop investing.”

To contact the reporters on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net; Anna Edgerton in Brasilia at aedgerton@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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