Can a Ban Save Brazil's Cell Phone Service?

Cell phone service in Brazil is not good. One might therefore expect Brazilians to have been outraged when the telecommunications regulator decided to ban major carriers from selling new lines; instead, they celebrated.

The National Telecommunications Agency (Anatel) barred Tim Participacoes SA, Oi SA and America Movil SAB's Claro -- three carriers that control about 70 percent of the county's cell phone market -- from selling new lines in certain states beginning on July 23. Tim, worst hit, with a ban on lines in 18 states and the federal district, went straight to a federal court on July 20, in a -- failed -- attempt to overturn the ban.

Rather than trying to fight the ban, perhaps Tim should have paid more attention to what prompted it: a rising tide of customer complaints. “There’s a time when it just won’t do anymore,” communications minister Paulo Bernardo told the Folha de Sao Paulo newspaper on July 19, the day the ban was announced. “We can’t be in a completely indefensible position. They were stopping us on the streets to complain.” Bernardo later said in an interview that he himself is a Tim customer and that he recently returned to Brazil from a trip to find that his 3G network wasn’t working.

Over the past several weeks, ridicule has been especially biting on social networks. A widely-circulated photo shows actress Juliana Paes clambering up a tiled roof in a scene from the popular soap opera "Gabriela." The photo has been doctored to give her a cell phone and bears a caption that reads, “Finally, I got a Tim signal!”  More than 1,000 people have joined a Facebook group called "Tim Without Signal." And over 1,440,000 people have watched a YouTube video by actor and comedian Fabio Porchat. Porchat, painted blue -- a satire on Tim advertisements featuring the Blue Man Group -- grows increasingly frustrated as he tries to cancel his Tim line and encounters call center hell.

Bernardo, the communications minister, said that the three carriers (Claro was banned from five states, Oi from three) would have up to 30 days to present “convincing” action plans to improve their service. Anatel president Joao Rezende admitted this measure is “extreme” but necessary. If the carriers try to sell lines while banned, they can be fined up to 200,000 reais ($99,000) per day. Bernardo later said the 30-day ban could be reduced to 15 days, depending on how quickly the companies settle their plans with Anatel's technical team. Though not banned, Vivo, Brazil's largest cell phone carrier, was also required to produce an action plan about how it would improve service.

Some took the carriers' punishment as fodder for comedy. On July 23, the Political Humor website published a series of cartoons about the ban. One shows three small boys, wearing dunce caps that bear the three punished carriers' logos; they sit in the corner of a classroom, just next to a blackboard with the line, “I promise to improve the service quality” written repeatedly.

Still, most welcomed the ban. “The telephone chaos had reached unsustainable levels,” blogger Altamiro Borges wrote on July 23. Folha columnist Eliane Cantanhede included the debacle in a larger cultural criticism, with banks, health plans and cell phone carriers leading the list of complaints:

It is greed, but not just that. There's also unpreparedness, inefficiency and neglect of the client ... When you most need it, the signal fails or the call drops, once, twice, three times. There are mistakes on the bills and the customer service at the stores and call centers is frustrating.

Brazil's cell phone service problem has been long in the making. As millions of Brazilians joined a new middle class and rushed out to buy phones, the country's networks expanded rapidly. There are now far more cell phone lines in Brazil than there are people -- more than 255 million lines in a population of some 200 million. But as companies chased market share, they failed to invest in giving their networks enough capacity. On July 18, Fernando Scheller and Marina Gazzoni wrote in the Estado de Sao Paulo newspaper:

The aggressive expansion of the consumer base, which made the cell phone market grow 19% in one year, to 255 million active lines by the end of the first quarter of 2012, was not accompanied by equivalent investment in the network by cell phone carriers.

Instead, carriers capitalized on lower income Brazilians by offering chips which gave prepaid customers lines on whatever handsets they chose. Many now opt for Chinese-made handsets -- either lesser-known brands or fake copies of known names like Nokia -- which sometimes can also offer TV. These handsets can use up to four chips so customers can flip between carriers, which they do because it is cheaper to call someone from the same carrier he or she uses.

The problem is that these chips offer no guarantee of long-term return for the carriers. In 2011, Tim's customer base grew 25.6 percent to 64.1 million, allowing it to overtake Claro and become the country’s second-biggest carrier, with 26.8 percent of market share.  Investment for 2011 was about 3 billion reais ($1.5 billion), just 5 percent up on the previous year. And so the carriers' net profits fell from 2.2 billion reais ($1.1 billion) in 2010 to 1.3 billion reais ($640 million) in 2011. “It is a kamikaze strategy,” telecommunications analyst Joao Bruder told Estado.

The government has only perpetuated the problem. Flavia Guimaraes, of ProTeste, a consumer protection association, wrote in an op-ed in Folha on July 19 that the current situation results from "two principle factors." One is the failure by the Ministry of Communications to revise the regulatory framework to accommodate the various services offered by a few companies in a convergent way.  The other is a failure to follow Brazil’s General Telecommunications Law, which asserts that essential services should be obligatorily provided, even if accompanied by the private sector. “The companies took advantage of the lack of regulations and Anatel’s failure to act, implementing their infrastructures purely for the sake of profit,” wrote Guimaraes.

Now, Anatel is finally stepping in to try and bring the situation under control, but its method of doing so might not be the most effective. In each of Brazil's 26 states (and in the federal district), the regulator penalized the carrier who was the subject of the most complaints. So Oi was banned from selling in the state of Amapa, but not in Rio de Janeiro, where its complaints were five times higher, because in Rio, Tim’s complaints were even higher. “The criteria defined by Anatel measures quantity not quality,” business lawyer Rodrigo Leite told Folha on July 25.

This regulatory scheme has in turn raised questions about Anatel's competency. On July 23, business daily Valor wrote that the Brazilian Court of Audit was, purely by coincidence, about to deliver a critical report of Anatel’s own operations. In 2006, the Court of Audit identified a series of failings at Anatel and recommended measures to correct them. According to Valor, one of the recommendations the court made was that Anatel create a system that allowed it to monitor complaints to carrier call centers. A system was developed, but some carriers refused to take part. Then, the system was suspended.

The Court of Audit's report indicated that Anatel only fulfilled 27 percent of the measures it had been required to implement and 15 percent of the recommendations. Court minister Augusto Cavalcanti was quoted in the Valor article saying that the report, “emphasized that Anatel did not fulfill the largest part of its own action plan." Unfortunately, nobody at Anatel had time to give an interview to Valor on the report because they were all too busy working on the carriers’s suspension issue, the newspaper noted dryly.

The ultimate irony is that Anatel has had to impose this ban in part because it failed to meet many of the requirements of its own regulator. “It is now up to Anatel to put out the fire which could have been avoided,” concluded Flavia Guimaraes in Folha.

Physician, heal thyself.

(Dom Phillips is the Rio de Janeiro correspondent for World View. The opinions expressed are his own.)

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