Value Chain Analysis of the Telecom in Brazil.¶
Commercial Relationships¶
The telecommunications value chain in Brazil is a complex and multi-layered ecosystem characterized by a diverse set of commercial relationships connecting various players from the foundational infrastructure to the end consumers of digital services. These relationships are predominantly B2B (Business-to-Business) and B2C (Business-to-Consumer), with increasing instances of B2B2C models and interactions involving government entities (B2G).
At the base, the Equipment & Software Layer operates primarily on a B2B model. Global manufacturers of telecommunications equipment and software, such as Nokia, Ericsson, Huawei, Cisco, Qualcomm, and Intel, engage in commercial agreements with Brazilian telecommunications operators (Vivo, Claro, TIM, Oi) and network infrastructure builders (like V.tal and regional ISPs). These relationships involve the sale, licensing, and leasing of essential hardware (routers, switches, base stations, fiber optic cables, antennas) and software (network management systems, billing platforms, customer relationship management tools). The commercial interactions are often structured around large-scale procurement contracts, encompassing not just the supply of equipment but also ongoing maintenance, technical support, and software updates. Given the specialized nature and significant investment required for this infrastructure, these are typically long-term relationships with detailed service level agreements (SLAs) to ensure network reliability and performance. Component manufacturers, vital for both network equipment and consumer devices, operate within a B2B supply chain, selling electronic parts to larger equipment assemblers. Manufacturers of Customer Premises Equipment (CPE), such as modems and routers, also have B2B relationships with connectivity providers, supplying the devices needed for the last mile connection to homes and businesses.
Moving up the chain, the Network Layer involves crucial B2B relationships related to infrastructure access and sharing. The major integrated operators (Vivo, Claro, TIM) own and operate extensive fixed and mobile networks, managing internal commercial considerations between their infrastructure divisions and retail operations. However, the Brazilian market has seen the rise of dedicated wholesale infrastructure providers, notably V.tal in the fiber segment. V.tal's business model is purely wholesale, offering neutral and open access to its extensive fiber network to a wide range of retail service providers, including the major operators and numerous regional ISPs. These relationships are based on contracts for leasing fiber pairs, acquiring managed bandwidth, or utilizing other infrastructure services. Tower companies, specializing in mobile tower infrastructure, engage in B2B leasing agreements with mobile operators, providing the physical sites required for deploying radio access network equipment. Satellite operators like Starlink establish commercial relationships to provide satellite broadband services, sometimes forming partnerships with local entities such as Telebras to leverage existing infrastructure or reach specific markets, particularly in remote areas where terrestrial networks are not feasible.
The Connectivity Layer is where the commercial relationships become more directly focused on the end-user, involving both B2C and B2B interactions. National mobile and fixed-line operators (Vivo, Claro, TIM, Oi) are the primary players here, offering a range of connectivity services directly to residential consumers (B2C) and businesses (B2B). Regional ISPs, with their strong presence in specific geographic areas, also maintain significant B2C relationships for fixed broadband services. These commercial engagements are typically structured around service contracts for mobile plans (prepaid and postpaid) and fixed broadband subscriptions, involving monthly billing and customer support interactions. For business customers, the relationships are often more complex, involving tailored service packages, dedicated account management, and B2B contracts for services like dedicated internet access, corporate VPNs, and M2M/IoT connectivity solutions. Mobile Virtual Network Operators (MVNOs) introduce a B2B2C element, purchasing mobile network capacity from major operators at wholesale rates (B2B) and then selling branded mobile services directly to their own customer base (B2C or specialized B2B segments like IoT).
In the Navigation & Middleware Layer, the commercial relationships are often indirect from a traditional telecom billing perspective but are vital to the digital ecosystem. Global technology companies (Google, Microsoft, Apple) providing search engines, browsers, and operating systems engage with users, often through models supported by advertising revenue or platform strategies. Cybersecurity firms offer B2B services to telecom operators and enterprises, providing security software and services on a contractual or subscription basis to protect networks and data. FinTech companies providing electronic payment systems have B2B relationships with businesses (enabling them to accept online payments) and B2C relationships with consumers (providing digital wallets and payment tools), with their services fundamentally relying on the underlying telecom network for transaction processing.
The Application Layer thrives on a vast array of commercial relationships, primarily B2C and B2B, driven by the consumption of digital content and online services. Content providers (streaming services like Netflix, Spotify; media companies) engage in B2C relationships with individual subscribers, often through monthly subscription fees. Online service providers, encompassing e-commerce platforms (Amazon), social media (Meta), cloud computing providers (AWS, Microsoft Azure), and online gaming platforms, have both B2C and B2B relationships, depending on the nature of the service. E-commerce platforms facilitate B2C and B2B transactions, earning revenue through commissions or fees. Cloud providers offer B2B services to businesses of all sizes, providing computing resources and software applications on a pay-as-you-go or subscription basis. Application developers engage in B2C and B2B relationships through app stores and direct sales, offering various mobile and web applications, often employing freemium or subscription models. The interaction between these Application Layer players (often referred to as Over-the-Top or OTTs) and the Network Layer operators is a critical commercial dynamic, marked by debates over network usage and potential revenue sharing or contribution to infrastructure costs, reflecting a complex interdependent relationship.
The Customers Layer represents the demand side of the value chain, where individuals, households, businesses, and government entities engage in commercial relationships to acquire and utilize telecommunications services and digital content. Residential customers enter into contracts with operators and ISPs for mobile and fixed services, making recurring payments. Business customers establish B2B agreements for communication and IT solutions tailored to their operational needs. Government and public sector entities engage in procurement processes for a wide range of telecom services and infrastructure projects to support public administration, provide citizen services, and develop initiatives like smart cities. The commercial relationships here are the revenue-generating endpoints for the providers in the upstream layers.
Products and Services Exchanged¶
The value chain of the Brazilian telecom industry facilitates the exchange of a broad spectrum of products and services, flowing from the foundational technology providers all the way to the digital experiences consumed by the end-users.
At the Equipment & Software Layer, the products exchanged are the fundamental building blocks of the network. This includes tangible assets such as telecommunications equipment for network infrastructure, including base transceiver stations (BTS) for mobile networks, NodeBs, eNodeBs, and gNBs for newer mobile technologies like 5G, switches and routers for managing data traffic, and transmission systems utilizing technologies like fiber optics. Physical infrastructure like fiber optic cables, coaxial cables, and network cabinets are also key products. On the software side, the exchange involves licenses and access to various software platforms. These range from low-level network operating systems and element management systems (EMS) that control network devices to more complex business support systems (BSS) for billing, charging, and customer care, and operations support systems (OSS) for network management, provisioning, and fault detection. Specialized software for network planning, optimization, and security is also exchanged. Associated services include professional services for network design and planning, equipment installation and commissioning, system integration (ensuring different network elements and software work together seamlessly), ongoing maintenance and repair services, and technical support. Manufacturers of components provide electronic parts like processors, memory chips, and specialized integrated circuits to equipment manufacturers. CPE manufacturers supply devices like modems, routers, and set-top boxes to connectivity providers.
In the Network Layer, the primary service exchanged is access to and usage of the deployed physical network infrastructure. This takes several forms. In fixed networks, providers with extensive fiber optic infrastructure offer wholesale services to other operators and ISPs. This can involve leasing "dark fiber" (the physical fiber strand without the electronics to light it) or providing "lit fiber" services (including the active transmission equipment), allowing other providers to offer broadband services over the infrastructure owner's network. Tower companies exchange the service of leasing vertical space on their towers to mobile operators for hosting their cellular antennas and related equipment. Satellite operators provide satellite capacity and connectivity services, enabling broadband access or specialized communication links, particularly in areas where terrestrial networks are limited. The exchange is essentially the provision of network resources and capacity, often under contractual agreements specifying bandwidth, quality of service, and geographical coverage.
The Connectivity Layer is where the direct telecommunications services are delivered to the end-users. For mobile connectivity, the services exchanged include voice calls, SMS messaging, and mobile data access (internet access) across various generations of mobile technology (2G, 3G, 4G, 5G). These services are typically packaged into mobile plans with varying allowances for voice minutes, SMS, and data volume, often differentiated by speed and coverage. Specialized mobile connectivity for M2M/IoT devices, designed for low data usage and high device density, is also exchanged. In fixed broadband, the core service is high-speed internet access provided to residential and business locations. This service is delivered over different technologies, with fiber optic (FTTH/FTTB) being the most prominent and fastest-growing, but also including coaxial cable, DSL (over copper lines), fixed wireless, and satellite internet. The service is usually offered in tiered packages based on download and upload speeds. Fixed telephony service involves traditional voice communication over landlines. Ancillary services in this layer include service installation and activation, customer technical support for troubleshooting connectivity issues, billing and payment processing, and account management (plan changes, service modifications). Value-added services like voicemail, caller ID, call forwarding, and international roaming are also exchanged.
Within the Navigation & Middleware Layer, the products and services facilitate the user's online experience and interaction. Search engines provide the service of information retrieval from the internet. Web browsers are software applications that enable users to access and navigate websites. Cybersecurity services offer protection against online threats through software (antivirus, anti-malware, firewalls) and services (threat monitoring, security consulting). Electronic payment systems provide the service of securely processing online financial transactions between buyers and sellers. Operating systems (like Android, iOS, Windows) are fundamental software products that manage device hardware and provide a platform for running applications, and their use is exchanged through licenses or as part of device purchases.
The Application Layer encompasses a wide variety of digital content and online services accessed via the network. This includes streaming audio and video content (movies, TV shows, music, podcasts) provided by content platforms and media companies. Online gaming services provide interactive entertainment experiences. E-commerce platforms facilitate the buying and selling of goods and services online. Social media platforms enable users to connect and share content. Cloud computing services offer remote access to computing resources, storage, and software applications (SaaS) on demand. A vast ecosystem of mobile and web applications provides specific functionalities, ranging from productivity tools and communication apps to entertainment and utility applications. The exchange in this layer is the consumption of this digital content and the utilization of these online services and applications.
The Customers Layer is where the value chain culminates in the consumption of these products and services. Residential customers consume mobile and fixed connectivity for personal communication, internet access, entertainment, and smart home applications. Business customers consume connectivity and specialized telecom/IT services to support their operations, enable digital transformation, and interact with their customers and partners. Government entities consume telecom services for public administration, emergency services, e-government initiatives, and connecting public institutions. The exchange from the customer perspective is the utilization of these services and the data traffic generated, enabling them to access information, communicate, conduct business, and consume digital content.
Business Models¶
The diverse activities across the Brazilian telecom value chain are supported by a range of business models, each designed to generate revenue and create value within their specific segment.
At the Equipment & Software Layer, the dominant business model is the product sales model. Manufacturers sell their hardware and software to telecom operators and network builders. This is often combined with licensing models for the software components, granting operators the right to use the software under specific terms. To ensure the longevity and performance of the deployed infrastructure, maintenance and support service contracts are a crucial part of the business model, providing recurring revenue to the manufacturers. For large, complex network deployments, a project-based model is common, where the manufacturer provides a comprehensive solution including equipment, software, installation, and integration services for a specific project. Component manufacturers operate on a straightforward B2B supply model, selling their electronic parts to equipment assemblers based on volume and specifications.
In the Network Layer, various business models are employed depending on the type of infrastructure owner. Major integrated operators primarily utilize an integrated service provider model, where the owned network infrastructure serves as the foundation for their own retail mobile and fixed services. This vertical integration allows them to control the end-to-end service delivery and capture value across multiple layers. Dedicated infrastructure companies like V.tal operate on a pure wholesale access model. Their business is to build and maintain network infrastructure (primarily fiber) and sell access and capacity on this network to multiple retail service providers on a non-discriminatory basis. This model enables them to focus on infrastructure investment and management while relying on their clients to handle customer acquisition and retail service delivery. Tower companies operate a tower leasing model, generating revenue by leasing space on their cellular towers to multiple mobile operators, allowing them to share the physical infrastructure. Satellite operators may use a direct-to-consumer subscription model for providing satellite internet services to end-users (like Starlink) or a wholesale capacity model, selling satellite bandwidth to other service providers or integrators.
The Connectivity Layer is characterized by direct customer monetization. The prevalent business models for mobile services are prepaid and postpaid subscription models. In the prepaid model, customers purchase credits or packages upfront before consuming services, offering flexibility and cost control. The postpaid model involves a monthly contract where customers are billed based on their plan and usage at the end of the billing cycle. These models generate recurring revenue for mobile operators. MVNOs typically operate under a reseller model, purchasing mobile network capacity from MNOs at wholesale rates and reselling it to their own customer base under their brand, often targeting specific market segments with tailored pricing and value propositions. Fixed broadband services are primarily delivered through a monthly subscription model, with pricing usually dependent on the offered speed tier and the technology used (fiber often supporting higher-priced, higher-speed plans). Regional ISPs have successfully adopted a localized service provider model, focusing on building strong relationships within specific communities and offering competitive fiber broadband services, often leveraging their local presence and agility. Bundling of multiple services (mobile, fixed broadband, pay TV) into combined packages is a common strategy used by operators to increase customer loyalty and average revenue per user (ARPU).
Within the Navigation & Middleware Layer, business models are diverse. Search engines and many online platforms heavily rely on an advertising-based model, generating revenue by displaying targeted advertisements to users. Web browsers are often distributed using a free software model, with monetization occurring indirectly through partnerships, search engine defaults, or integration with other services. Cybersecurity software and services are typically offered under a subscription model, with individuals or businesses paying recurring fees for access to protection and updates. Electronic payment systems operate on a transaction fee model, earning a percentage of each financial transaction processed, or through setup and recurring fees charged to businesses for using their payment gateway services. Operating systems are often monetized through licensing models, either pre-installed and included in the price of hardware devices or sold as standalone licenses.
The Application Layer features a wide variety of business models for digital content and online services. Subscription models are popular for streaming media services (video and music), providing users with unlimited access to content for a recurring fee. Software as a Service (SaaS) applications also commonly use subscription models. Advertising models are prevalent for social media platforms, many news websites, and free mobile applications, where revenue is generated from displaying advertisements to users. Transaction-based models are central to e-commerce platforms, which earn commissions on sales made through their platform, and online gaming, through the sale of virtual items or in-game currency. The freemium model offers a basic version of a service or application for free, with users paying for premium features or content. Cloud computing providers primarily use a utility computing or pay-as-you-go model, where customers are billed based on their actual consumption of computing resources, storage, and data transfer.
For the Customers Layer, the business model is fundamentally one of payment for services consumed. Residential customers engage in payment models such as monthly billing (for postpaid and fixed services) or prepaid top-ups. Business customers typically operate under contractual payment terms based on their negotiated service agreements. Government entities follow established procurement and payment processes for acquiring telecommunications and digital services. The customer's payment is the ultimate source of revenue that flows back up the value chain, supporting the business models at each preceding layer.
Bottlenecks and Challenges¶
Despite being a dynamic and growing market, the Brazilian telecommunications value chain is not without its significant bottlenecks and challenges that can impede its further development, impact the quality and availability of services, and affect the profitability of the players involved.
A primary bottleneck lies within the regulatory and bureaucratic landscape. While Anatel has worked to modernize regulations, the complexity of licensing, permitting processes for infrastructure deployment (especially for new towers and fiber routes), and navigating municipal regulations can cause delays and increase costs. The ongoing discussion and uncertainty surrounding the future of fixed telephony concessions and the development of a new regulatory framework also create an environment of anticipation and potential disruption. Furthermore, the tax structure for telecom services in Brazil is complex, and changes resulting from tax reforms can pose challenges for companies in managing their tax obligations and impact pricing strategies.
Infrastructure deployment and expansion, particularly reaching the entirety of the vast Brazilian territory, remains a significant challenge. While fiber optic networks are rapidly expanding, connecting remote, rural, and less densely populated areas is economically challenging due to the high costs of civil works and equipment deployment. The successful and timely rollout of 5G technology across the country requires substantial investment in new base stations and network densification, facing hurdles in site acquisition and obtaining necessary permits from local authorities. Efficient sharing of existing infrastructure, such as utility poles, among different service providers is crucial for reducing deployment costs and accelerating network expansion, but disagreements and lack of clear regulations can create bottlenecks. Historical issues with the reliability and need for upgrading older telecommunications infrastructure also highlight ongoing challenges in maintaining and modernizing the network backbone.
The evolving relationship and commercial dynamics between telecommunications operators and large digital content and application providers (OTTs) represent a significant bottleneck and point of contention. Operators argue that these OTTs consume a disproportionate amount of network capacity, driving the need for continuous and costly infrastructure investments, without contributing directly to the funding of these networks. This perceived imbalance of value capture, where OTTs monetize services delivered over infrastructure largely funded by operators and their customers, is seen as unsustainable and a disincentive for further network investment, particularly in expanding coverage to underserved areas. The ongoing debate about whether and how OTTs should contribute to network costs or universalization funds reflects this fundamental challenge in the value chain's economic model.
Intense market competition, while generally beneficial for consumers, can create challenges for operators in terms of profitability and the ability to generate sufficient returns on their substantial investments. The Brazilian market is highly competitive in both mobile and fixed broadband, with major national players vying for market share alongside a growing number of agile regional ISPs. This competitive pressure can lead to price wars and reduced profit margins, potentially impacting the financial capacity of operators to invest in necessary network upgrades and expansion.
Talent acquisition and retention is becoming an increasingly critical challenge, particularly with the rapid technological shifts in the industry. The demand for professionals with expertise in areas like 5G network management, cloud computing, cybersecurity, data analytics, and artificial intelligence is growing, and a shortage of skilled labor can slow down innovation and operational efficiency.
Ensuring robust cybersecurity across the increasingly complex network infrastructure and against evolving threats is a continuous and escalating challenge for all players in the value chain. Protecting customer data, preventing network outages due to attacks, and ensuring the integrity of communication services require significant ongoing investment and expertise.
Finally, the increasing focus on environmental sustainability presents challenges related to the energy consumption of networks, the disposal of electronic waste from equipment upgrades, and the need to adopt more sustainable practices throughout the value chain.
These bottlenecks and challenges are interconnected and require concerted efforts from industry players, regulators, and policymakers to address them effectively and ensure the continued growth and development of the Brazilian telecommunications sector and its value chain.
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