Research Notes

The new Brazilian MVNO rules will limit competition

– resulting in the Brazilian MVNO market being far less dynamic than the MVNO markets in many other countries.
A great deal has been said and written about the future opportunities for MVNOs in Brazil. Strand Consult has done a great deal of work on the Brazilian telco market, examining the possibilities and opportunities for market players to launch as MVNOs, on one of the most exciting mobile markets in the world.

In practice the Brazilian regulator has now finalised their recommendations on how to operate and regulate the Brazilian MVNO market. Many of the rules that have now been finalised are very similar to the predictions we published in our research note earlier this year:

Basically there are three significant limitations in the rules the regulator has finalised, limitations that will to some extent eliminate the possibility of having a dynamic and healthy Brazilian MVNO market. The three limitations are:

1.       Mobile operators are not allowed to own an MVNO.

2.       MVNOs must be financially controlled by Brazilians.  

3.       An MVNO is not allowed to have agreements with more than one operator in each region of Brazil.

In our studies of how MVNO markets have developed in many different countries, we have seen that most of the MVNO investments have been made by people that have focused on creating an MVNO that can achieve a sensible market position and that they later can sell at a profit to a mobile operator that can see that the MVNO’s customer base, data traffic, turnover and brand will contribute to the operator’s business.

There are simply countless examples of how operators around the world have improved their market position by purchasing MVNOs that have been doing business on their own, or their competitors mobile network. In countries like Finland, Norway, Denmark and Holland, acquiring MVNOs has helped shift market shares and thereby increased competition on the mobile telephony market.

However it will not be legal in Brazil for a MVNO to be financially controlled from outside Brazil. This will limit competition compared to many other countries. Take for example a market player like Dutch KPN. KPN has used MVNO agreements to launch in countries like France and Spain. Likewise Danish TDC has launched MVNOs in Norway and Sweden, with the sole purpose of servicing their customers across the Nordic region. There are numerous examples of operators launching their own MVNOs in other countries to better service their customers.

Companies like T-Mobile, Vodafone, AT&T, France Telecom and other large market players that want to launch MVNOs in Brazil, will have no choice but to find a local partner that will officially front their MVNO activities in Brazil.
The limitation on how many operators an MVNO can have agreements with in each Brazilian region, will result in not being possible for an MVNO to put pressure on their operator-partner by having a second agreement with another operator. Debitel has been using this strategy in a number of European countries for more than 12 years. Debitel has simply had agreements with multiple operators in each country, for the sole purpose of being able to negotiate the best possible business terms with each individual operator.

There is no doubt that the Brazilian regulator Anatel wants to increase competition on the Brazilian mobile market by allowing MVNOs to do business. On the other hand the regulations they have now finalised will simply eliminate part of the dynamics that have been the driving force on the European mobile markets with many MVNOs.

Tough critics will probably agree that the new Brazilian MVNO rules are most probably the most operator-friendly rules in the world and will help protect the companies that are making the enormous infrastructure investments. That is to some extent understandable, given Brazil’s size and topography. On the other hand these rules could be bypassed using a number of clever methods.

In practice we believe that the Brazilian mobile market will be dominated by branded resellers, who will rent their brands to operators. The operators will then handle all the practical details for each individual retailer that wants to launch on the mobile market.

We also believe that foreign market players will use various methods to launch via a front man, that “officially” owns the majority of the company. At the end of the day, foreign companies that want to do business within this area in Brazil will undoubtedly find the necessary loopholes in order to launch in Brazil.

It is safe to say that the new MVNO legislation in Brazil will create work in new areas; for example for creative lawyers that can advise clients on how to piece together a business construction that can ensure optimal freedom within the tight legislation that the Brazilian regulator is suggesting.

One thing is certain, and that is that Brazilian operators that are aiming at achieving a solid position on this market need not fear whether future MVNOs can influence their business. We will not be seeing scenarios like in Finland, Norway, Denmark, Germany and Holland, where the purchasing and selling of MVNOs can influence the balance of power on a market and move large market shares overnight.

If you would like to learn more about how the MVNO market functions in practice, please do not hesitate to request more information about our 400 page report  How to Succeed in the Second-Generation MVNO Market, describes in detail how operators, MVNOs, retailers and technology providers can achieve success on the MVNO market. Today, Strand Consult has the world’s largest MVNO market research team and we have consistently correctly predicted how this market is developing. Put yourself one step ahead of your competition – and request more information about this report today.
How to Succeed in the Second-Generation MVNO Market

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