Reform of the Telecommunications Act in Brazil

Reform of the Telecommunications Act in Brazil

The Brazilian Telecommunications Act (Law 9,742), enacted in 1997, brought important changes to the regulatory framework, which denationalised the state-owned telecommunication companies (the so-called Sistema Telebrás) and gave to the private sector the leading role for the development of telecommunications in the country. In order to deal with this new reality, the law created a robust normative framework. Whereas the essential telecommunication service at the time was fixed telephony (Fixed Switched Telecommunications Service – FSTS), and that it would be provided by private companies, the Law defined mechanisms to ensure its universality and continuity.

In this regard, the Law established two regimes for the provision of telecommunications services, the public and the private. Under the public regime, the telcos are subject to a concession contract with the National Telecommunications Agency (Anatel) that assures a greater state control over universalization, continuity obligations and tariff prices.

Universalization obligations are those that enable and provide access by any person to telecommunication services, regardless of his/her location and social-economic status, as well as those destined to permit utilization of essential telecommunication in services of public interest. From time to time, Anatel establishes universalization goals, depending on the availability of collective or individual usage installations, as well as to the availability to handicapped, to rural areas, to remote regions or institutions of public or social nature.

Continuity obligations are those aiming at enabling users the fruition of services in an uninterrupted form, without unjustifiable stops, thus having said services available, in adequate conditions of use.

In addition, the concession contract requires the reversibility of the telecoms’ public properties. It means that any property linked to the concession (i.e. equipment, network infrastructure, buildings, etc.) must return to the Union after the concession contract termination in order to assure the continuity of the telecom service. The sale of any reversible property during the concession contract needs Anatel’s authorization.

The only service provided under public regime is the fixed switch telephone service (FSTS). All other services (i.e. mobile telephony, broadband and pay TV) are rendered under the private regime, and their exploitation and the right of use of the necessary radio frequencies depend on prior authorization from Anatel, although no obligations of universalization, continuity, tariff control or reversibility of properties are applied.

According to Anatel, despite the remarkable expansion of the FSTS since the launch of the Telecommunications Act, the demand for such service is stagnated. At the same time, the demand for services that enable access to the Internet is facing a considerable evolution. According to the National Household Sample Survey – PNAD, in 2013, 92.5% of the Brazilian residences have some kind of telephone (fixed or mobile). In 2.73% of the residences, the only telecom service available is FSTS, while 54% of Brazilian residences have only mobile phone. In the period 2001/2013, there was a decrease of 25.1% of residences only with fixed telephony. On the other hand, there was an increase of 46.1% in the number of residences that have only the mobile phone.

In this context, a bill of law recently proposed – and already approved – by the House of Representatives (PLC 79/2016) will redesign the Telecommunications Act as an effort to deregulate the sector.

Among other points, the PLC 79/2016 allows the conversion of FSTS concessions into authorization (private regime). Such conversion will not be granted under payment. Instead, Anatel will be in charge to decide on the fulfillment of specific requirements, such as the provision of service in areas without competition, the assumption of investment commitments and warranties for continuity of the contracts.

The PLC 79/2016 has been subject to several polemics. Firstly because the migration to private regime as provided by the PLC 79/2016 allows the incorporation of the reversible properties into the telco’s property after the concession contract termination and its amount can be converted into the so-called “investments commitment”.

As currently established by the Telecommunications Act, the termination of the concession contract – which will occur in 2025 – automatically assigns the possession of reversible properties to the Union, in order to guarantee the continuity and actuality of the telecom public service.

In view of this, Anatel Regulation of Reversible Properties (Resolution 447/2006) requires that concessionaires must disclose annual inventories with their reversible properties listed in, and Anatel is in charge of controlling, monitoring and supervising such inventories. In addition, any sale or replacement of reversible property must have prior approval from Anatel.

In July 2016, the Federal Audit Court (TCU) published a decision resulted from an audit carried out in order to evaluate the performance of Anatel as regards the supervision on concessions’ reversible properties. According to TCU, in 2013 there were over 8 million of reversible properties, valued at BRL 105 billion. Half of this amount would be owned by Oi S.A., a FSTS company that is under a court reorganization.

Anatel otherwise alleges that the amount of BRL 105 billion corresponds to the value of reversible properties in 1997 at the time of the privatization. However, TCU concluded that Anatel has not held adequate regulatory actions to ensure compliance on the reversible properties. The inventories were not annually disclosed by the concessionaires, and a significant portion of their reversible properties were sold without prior approval from Anatel.

TCU required Anatel to provide within 180 days (as of July 13, 2016) the ascertainment of total resources obtained by each concessionaire from the sale of reversible properties held since 2007, when the Anatel Resolution 447 entered into force. Such document shall encompass several information, including details of the properties already sold; Anatel’s approvals on the sales; and evidences that the sale resources were indeed invested in telecom infrastructure. Anatel has not provided all of such documents yet.

Another polemic around the PLC 79/2016 is related to the so called “investment commitments”. Currently, the Telecommunications Act requires that authorizations for the use of radio frequencies are granted for a 20-years term that may be extended once for a further 20 years under the payment of a public price. As regards satellite exploitation right, the authorization is granted under bidding process for a 15-years term that may be extended once for a further 15 years under the payment of a public price.

The bill permits successive extensions of the 20-years term and the conversion of the public price into investment commitments. As regards satellite exploitation, the bill also revokes the extension limit and the payment of the public price so the authorization can be granted for 15 years and renewed for successive times. In addition, the bill revokes the obligation of bidding process for Brazilian satellite exploitation right and provides that the right is granted via administrative process established by Anatel. The payment of the Brazilian satellite exploration right also can be converted to investment commitments.

The conditions of such investment commitments are not clearly explained. The definition provided by the bill is: the investment commitments will prioritize the deployment of high-capacity network data infrastructure communication in areas without adequate competition as well as the reduction of inequalities.

TCU highlight that eliminating fees for the right to exploit telecoms services, combined with the possibility of successive renewals, means, in practical terms, “to grant a perpetual award of BRL 2 billion annually to telecoms operators”.

Besides, organizations of civil society allege that the definition of “investment commitment” is vague and generic and cannot assure universalization and continuity obligations for broadband service, neither enough funds for the deployment of public policies for digital inclusion. Instead, it is suggested that the law provides universalization and continuity obligations for broadband service, considering that it is a public interest telecommunication service.

The PLC 79/2016 also allows the resale of spectrum under Anatel consent. In other words, it is permitted the transfer of authorization for the use of radio frequencies by third parties without the corresponding transferring of the respective concession or authorization.

Despite of all of such polemics, the legislative analysis over the PLC 79/2016 was considerably fast because it only passed through the Senate Special Commission for National Development, which is temporary. In view this, some Senators filed an injunction before the Supreme Court in order to suspend the presidential approval and submit the bill to the specialized permanent Commissions and then to plenary vote. Currently, the presidential approval is suspended but the final decision is foreseen for February.