Brazil Still Closed

Brazil's Internet market is still more potential than realized, but the market seems poised for explosive growth, and a backbone is being built.

by Jim Wagner
ISP-Lists Managing Editor

Brazil has its first national Internet backbone with the inception of RNP2, a joint Ministry of Science and Technology-National Research Network-Embratel effort, but don't look for independent Brazilian ISPs to reap any benefits from this technological windfall.

The network, funded and maintained by a committee of academics and the business community, gives Brazil a first-ever 20Mbps pipeline, with capacity of up to 155Mbps. Brazil's former pipe peaked at speeds of 2Mbps.

The newly-established national network, originally developed to support the internet needs of education and medical institutions at state capitals in Brazil, was opened up to the commercial sector to promote more Internet use. However, all non-profit schools in Brazil using dedicated lines are able to lease connectivity at a 50 percent discount. Commercial interests pay the regular leased line prices.

ISPs Foot The Backbone Bill
To make up forfeited revenues, the telcos seem comfortable letting ISPs foot the bill. This is evident with a look at the pricing at independent ISPs throughout the country. Expert Informatica Ltd. charges US$20 for 10 hours of internet access a month at 28.8bps. No other access speeds are available due to the condition of the telephone lines and the pricing set by the telco. RioLink Internet offers unlimited 28K, or 56K dedicated, for US$45 a month.This is expensive for a company with a GDP per capita of barely over $500 per month (in 1998, according to the CIA World Factbook).

Since more customers let ISPs charge less per user, some are adopting cannibalistic practices; mainly, taking customers from fellow ISPs for their own gain. Translation: pricing wars, mudslinging, high churn rates. Because of this instability, telcos can charge what they want because the ISPs are expending their energy just to stay in business.

"The customers are happy with their service," said Marilda Tabosa of Net Stage Internet, a four-year-old ISP with 1,600 customers, "despite the predatory practices of the suppliers (telcos) and other ISPs."

"The ISPs see the Brazilian telcos as their main competitors," said Youssef Ahmad of Digitro Tecnologia. "They also see the free internet providers as their main competitors also."

Free Internet Not Here
Free Internet made a splash in Brazil last year and is slowly gaining ground. The only reason the NetZeros of the world have not made a bigger impact in the country is the condition of the lines and running ad banners over a 28.8 connection.

The time is now for ISPs to find inexpensive, abundant and quality wire. Internet use in Brazil (population: 158.7 million), currently at 9 percent of the population with 14.4 million users, is projected to increase nearly 2.5 times by 2004 to 34.5 million users.

Troubles Traced To The '80s
When the military controlled Brazil in the eighties, Telebras, the state-owned telecommunications monopoly, controlled all local and long-distance telephony in the country. It wasn't until the early '90s that the government was replaced with a democratic leadership. Ironically, the Internet played a role in the government's dissolution, carrying uncensored news into and out of the country.

With the emergence of a democratic government came reform. One of the first reformation acts was the privatization of government-owned entities, including Telebras. Although a constitutional amendment was required for privatization, the amendment passed.

Brazilian "Baby Bells"
In the end, 12 Brazilian "Baby Bells" emerged, with three publicly-held regional telcos, one long-distance company (named Embratel) and eight cellular providers. While the new competition, along with a government-mandated price freeze, made it easier for Brazilians to get a phone, the new Bells were unable to afford modernization and expansion measures. End result: a steady degredation of existing telephone services and a shortage of copper wire to supply a booming population. The aftereffects still stymie Brazilian telecommunications today, making quality internet access outside the major population centers hard to find.

The deregulation of telephony let private companies enter, but none could match the existing network held by Embratel. They were the first to support a commercial network, through their parent company Telabras. Today Embratel, now owned by WorldCom, owns the largest network backbone in Latin America.

The only bright spot for Brazilian ISPs is a law passed in 1995 by the Ministries of Science and Technology, and Communications, looking to encourage entrapreneurship, which prohibited telcos from offering internet access to residential dialup users.

The Road To Recovery
Brazil is now recovering from a currency disaster that struck the country in January, 1999 (see The Economist's survey of Brazil in March 1999).

Government officials are confident telecommunications will improve in Brazil. As the largest country in Latin America, the potential for international investment and marketing opportunities are huge. Independent ISPs just have to make sure they aren't caught in the trap of high prices by the telcos who want to subsidize the growing internet network.

Related Articles
Among foreign ISPs, PSINet has made the greatest investment in Brazil. See here for a list of PSINet articles.

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