Some in the industry say their plight is graver that what's afflicting the larger global sector; others have gone so far as to argue that the crisis is so deep that Brazil's phone system could go silent.
Government regulators so far aren't persuaded. Despite some heavy-handed lobbying, they've put complaining phone companies on hold.
A tempest gathered in mid-April after the central bank said it was examining an industry report that claimed the telecommunications sector was in such a state it risked "no longer being considered a success story but, instead, being added to the list of failures."
According to the report, "The basic privatization model is exhausted."
The document was so dramatically worded that local media reported government officials were holding emergency talks to prevent a collapse of the phone system similar to last year's near blackout of the national power grid caused by scarce rain and faltering investment in the partially privatized energy sector.
Self-serving industry hogwash -- that's how the state telecommunications regulator's acting president, Antonio Carlos Valente, responded.
Scandal ensued when it emerged that the report was written by a vice president of Bell South Corp.'s Brazilian wireless unit, BCP, who also happens to be a cousin of the central bank official who submitted the document. Fueling the controversy: BCP recently defaulted on a $375 million loan payment following differences between Bell South and local shareholders Banco Safra.
There is little doubt, however, that Brazil's telecommunications sector is hurting.
When the country opened the massive market of 170 million consumers to private competition five years ago, global players such as Bell South, Spain's Telefonica and Telecom Italia swooped in for a piece of the action.
Telebras, the infamously inefficient state telecommunications monopoly, was broken up on the auction block for a total of $19 billion. Competition among more than 20 companies plus consumer-friendly privatization regulations meant the cost of installing a phone line in Sao Paulo, for instance, fell from $2,000 to $40 almost overnight.
Meanwhile, though, the low purchasing power of the average Brazilian -- average monthly wages are about $300 -- is thwarting marketers' expectations and squeezing operators' balance sheets.
Of some 5 million idle fixed lines listed by carrier Telemar at the end of January, nearly 950,000 were disconnected because of unpaid bills. Brasil Telecom, another major carrier, plans to keep bad debts at bay by offering 160,000 prepaid fixed lines this year.
Sprint Corp., Britain's National Grid PLC and France Telecom are looking for buyers for their loss-making Brazilian long-distance carrier Intelig. Troubled WorldCom Inc. also appears ready to sell Intelig's rival, Embratel. Even Telefonica, which invested a cool $17 billion in privatization and is the sector's top performer here, says it is disappointed with returns.
Fernando Xavier Ferreira, president of Telefonica's Brazilian arm, says returns on telecommunications investments in Brazil are just 1.5 percent. He has joined other carriers in seeking an easing of privatization regulations that ban consolidation through mergers and acquisitions until mid-2003.
Those regulations are also preventing Telecom Italia from introducing a nationwide mobile network based on GSM technology, although it bid $1.25 billion for new generation licenses and has earmarked another $1.3 billion to install the network over the next four years.
But regulators, at least for now, show no sign of budging.
"In capitalism, risks are part of the business and this question of profitability must be solved by the companies themselves," Communications Minister Juarez Quadros said in an interview this week with the newspaper Valor.
Many analysts consider the BCP report a ploy -- and deny Brazil's phone system is on the verge of collapse.
An editorial in Valor put telecommunications companies' average returns in the last quarter of 2001 at 2.2 percent -- about half of the U.S. sector rate -- but way above the minus 5 percent in Europe.
Telemar, set to become Telefonica's main competitor as the market opens nationwide this year, made more than $62 million profit in the first quarter despite adverse market conditions.
"Crisis is a strong word," said Telefonica's Ferreira. "The market is having difficulties, that's true, the balance sheets of many companies show that. But we can't talk of crisis."
Copyright 2002. Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
