The telecommunications regulatory framework in Brazil has undergone substantial modification in the last 15 years, with the aim of universalising the provision of telecommunications services and introducing competition into the sector. Before the reforms, most telecommunications services were provided by state-owned companies.

The privatisation process called for a far-reaching reform of the regulatory framework, based on the General Telecommunications Law (9472/1997), which laid the foundations for the provision of all types of telecommunications services. The law also created ANATEL (the national telecommunications agency), whose main responsibilities include:

• implementation of government policies for the sector;
• regulation of telecommunications services; and
• supervision of the sector.

This overview sets out the most important regulatory issues and telecommunications services in Brazil, with special emphasis on the regulations that are relevant for foreign investors and issues concerning internet access.

Provision of services
Any natural or legal person satisfying the conditions set forth in law (and, where applicable, in the notice issued with an invitation to bid), may apply to ANATEL for a licence to provide telecommunications services. There are three types of licence – concessions, permissions and authorisations. Although each type is subject to specific rules, the regulations establish that new entrants may apply at any time for the most common licences. To date, ANATEL has granted more than 2,600 authorisations for the multimedia communications service (the most common service), showing that competition has been quickly implemented in the country.

The Brazilian government is encouraging new players to enter the telecommunications market in order to boost the provision of telecommunications services throughout the country and increase competition in the sector. The measures adopted by the government are also aimed at providing high-quality telecommunications services before the 2014 World Cup and the 2016 Olympic Games.

Ownership of service providers
As a rule of thumb, there are no restrictions on foreign capital in the Brazilian telecommunications sector. Decree 2,617/1998 merely establishes that companies that hold licences for the provision of telecommunications services must be organised under Brazilian law and have their principal place of business and administration in Brazil. The same decree also stipulates that the majority of the capital of a telecommunications licensee must be held by another legal entity established in Brazil. There are only two cases in which restrictions are imposed on foreign capital:

• ownership of radio and television broadcast companies, in which foreign capital must not exceed 30% of the total voting capital; and
• ownership of cable television companies – 51% of voting capital must be held by:
  • natural-born Brazilians or those who have been naturalised Brazilians for more than 10 years; or
  • a company based in Brazil that is controlled by either natural-born Brazilians or those who have been naturalised Brazilians for more than 10 years.

Fixed-switched telephony service
The fixed-switched telephony service (FSTS) is defined in the General Grants Plan (set out in Decree 6,654/08) as a telecommunications service designed for communication between fixed determinate points using telephony processes. The fixed-switched services designed for public use are classified into local, domestic long-distance and international long-distance services.

FSTS is provided by incumbent providers (ie, concessionaires whose controlling stake was previously held by the government) under the public regime, and by new entrants through authorisations. In general, services rendered under the public regime are subject to greater state control, while authorisations afford more flexibility. However, most rules are identical for both providers. Currently, incumbents and new entrants compete in the market, despite the fact that incumbents generally have a greater market share.

The regulation establishes that providers must comply with the goals established in the General Quality Goals Plan at their own expense and risk. Providers may also be punished for non-compliance in order to ensure that ANATEL has greater control over service quality. Obligations placed on fixed-switched service providers include:

• ensuring that the service complies with ANATEL’s regulations;
• implementing all equipment and facilities necessary for the provision, continuity, modernisation and expansion of the service;
• submitting a standard draft of the service provision contract, as well as any alterations and amendments, in advance to ANATEL;
• maintaining separate accounting records of other services;
• respecting the commitment to secrecy and confidentiality;
• submitting all corporate restructurings and transfers of control or alterations in capital stock to ANATEL for prior approval; and
• widely disseminating prices, tariffs and discounts.

In 2010 the concession contracts of the incumbents were revised by ANATEL in order to establish the terms and conditions that will be in force for 2011 to 2015. The main alteration was the exclusion of the clause that prohibits FSTS companies from offering cable television services in areas where they provide telecommunications services. This exclusion opens up the cable television market to FSTS concessionaires, allowing them to compete directly with cable television companies.

Interconnection
Interconnection is mandatory in Brazil. ANATEL exercises strict control over interconnection and has provided for the possibility of arbitration in order to settle interconnection terms and conditions if the providers fail to reach an agreement. Furthermore, interconnection regulations determine that a public interconnection offer must be made, establishing the interconnection conditions to be extended to any interested provider. ANATEL exercises further controls regarding interconnection rates applied to local and long-distance FSTS networks.

During 2006, the local FSTS network interconnection rate was limited to 50% of the corresponding public price, and in 2007 this percentage was reduced to 40%. Since 2008, local FSTS networks have been remunerated based on a long-run incremental cost methodology prepared by ANATEL. Mobile interconnection rates are, in principle, subject to free negotiations and ANATEL may arbitrate any disputes arising therefrom.

Personal mobile service
‘Personal mobile service’ is defined by ANATEL Resolution 477/07 as the community interest terrestrial mobile telecommunications service that enables communication between mobile stations, and between mobile stations and other types of station.

As personal mobile service is rendered under the private regime, it is not subject to universal access and service continuity obligations. The current regulations dealing with the service are extensive and ensure the following advantages for users:

• a high level of competition between providers (some areas have up to four providers);
• an increase in the number of mobile handsets available;
• enhanced quality;
• reduced prices; and
• the possibility of selecting long-distance providers.

Among other regulatory requirements, mobile operators are required to meet the minimum service goals, which are similar to the universal access obligations for FSTS concessionaires.

Mobile virtual network operator
At the end of 2010, ANATEL approved the Regulation on the Exploitation of Personal Mobile Services via Virtual Networks, thus enabling the supply and resale of mobile telecommunications services through mobile virtual network operators.

In accordance with the regulation, such operators may be either agents or virtual network licensees. Agents represent the personal mobile service provider through the establishment of a representation agreement, which must be ratified by ANATEL. The agent’s activity is not defined as a ‘telecommunications service’ and is of significant interest to companies that operate in other sectors, such as large retailers, banks and football teams.

However, the activity of virtual network licensees does fall within the definition of a ‘telecommunications service’ and is thus subject to all applicable rules. Such licensees are required to enter into a network-sharing agreement with existing carriers and must request a grant from ANATEL.

Radio frequency use
The radio frequency spectrum is a public limited asset. Its use is controlled and supervised by ANATEL. A radio frequency may be shared between two or more holders of authorisations for radio frequency use only by alternating the antennae operating periods or by rigorously dividing the area in which the use of the same band is undertaken. In the event of technical limitations on radio frequency use and interest in its use on the part of more than one party, the authorisation will be subject to an invitation to bid. Authorisation for radio frequency use is granted for a maximum period of 20 years (renewable once) and will expire in the event of irregular transfer or loss of validity, lapse, waiver or annulment of the authorisation. The use of radio frequencies without ANATEL’s authorisation may constitute a criminal offence.

The price for the right to use radio frequencies is established in accordance with the winning proposal of the invitation to bid. In cases where an invitation to bid is not conducted, ANATEL will define payment conditions in accordance with the Regulation on the Collection of the Public Price for the Radio Frequency Right of Use.

Internet service providers
On May 31 1995 the Communications Ministry published Ministerial Ordinance 148/95 (approving Rule 4/95) to regulate the use of public network media for internet access. The ordinance established important concepts for the regulation of internet access providers, including the classification of internet access as a value-added service. With such classification, internet access was moved outside the scope of ANATEL’s authority – the General Telecommunications Law expressly excludes value-added services from the concept of telecommunications services. However, although ANATEL does not have the legal authority to regulate and supervise value-added services, the law guarantees it the authority to assure the use of service networks for the provision of value-added services.

National broadband plan
On May 5 2010 the government officially launched its National Broadband Plan. The objective is to expand broadband internet access across the country using the fibre-optic infrastructure owned by electric power transmission concessionaires and public companies (eg, Petrobras).

Broadband internet has been considered an essential service and necessary for the country’s economic and social development. It is also a prerequisite for the entry of new technologies and services that use the Internet as a platform (eg, internet protocol television). In this context, it is essential that broadband access be expanded on a universal basis, especially in rural and remote areas. The population benefits from digital inclusion and the possibility of purchasing broadband access at affordable prices.

Decree 7,175/10 approved the revival of Telebrás, the holding company owned by the government that controlled state companies privatised in the 1990s. Following much discussion on the matter, Telebrás intends to provide broadband access only to the wholesale market. The intention of the government is to ensure that a broadband internet service with a speed of 1 megabit per second will be sold by Telebrás to internet service providers at a maximum price of R35 (approximately $20) a month.

Infrastructure sharing
The Electricity Agency, ANATEL and the Oil and Gas Agency regulate infrastructure sharing among their sectors and follow the guidelines set out by Laws 9,427/1996, 9,472/1997 and 9,478/1997, respectively. The guidelines apply to infrastructure sharing between public electric power service exploitation agents, providers of telecommunications services and oil and natural gas pipeline transport agents. An ‘agent’ is defined as the legal entity that holds a concession, authorisation or permit for the exploitation of public services.

These guidelines resulted in Common Resolution 1/99, which approved the Common Regulation for Infrastructure Sharing between the Electric Power, Telecommunications and Oil Sectors. Agents that exploit electric power, telecommunications and oil and natural gas pipeline transport services may share the infrastructure of other agents from any of these sectors, provided that they:

• satisfy certain quality, security and environmental protection rules established by the competent agencies; and
• stimulate the optimisation of resources, the reduction of operating costs and other benefits to users of the services that they supply.

Agents that directly or indirectly own, manage or control infrastructure must define surplus capacity (ie, the infrastructure available for sharing with other agents from the various sectors) and sharing conditions. The owner must maintain the surplus capacity under its control and management, complying with the obligations contained in the concession, permit or authorisation instrument.

In order for owners to supply infrastructure for sharing, they must give advance notice in at least two national newspapers and one local newspaper for three days, defining and establishing the sharing conditions, including technical information, prices and terms. The contract must be officially submitted to the regulatory agency of the owner’s operating sector, which in turn will send it to the regulatory agency of the sector of the petitioning party. A positive reply from both agencies is required in order for the infrastructure sharing to proceed.

The contract will not be approved if it is considered harmful to free and fair competition. Therefore, the following are not permitted:

• the use of subsidies for the artificial reduction of prices;
• the use of information obtained from competitors, with the aim of obtaining a competitive edge;
• the omission of technical and commercial information pertaining to the provision of services to others; and
• the establishment of conditions that use the infrastructure inefficiently.

Voice over Internet Protocol
Since the Internet is a value-added service and such services are not considered to be telecommunications services, Voice over Internet Protocol (VoIP) is not expressly regulated by ANATEL. Discussions are underway regarding the lawfulness of using VoIP to render telephony services that are open and accessible to the general public.

Fixed-switched telephone service providers claim that this practice represents a bypassing of their activities, as VoIP essentially implies the provision of telecommunications services, which necessarily depends on a licence granted by ANATEL. Conversely, the companies that are interested in rendering services based on VoIP technology allege that they represent value-added services and as such are not subject to regulation by ANATEL. However, there is a general understanding that VoIP can be used by any company that holds a network or circuit licence within the scope of such licences. Moreover, fixed-switched telephone service providers can use this technology, provided that they comply with the terms of their respective licence.

Certification
Telecommunications products must be certified by designated certification bodies – that is, non-profit companies accredited by ANATEL. ANATEL and the National Institute for Metrology Normalisation and Industrial Quality establish rules and parameters for products that will be used within the telecommunications sector, and the designated bodies must verify whether the submitted products comply with such rules and parameters. ANATEL Resolution 323/2003 (which approves the Rule for Certification) and Resolution 242/2000 (which approves the Regulation for Certification and Homologation), in addition to the specific rules for each type of product, constitute the regulatory framework for this subject. ANATEL is responsible for supervising the certification of telecommunications products.

For further information on this topic please contact Ricardo Barretto or Fabio Kujawski at Barretto Ferreira, Kujawski e Brancher Sociedade de Advogados by telephone (+55 11 3897 0300), fax (+55 11 3897 0330) or email (barretto@bkbg.com.br or kujawski@bkbg.com.br).