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Going mobile.

Brasil Telecom would seem to be in the pink. It provides telephone service to close to a quarter, by population, of Latin America's biggest country. Yet the former arm of state-owned Telebras now faces decisions on two fronts: Brazilian telecom regulator Anatel at press time said the company can enter wireless markets, and that Italy's Telecom Italia, once in Brasil Telecom's control group, might have a say in how its former investment is run. Brasil Telecom CEO Carla Cico spoke with LATIN TRADE Correspondent Michael Kepp in Rio de Janeiro.

Is Brasil Telecom changing its business plan to take advantage of growth potential in the mobile market? No, the reason we feet mobile operations are important to us is because we will be able to offer another product to our customers. Our goal is not to become the largest mobile operator but, first and foremost, to defend our market, Nearly all of the mobile subscribers in our region are among Brasil Telecom's 10 million fixed-line clients. Therefore, why should I give these clients' mobile needs to the competition? If I can. especially for corporations, offer a full line of fixed and wireless products, this will protect my market.

Isn't it true that the fixed-line market is saturated?

Yes. today Brazil has an average [fixed-line] penetration rate that is much higher than most Third World countries, one that is more similar to First World countries. But there is still a lot opportunity to explore. There is broadband, Internet protocol, all the value-added services. Of course, there is some migration from fixed to mobile, but this is not why we want to get into mobile. I believe there is space for growth in fixed-line operations, but via the backbone of the telecom system.

Will having both fixed and mobile operations in overlapping areas create operational synergies, like reduced interconnection costs?

Yes we will have some synergies from an operational, as well as an administrative, point of view. We can take advantage of our client base to offer mobile services. There are call centers, information technology, platform systems and customer-services synergies. There are also interconnection-cost synergies. But this type of synergy is common worldwide. If you look around the world, there is only one big global wireless operator that has no link with fixed-line companies, and that is Vodafone. All the other big mobile operators are linked to fixed-line operators.

What is your launch date and growth target for mobile service?

We expect to immediately do a soft launch and to go into full commercial operation in the beginning of the second quarter of 2004, Our growth targets are to have 1 million subscribers after 13 months of operation and to by end 2005, have made capital expenditures of up to US$300 million.

Brasil Telecom now has the right to begin mobile operations. Will it target higher-income postpaid subscribers of lower-income prepaid ones to grow?

In the first phase, we will be targeting our top corporate clients but of course we will also be interested in lower-end subscribers for the simple reason that you can't dismiss that there is a market there too. If we only rely on our top clients we won't we able able to fully exploit the return on our investment.

Why are you concerned over Telecom Italia's desire to rejoin the Brasil Telecom control group?

In the last five years, we have witnessed the abuse of power by Telecom Italia against the best interests of Brasil Telecom and this is why we've filed law-suits against Telecom Italia asking for indemnities resulting from this abuse of power. In February 2001, when the first bid for mobile licenses took place and Telecom Italia was on the board of Brasil Telecom, Brasil Telecom wanted to participate in the bid, But Telecom Italia put so many conditions on Brasil Telecom's taking part in the bid that Brasil Telecom felt too uncomfortable to participate. At the same time, TIM [Telecom Italia's mobile unit] took part and won a license. So here we clearly have a conflict of interest.

Doesn't Telecom Italia have a right to buy back in?

As for the shareholders agreement between [investment fund] Opportunity and Telecom Italia, for the latter to be able to rejoin the control group, this is an issue between two private shareholders of Brasil Telecom, and not an issue for Brasil Telecom.
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Title Annotation:Telecom Report
Author:Kepp, Michael
Publication:Latin Trade
Geographic Code:3BRAZ
Date:Mar 1, 2004
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