Vivo's Alternatives to 3G
The Brand Equity "Vivo" was born in the beggining of 2003 as a joint venture: Telefonica and Portugal Telecom in Brazil. In March 2003, Vivo had 17 millions cellulars and 47,1% of market share.
Three years later, the Brand Vivo became a company ( Vivo Participations), consolidating operations that used its Brand. In March 2006, Vivo had 30 millions cellulars and 33,7% of market share.
During these 3 years, Vivo followed a different way from the other cellular operators in Brazil. It chose CDMA technology, while the others operators chose GSM. The option for CDMA got a lower investment ( CAPEX) but had a difficult time to obtain national coverage.
The higher cost of CDMA cellular phones, in relation to GSM phones, also limited Vivo's competitive with which grew less than the others operators at that period of time.
At the moment Vivo is living a new technology transition to the 3rd Generation (3G) having two alternatives:
- Continue the current option (CDMA/EVDO)
- Deploy an "overlay" GSM/WCDMA.
The option for CDMA/EVDO is clearly advantageous when it considers just the investments in network CAPEX. EVDO is an extension of CDMA network.
The situation changes, although, when considers it all. In March 2006, Vivo had 24.8 millions CDMA cellulars, 5.3 millions TDMA and less than 100 thousand AMPS. Significant part of these Cellulars, mainly those ones with higher ARPU, will have to be swapt by 3G cellular phones.The tedency is, as occurred to GSM cellulars, the WCDMA Cellular phones cost less than EVDO for a reason of world scale. In a short time, the possibility of having GSM network would still open to Vivo the possibility of offering cheaper phones ( or with less subsidy) and national GSM roaming.
In general the economy reached in the handset subsidy the option GSM/WCDM can compensate the higher net investment demanded by this alternative.
It is against the option CDMA/EVDO the fact that this technology is adopted by Telefonica just in Brazil and Venezuela. In other Latin America countries and Europe, the standard is GSM or GSM/WCDMA.
Vivo has shown to hurry in the deployment of 3G than the others operators. One of the reasons is the need of getting new frequencies to reach national covering. The other is the lower growth of cellulars and operator revenue, shown by Vivo's results in the 1st quarter of 2006 ( 1Q06), When:
- The number of cellulars increased 11,8% ( in the last 12 months) while Brazil grew 30,2%. Keeping this tendency, Vivo must finish 2006 with an annual growth under 10%.
- The net revenue of services fell 1,3% in the 1Q06 in relation to 1Q05. Vivo's revenue share fell 36,2% (1Q05) to 34,3% (1Q06).
This fact has affected negatively the value of Vivo's shares in Bovespa ( São Paulo's stock exchange). Vivo's market value in may 2006 was R$ 10,6 billions and Tim (R$ 14,3 billions).
Vivo's goes through a similar situation comparing to the others operators in saturated markets. When the number of cellulars increase less than 10%, the revenue gets down because of the competition. New services, non-voice, appears as option to increase the revenue of these operators that starts to think of 3G.
Whichever will be Vivo's option, the company is prepared to the deployment of 3G in Brazil.
Look at these questions and think:
- What is the best 3G technology alternative to Vivo? Which will be Vivo's option ?
- Will Vivo get new authorizations/ buy companies to reach national coverage?
- Will Telefonica get Portugal Telecom's participation in Vivo? How this possibility affects the technology option?
- What will be the market reaction with Vivo's decision of deploy GSM/WCDMA? What will be Tim and Claro's reaction? Would have some change of Vivo's network cellulars suppliers?
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