Challenges of new 5G operators in Brazil
The 5G auction was a success, with the current operators (Vivo, Claro, TIM and Algar) acquiring the frequency bands they need to offer quality 5G to the population and the victory of two new large groups, which acquired regional bands of 3.5 GHz (80 MHz) and intend to offer mobile services in retail:
Fundo Bordeaux, owned by Nelson Tanure, is the controller of Sercomtel, which acquired São Paulo and the North Region, and Copel, which acquired the South Region in a consortium with Unifique, with shares in the consortium of 37.23% and 62.77% respectively.
Cloud2u, which acquired the 3.5 GHz band in the region formed by the states of Rio de Janeiro, Minas Gerais and Espírito Santo, does not intend to operate in retail, but to offer wholesale services to other mobile operators and MVNOs. These are also the plans of Winity II (associated with the Pátria/Blackstone fund) which acquired the national band of 700 MHz.
After the auction, Brisanet and the Bordeaux/Unifique Fund will have to face major challenges in order to enable operations that can compete with current operators. The main ones are analyzed below.
Challenge 1: Coverage
This is one of the fundamental factors for a user to choose a mobile operator. These new operators will have to invest heavily in the areas they intend to operate by deploying their ERBs on the existing sites of infrastructure companies (Tower companies). This will not, however, be enough.
Measurements carried out by OpenSignal in cities where there is 5G indicate that a 5G user spends an average of 11% of the time connected to this 5G network. It will be mandatory for these operators to use the 4G services provided in wholesale by Winity II, which acquired the national band of 700 MHz. For this purpose, Winity II must accompany the roll out of these operators with 4G. For a long time 5G and 4G must go together. It should also be noted that the ideal is that the Winity II 4G network would be 4.5G, offering speeds closer to those offered by 5G.
Challenge 2: Service Quality
Brisanet and Fundo Bordeaux/Unifique acquired 80 MHz at 3.5 GHz, less than the 100 MHz acquired by current operators, which will therefore be able to offer higher speeds.
The issue of human resources also contributes to this challenge. 5G represents a major step in network software and requires professionals with profiles that are very different from those of fixed broadband providers.
Challenge 3: Achieve a volume of customers that makes the EBITDA margin positive
Achieving an operating balance with a positive EBITDA margin is the first step to have a profitable operation and stop losing money. Nextel, for example, couldn't do it.
This will require the company to have millions of customers in the base, which can take time. In addition to competition with current operators, the growth of the 5G base depends on the drop in the price of smartphones and the cleaning of the 3.5 GHz spectrum. It will take five years for this to happen in all municipalities with more than 30,000 inhabitants.
Challenge 4: Fulfillment of assumed commitments
Despite the small amount to be paid initially for the frequencies, these groups assumed service commitments that represent investments of R$ 3.4 billion for Brisanet and R$ 2.8 billion for the Bordeaux/Unifique Fund and must offer guarantees that will be withheld until they are fulfilled.
The challenges are great, but the success of these operators is important for the competitive framework of mobile services in Brazil.
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