Convergence in Brazil: Content, Not Infra-Structure, Will be the Sticking Point

The convergence of the media and telecommunications industries came sharply into focus in the second half of 2006 in Brazil after Telemar and Telefônica moved to provide paid video service in their respective concession regions.  Far from shying away from a judicial battle, Brazil’s telecommunications operators made these moves with the expectation that they would be contested in court and that the resulting decisions will clarify their ability to provide pay TV services.  Pyramid Research expects a resolution borrowing from both the Chilean and Mexican convergence cases, resulting in further consolidation of the pay-TV market and the entrance of fixed operators into the video sector.  However, the acquisition of premium pay-TV content may prove more difficult, and as a result fixed operators will have strong incentives to offer cut-rate pay TV plans.

Telemar and Telefônica Force the Issue

Rather than waiting for a bureaucratic evolution of the convergence discussion, Telemar and Telefônica have taken steps to establish their presence in the provision of video services.  Telemar purchased cable operator Way Brasil in July 2006, sparking the debate.  However, it was Telefônica’s subsequent purchase of a non-controlling participation in TVA and, more significantly, its launch of DTH services through a partnership with Astralsat in the state of São Paulo that really served as a catalyst for the convergence debate in Brazil.  Telefônica’s move counteracted Net Serviços’ increased dominance of the cable industry after Brazil’s largest cable multi-service operator (MSO) purchased Vivax in October.  Net Serviços is controlled by Brazil’s leading media conglomerate, Rede Globo, and by Grupo Carso, owners of regional telecommunications behemoths Telmex and América Móvil.