Page 42 - 2012 Annual Report

VIVENDI l 2012 l Annual Report 42
GROUP PROFILE – BUSINESSES – LITIGATION – RISK FACTORS 1
1
SECTION 2 - BUSINESSES
GVT
2.6.6. Regulatory Environment
GVT’s business is subject to comprehensive regulation under Brazilian
law. The adoption of new telecommunications service regulations and the
privatization of Telebras’ subsidiaries (the Brazilian government-owned
telecommunications operating companies) in 1998 led to broad changes
in the operating, regulatory and competitive environment for Brazilian
telecommunications. The Brazilian telecommunications regulatory
framework is constantly evolving.
Concessions to provide telecommunications services are solely granted by
ANATEL under a public service regime, while authorizations are granted
under private law only. Under the public service regime, concessionaries
are subject to obligations relating to quality, continuity of services,
universal services, network expansion, and are under the supervision
of ANATEL as regards the fees they charge. Under this regime, all
infrastructure, including network, systems or equipment, used to provide
STFC may be appropriated by the Brazilian government at the end of the
concession period, so that the State may continue to provide the relevant
services.
Under the private regime, authorized providers are not subject to the
universal service and continuity of service obligations. Therefore, if an
authorized company ceases to provide services, the federal government
is not under any obligation to continue to provide the services. There
are no restrictions on prices under this regime, and providers are only
subject to the general laws and principles that prohibit anti-competitive
cartel conduct. Under the private regime, the State is not permitted to
appropriate assets used for the provision of services.
Obligations relating to the quality of services, the interconnection and
compensation for the use of networks apply to telecom service providers
under both the public and the private regimes.
When GVT started operating in Region II, it was the first company under
the private regime to be authorized by ANATEL and to compete with the
already privatized incumbent, thereby transforming the existing monopoly
into a duopoly. In 2002/2003, GVT obtained STFC licenses to operate in
São Paulo, Rio de Janeiro and Belo Horizonte capitals. In November 2006,
the company received STFC licenses for Regions I and III, resulting in
nationwide coverage for all of Brazil. In December 2010, GVT received
a DTH (Direct to Home) license to broadcast TV by satellite technology.
Its position of alternative operator is a major competitive advantage,
indeed, GVT obtains favorable license terms. Unlike that of the
incumbents, GVT’s license terms are not subject to price caps or universal
service obligations, thereby enabling it to focus on network coverage and
marketing efforts within the most profitable geographic areas and towards
the most lucrative businesses and retail customers. GVT’s license terms
also allow it to manage its cash flow in an efficient manner as it is able
to target its expansion only in areas and cities that meet its very strict
financial criteria for return on investment and cash flow metrics and to
adjust its capital expenditure accordingly.
GVT currently operates under the following licenses, each covering all
of Brazil: local telephony, national and international long distance,
multimedia communication services (“Serviço de Comunicação
Multimídia – SCM”) and a DTH license for Pay-TV.
In March 2012, ANATEL approved the new regulation applicable to
Pay-TV services (called Service of Conditioned Access or “SeAC –
Serviço de Acesso Condicionado”), which consolidated the old regulations
relating to Pay-TV services, like MMDS, DTH, TVA and Cable TV into one
regulation. The SeAC is provided under the private regime and there are
not restrictions on the type of technology that is used. The ANATEL has
approved GVT’s request to migrate the DTH license to the SeAC.
2.6.7. Competition
In 2012, GVT faced intense competition from certain operators in Brazil
offering very competitive prices.
2.6.7.1. LONG DISTANCE TELEPHONY MARKET
GVT competes in the long distance market in two ways: acting as a local
carrier when serving its customer base and as a long distance provider for
non-GVT customers. As of December 31, 2012, its long distance market
share within its customer base was 82.5%. GVT does not intend to actively
compete with the incumbents in providing long distance services to their
local customer base due to the low margins generated by this service.
2.6.7.2. BROADBAND/ISP MARKET
In the broadband and Internet services market, there are a number of
competitors in addition to the incumbents. GVT’s primary competitor, after
Oi and Vivo (Telefonica), is NET. In addition, mobile phone companies
offer mobile broadband for fixed-line usage, although they are not able to
offer competitive services in terms of price and speed compared to GVT’s
fixed-line broadband. However, as the incumbents do not offer broadband
services in many areas and offer low-quality broadband services in
some areas, mobile broadband (3G and 3G+) is rapidly increasing in the
country. FTTH (Fiber to the Home) deployment is concentrated with Vivo
in São Paulo state and with Oi in Rio de Janeiro and Belo Horizonte cities.
2.6.7.3. PAY-TV
GVT has also started to compete with Sky and CLARO TV, Pay-TV services
which are based on DTH only. Sky has the highest share of DTH players
and a consistent premium position. Together with NET, it leads the
Brazilian Pay-TV market. Vivo and Oi are others important players in the
Brazilian Pay-TV market and both companies recently launched an IPTV
service in specific markets. GVT is the only company to offer the benefits
of interactivity, on demand services and Internet access in TV over the IP
network (IPTV) as well as satellite broadcasts in areas where it is present.