Mobile Virtual Network Operators in Brazil

The Mobile Virtual Network Operators model has thrived in regions like Europe and North America but has taken a while to take off in Brazil, for a multitude of reasons.

It is now more than 7 years since the National Telecommunication Agency, Anatel, opened for MVNO operators to establish in Brazil. Initially there were high expectations within the Brazilian telecommunication industry for the new business opportunities around MVNOs in Brazil. The first Brazilian company to obtain a MVNO license publicly stated in 2011 that they expected to reach 16 million subscribers, and USD 1 billion in revenue within 5 years.

Initial expectations were not realised and although we have seen a real development in the Brazilian MVNO market over the last couple of years, it is still a market with only 1.4 million connections.

MVNO Regulation

The regulatory framework for MVNO operations in Brazil was established by Anatel through resolution number 550, published on 22nd November 2010.

Anatel established the MNVO regulatory framework with the intent to expand the number of operators in Brazil, with the goal to increase focus on operations of niche services.

The Anatel regulation foresees two types of MVNO operations:

Authorized MVNOs: Works as a telecommunication service provider authorised by Anatel, using existing structure and frequencies, able to work on regions not explored by hosting operators

Accredited MVNOs: Works as an operator representative with a contract homologated by Anatel, using existing networks, number ranges and interconnections, exempt from state taxation and able to retain its customer base in case they upgrade to become an authorised MVNO operator

The main difference between the two models is that an authorised MVNO can use an existing frequency and transmission systems from the host-operator but needs to provide all other structure beyond that, whereas accredited MVNOs can use all the structure of either the host-operator or the authorised MVNO and end up working as a seller of existing services, with possible additions of new characteristics to reach other markets.

License Holders

There is limited aggregated information available on the status of authorised and accredited MVNO licenses issued by Anatel. We are summarising the public information available by Anatel and press clippings from Brazilian media below:

Active authorised MVNOs:

• Porto Seguro Conecta, confirmed by Anatel
• EuTV, confirmed by Anatel
• Datora Telecom, confirmed by Anatel
• Vecto Mobile, press reporting

Active accredited MVNOs:

• Movttel
• Correios
• Veek Telecom
• Always Tecnologia
• British Telecom
• FoneLight

Authorised or accredited but inactive:

• Terapar
• Virgin Mobile

MVNO Market Shares

Anatel statistics from Q4 2017 shows that MVNOs combined only accounted for 0.33% of the overall Brazilian mobile connections. The top three providers with authorised licenses from Anatel are:

1. Porto Seguro Conecta with 562 520 connections
2. Datora with 201 182 connections
3. EuTV with 17 269 connections

The total number of mobile connections in Brazil reached 236.5 million in Q4 2017, so the market share held by MVNOs in Brazil is behind most other countries. In comparison, in the Netherlands and Germany MVNOs hold market shares of around 40%.

Of the authorised MVNOs, only Porto Seguro Conecta sells telecommunications services under their own brand to consumers. Datora and EuTV are both positioning themselves as Mobile Virtual Network Aggregators or Mobile Virtual Network Enablers that provide services to accredited MVNOs.

When it comes to M2M connections, the MVNOs hold a larger market share. There are only two MVNOs that Anatel currently are reporting M2M connections for, and the data is as follows:

1. Porto Seguro Conecta with 429 256 connections
2. Datora with 194 742 connections

Considering that there are 15.2 million M2M connections in Brazil, the MVNOs account for a market share of 4.1% of the total Brazilian M2M market.

MVNO Host-operator

There are currently only two MVNO host-operators in Brazil with national coverage. The two MVNO host-operators are Vivo and TIM, with the following distribution of MVNO agreements:

TIM

• Porto Seguro Conecta
• Datora
• EuTV
• Correios
• Veek
• British Telecom
• FoneLight
• America Net

Vivo

• Movttel
• Mais AD
• Mais ADSA
• Mais Parceiros de Deus
• +Smartimão

In addition to these, Algar Telecom operates as a MVNO host-operator for Vecto Mobile through its subsidiary CTBC. CTBC was also the MVNO host-operator for the pilot of Terapar in 2012.

MVNO Market Players

Porto Seguro Conecta

This MVNO was the second company to receive a MVNO authorisation from Anatel in November 2011.

Porto Seguro Conecta commenced operations in 2012 utilising TIM as host-operator to provide M2M automotive tracking services to its parent company, the Brazilian insurance giant Porto Seguro. The MVNO currently offers cellular data services in limited geographic locations, serving as an operator authorised by Anatel.

As of Q4 2017, Porto Seguro Conecta has 562 520 active mobile connections, and 429 256 M2M connections, according to data published by Anatel. In addition to traditional telecommunication services, their VAS offering includes insurance related specialties that work in conjunction with Porto Seguro's line of benefits, such as device tracking and delivery of cell phones forgotten at home.

Porto Seguro Conecta's operation was started with Datora as MVNE but today the company have their own in-house customer service while their technical platform is delivered by Ericsson.

Datora / Vodafone

The Datora Group is a Brazilian company that was established in 1992 and was previously known as Sermatel. Datora Telecom was the first MVNO to be authorised in Brazil and the Datora group is one of the driving forces in the Brazilian MVNO market.

Early on, Datora Telecom focused on becoming a Mobile Virtual Network Aggregator, or a Mobile Virtual Network Enabler for MVNOs and was the original MVNE for Porto Seguro's venture into the MVNO market. When announcing their service in 2011, the Datora CEO, Wilson Otero, had expectations to reach 16 million subscribers and USD 1 billion in revenue within 5 years. Datora never managed to capitalise on the expected market opportunity. As of 2016, the combined Datora and Porto Seguro only reached 5.5% of their predictions from 5 years earlier.

Datora Mobile was established in 2013 as the operative entity for Datora Telecom's MVNO license. Right after being established, Datora Mobile entered a 10 year strategic agreement with Vodafone where Datora Mobile became an integrated part of the Vodafone global M2M and IoT platform. The original announcement described a rebranding of Datora Mobile to Vodafone Brasil and while the company formally have included Vodafone as a optional brand name in their Articles of Association, the company is still best known in Brazil as Datora Mobile.

While the structure of the agreement between Datora Mobile and Vodafone has not been published, Vodafone does not currently have any ownership in Datora Mobile. Datora Mobile is paying substantial fees to Vodafone, reaching BRL 8.5 million in 2015, being slightly reduced to BRL 4.19 million in 2016.

Over the last few years Datora Mobile have raised BRL 51 million in funding from Codemig, a government controlled investment fund intended to develop the state of Minas Gerais. Datora Mobile’s revenue in 2016 was BRL 19.42 million, with the majority of their revenue coming from mobile data for M2M communications.

Datora Mobile have used Microsiga for their ERP system but is migrating to SAP while ZTE is their provider for the mobile platform. The capacity of their current infrastructure is 2 million connected SIM cards.

British Telecom

British Telecom received approval as an accredited MVNO in Brazil by Anatel in July 2016. The approval is based on British Telecom using Datora Mobile as a MVNE.

British Telecom have been in the Brazilian market for many years and it is expected that the MVNO license will only be used to support their existing corporate clients in Brazil with their M2M communication needs.

FoneLight / NetLight

Towards the end of 2017 FoneLight received approval as an accredited MVNO by Anatel. FoneLight is a traditional Anatel licensed provider of satellite TV and broadband services that sells their triple play services to consumers under the brand NetLight.

FoneLight's MNVO service is based on Datora as a MVNE, but the company have not published any information about go-to-market strategies. As of the beginning of 2018 they begun commercialising the MVNO services.

EuTV / Surf Telecom

EuTV received their license as an authorised MVNO from Anatel in September 2015. They are offering MVNE and MVNA services under the brand Surf Telecom.

Surf Telecom is actively approaching the market to offer MVNE services, meaning that their formal strategy is not to acquire final customers but only act as an enabler for MVNOs.

For national host-provider, EuTV keeps an agreement with operator TIM. In addition to offering traditional MVNE services through a host-provider, EuTV is also exploring opportunities with their own frequencies. For the city of São Paulo, EuTV won an auction for a 2.6 GHz band license intended for 4G services.

Their current list of MVNO clients includes:

• Correios
• Veek Telecom
• Always Tecnologia

Correios

The Brazilian mail service started sales of their own SIM cards in March 2017. The initial sales were limited to selected postal agencies in São Paulo city.

Correios does not appear as an MVNO provider in the official Anatel statistics and have no mandate to make investments into MVNO infrastructure so it is unclear what the formal status of their operation is, but it is reasonable to assume they have a license as an accredited MVNO.

EuTV won the public tender to provide MVNE services to Correios in May 2016. Due to the public nature of the tender, we know that EuTV won the agreement under the following conditions:

• BRL 4.50 per SIM card provided to Correios (sold for BRL 10 to consumers)
• 9% commission to Correios for pre-paid credit sold at their agencies
• 2.6% commission to Correios for pre-paid credit sold online

Just like other MVNO operations, the expectations were high at launch. Guilherme Campos, the President of Correios, said in March 2017 that they expected 500 000 subscribers by the end of the year and 8 million subscribers within 5 years. Assuming that the entire connection base reported by Anatel under EuTV actually belongs to Correios, they reached 17 269 connections by the end of 2017, just 3.5% of their original goal.

Veek Telecom

Just like Correios, Veek Telecom does not appear as an MVNO provider in the official Anatel statistics and there is no formal trace of a MVNO license for this entity. In press coverage they refer to their status as an accredited MVNO.

Veek Telecom was created by Alberto Blanco, a marketing executive that is exploring the opportunity of establishing a Multi Level Marketing based telecom service provider for young people. The service have a sleek interface and a 100% digital profile that attract their target audience.

The marketing and reward structure Veek have established is described on their own page as: Veek will grant Veekers, in Veekcoins, up to 4% of the overall volume of the top up credits refilled by users up to the third level, every month. This percentage will be divided into three levels: for the first level, that is users linked directly to the Veeker, the percentage is 1%; for the second level, the percentage will be 1,3%; and for the third level, the percentage will be 1.7%.

Always Tecnologia / Igreja da Fé

In July 2016 Always Tecnologia which is the technology arm of the church Igreja da Fé, received approval as an accredited MVNO in Brazil by Anatel. The approval is based on Always Tecnologia using EuTV as a MVNE.

It is unclear if Always Tecnologia / Igreja da Fé have started commercialising their MVNO service yet.

Movttel / Mais AD

Since 2015 Movttel have worked as an MVNE in Brazil, but unlike the other MVNEs, Movttel has a license as an accredited MVNO based on a host-operator agreement with Vivo.

Initially Movttel targeted the religious niche but have later ventured into other brands. In 2017, they launched the MVNO operation for Brazil's second largest football team named Corinthians.

As of December 2017, Movttel is administrating four different MVNO brands:

• Mais AD for Assembleia de Deus
• Mais ADSA for Assembleia de Deus, Ministério em Santo Amaro
• Mais Parceiros de Deus for Sara Nossa Terra
• +Smartimão for Corinthians

The legal separation and license situation for each of these 4 brands is unclear, as there is limited information published by Anatel for MVNOs with their accredited status. We know that the following companies and brands are associated or related to the same MVNO group:

• Mais AD Credenciada de Telefonia Móvel S.A
• Alô Serviços Telefonia Móvel SA
• Movttel Participações S/A
• Mais Chip Telecom

Mais AD was the first attempt for Movttel to establish a foothold in the Brazilian MVNO market. Press reportings suggests that Movttel owns half of Mais AD while the church Assembleia de Deus owns the other half. At the launch in 2015, Raul Aguirre, the president of Mais AD, expected 1 million subscribers within 12 months. Although we do not have official Anatel subscriber numbers for Mais AD, it is unlikely that they ever reached their initial goals, as Movttel reported to the press that in 2016 they issued 100 000 SIM cards across their different brands.

The go-to-market strategy for Mais AD was trying to clone successful cosmetics brands in Brazil, with a small management of 7 people, 45 sales executives, and 400 voluntary collaborators from the church that sell the Mais AD mobile services from door-to-door.

Vecto Mobile

Vecto Mobile received their license as an authorised MVNO from Anatel in August 2017. In their marketing materials they communicated to be the first MVNO to focus on M2M and IoT in Brazil.

As host-operator, Vecto Mobile is using the regional operator CTBC owned by Algar Telecom. CTBC own networks in Minas Gerais, rural areas of São Paulo state and in a few other rural states. CTBC only have license to commercialise services in the areas where they have network coverage, but can provide services for their customers in the rest of the country through roaming agreements.

Vecto Mobile's competitor Datora Mobile / Vodafone has raised questions about the Vecto Mobile's national reach and if they can sell services throughout Brazil. The question raised is, if a MVNO that uses a regional host-operator can commercialise services beyond the area where the host-operator is licensed to commercialise their services.

America Net

America Net is a well established Brazilian telecommunication company that is targeting the corporate market segment. Their strength is within data service, voice services and last mile infrastructure.

In 2016 America Net received an MVNO license with TIM as host-operator with launch plans for Q1 2018.

Defunct MVNO Operations

Sisteer: This French Mobile Virtual Network Enabler gained authorisation to work as a MVNO by Anatel in 2011 with TIM as host-operator. In 2013 they signed a multi-year contract with Vivo as host-operator but have never started operations in Brazil.

Terapar: Ran a pilot with CTBC as host-operator but as of March 2017 they no longer have active connections according to data published by Anatel.

TESA Telecom: Ran a pilot with Algar Telecom in 2012 with only 100 SIM cards. There is no evidence that the project moved forward beyond the pilot.

Vonage: The global VOIP company Vonage announced in 2013 a MVNO and VoIP partnership with Datora. It seems like the partnership did not move forward as Vonage announced they would close down their Brazilian operation at the end of 2014.

New players in the MVNO market

Some companies have announced interest in entering the Brazilian MVNO market and are at different stages of starting their activity in the country. These new players include:

T-Systems: T-Systems have announced that they will launch a MVNO based IoT platform in Brazil in 2018. Reports suggest that they will be using Claro as host-operator. If the project is realised it will be the first MVNO using Claro as host-operator.

Virgin Mobile: The subsidiary for Latin American operations of the British conglomerate that has already experienced success in launching its services in Chile and Colombia. In 2012 the reports were that they had entered a partnership agreement with Datora for the Brazilian market but the service never launched.

In May 2014, Virgin Mobile received approval by Anatel to start activities as an authorised MVNO with Vivo as the host-operator and without leveraging Datora as a MVNE. The plans seemed solid as Phil Wallace, Head of Latin America for Virgin Mobile stated that they would start operations after carnival 2015. They did not launch in 2015, and have not made any new announcements yet regarding the Brazilian market.

Market Strategies

While the barrier to entering the market is rather low, it is difficult to identify a clear path to sustainable financial success in the Brazilian MVNO market. Worldwide, it is estimated that as few as 20% of new MVNOs make it past initial phases.

Brazil has experienced a decade of aggressive pricing competition between the four dominating MNOs. The competition have benefited consumers and expanded the overall market for telecommunication services, while simultaneously driving down the ARPU for operators.

The low ARPU means that there is not much margin left for MVNOs to turn profitable. The main focus for a new MVNO must be around lowering the churn rate and having a reduced customer acquisition cost compared to existing MNOs.

Outside Brazil, the most successful MVNOs have focused on cost efficient operational models to gain the low-cost play position which require a higher market share to make it all work.

Improved Churn Rate

In 2017 the largest Brazilian MNOs reported a churn rate of between 40 and 50% annually.

Although the MNOs only report national churn rates, it is reasonable to believe that the churn rate is higher than average in metropolitan areas. A significant portion of Brazilian telecommunication service consumers are still living in rural areas only covered by one or two operators, limiting the option to even change operators.

Consumers of telecommunication services in Brazil do not only have limited loyalty to their MNOs, but also a limited affiliation to their phone number, something that further reduces friction when changing providers. Considering the current churn rate reported, there are more than 100 million mobile subscriptions terminated every year. Data published by ABR Telecom, The Brazilian Association of Telecommunications Resources shows that less than 27 million mobile phone numbers were ported between operators in 2017.

Churn rate is something that should be easy to improve, especially for organisations with established brand loyalty or affiliations.

ARPU - Average Revenue per User

The largest MNOs in Brazil reported an ARPU of around BRL 15 per month for pre-paid and close to BRL 3 per month for M2M connections in 2017. Realistically, the revenue potential for a large scale pure-play MVNO in Brazil is limited to about double that of a traditional MNO reseller.

In marketing directed towards potential MVNO partners, the MVNE EuTV / Surf Telecom present revenue cases with an ARPU of BRL 40 per month. This is a plausible case for a smaller subset of consumers and especially in the post-paid segment, but on a larger scale pure-play MVNOs must be prepared to compete within an environment with very slim margins.

A significant portion of the new MVNOs are targeting M2M communication. The ARPU reported by the MNOs in this market segment is very low, however this is not necessarily a bad thing. The low ARPU by MNOs can also also indicate that the Brazilian MNOs have not managed to create attractive M2M services which the market is willing to pay a premium for.

Market Outlook

With their existing positioning and pricing strategy the established MNOs have closed the opportunity for MVNOs to establish a dominant position as low-cost players. It is therefore unlikely that even large and successful international MVNOs like Virgin Mobile will be able to find a viable business case for entering the Brazilian market by copying their success from Europe and the US.

In order to enter the Brazilian market, a MVNO needs to develop a business model that is uniquely designed to thrive in an existing low-cost telecommunication market. However, it is difficult to identify clear gaps in the low and high-end sectors of the Brazilian telecommunication market. Value propositions like Project Fi from Google might find a niche audience of frequent travellers and high-end consumers with multiple mobile devices.

Regulation of Permanent Roaming

There are discussions in Brazil about how permanent roaming in equipment that utilise M2M communication should be regulated.

As we stand today, if a Brazilian MNO establishes a relationship with a foreign MNO for roaming, it is possible to issue a SIM card outside of Brazil and embed it in equipment that is being exported to Brazil. This SIM will utilise the Brazilian mobile network but will not be included in the base for the MNOs payment of Brazilian taxes related to connecting to the mobile network like Fistel, Fust and Funttel.

If Anatel limits the option for permanent roaming, it is likely that international MNOs that focus on M2M communication will be compelled to establish presence in Brazil through the establishment of a MVNO operation, targeting non-Brazilian M2M equipment manufacturers.

Non-Profit Operation

It is natural to look at MVNO through the frame of a commercial operation, however with the introduction of Mais AD from the religious organisation "Assembleia de Deus" and Always from the religious organisation "Igreja da Fé" it is necessary to look closely at the non-commercial goals of their operations.

Religious organisations in Brazil are massive in size but have limited knowledge on a centralised level about their followers. Most churches are operating in a decentralised manner and in most cases without a formalised registration system.

There are several intrinsic benefits for religious organisations that choose to establish a MVNO. They have an established sales channel and brand loyalty, meaning that the cost of customer acquisition and churn rate will be low. Equally important is their ability to establish a formalised and centralised communication channel directly with their followers. This sort of motivation cannot be underestimated when analysing the larger MVNO market space and possible new niche providers that will enter the market.