Telecommunications innovation system:
development, impacts of the structural
changes and perspectives
Marina Szapiro
Associate Researcher of RedeSist, Economics Institute,
Federal University of Rio de Janeiro, Brazil
II International Workshop of the BRICS Project
April 26, 2007
Structure and objectives
• To present the development of the Brazilian
telecommunications innovation system
• To discuss the main features of the
telecommunications restructuring process and
its impacts on the innovation system
• To discuss the future perspectives of the
telecommunications innovation system in the
context of the new organization of the
telecommunications industry.
Brazilian telecom innovation system:
main policy measures
• Political context: military government and II National
Development Plan (PND)
• Creation of Embratel (1965), Telebrás (1972) and
CPqD (1976).
• Specific policy measures to foster the local industrial
and technological development
• Governmental procurement power
– to promote homogenization both technical and of equipment
specifications
– to enhance the development of domestic technology and national
telecoms equipment companies as well
• Funding of the system based on the National
Telecommunications Fund (FNT) - a tariff of 30% on
all telecommunications services
Brazilian telecom innovation system
(From the 1980s to mid 1990s)
Operating
Companies
demands
demands
Public policies
Minicom and Telebrás
products
Industry
CPqD
technology
joint projects
University and
Industry
Source: Szapiro, 1999
Brazilian telecom innovation system:
main achievements
• Establishment of a network of local suppliers (120
local firms responsible for 17% of the market in
1982)
• Gradual involvement of multinational subsidiaries in
the process of innovation and technological capability
development
• Local development of key technologies for the
telecom system expansion (optical fibre, Trópico
digital switching systems, induction-loop phone card)
• Reduction in the investment costs of building the
Brazilian telecom network
• Development and qualification of Human Resources
Challenges faced by the telecom
innovation system in the beginning of
the 90s
• Funding problems (low tariffs and
international restrictions)
• Scarcity of telephone lines
• Speed up of technological changes in the
telecommunications sector, diffusion of
microelectronics and convergence between
telecom and informatics
The Context and Impacts of
Telecommunications Restructuring Process
• Trade liberalization of the beginning of 90s,
Liberalisation process (1995) and Telebrás’
fragmentation and privatisation (1998)
– Increase in the participation of multinational
subsidiaries on the telecom equipment
industry
– Increase in investments: growth of the
number of fixed and mobile lines
– Entrance of new multinational operators:
internationalization of the supply of services
in Brazil
Reorganization of the
Telebrás system - 1998
Region I
Tele Norte Leste
5.642 million fixed
lines
73% digitalisation
37,000 employees
39% of GDP
54% of population
US$ 2,949 million
Region II
Tele Centro Sul
3.694 million fixed
lines
69% digitalisation
19,000 employees
25% of GDP
24% of population
US$ 1,778 million
Source: author’s elaboration
Region III
Telesp
5.074 million fixed
lines
75% digitalisation
24,000 employees
36% of GDP
22% of population
US$ 4,967 million
Main Results of the Telecommunications
Restructuring Process on the segment of
services
• Rapid increase in the number of fixed and mobile services until
2001 – universalization goals
• From 2001 on: stagnation of the number of fixed lines
– International and general trend; and
– Migration of fixed line subscribers to pre-paid mobile services (80% of the
total number of mobile lines)
• Few telecom operators supplying telecom services in different
segments – low competition on fixed services, oligopoly in the mobile
segment, and competition on the long distance services
–
–
–
–
–
Telefonica/Vivo
Telmex/América Móvil (Embratel/Claro)
Brasil Telecom
Oi/Telemar
TIM
• Main focus of Telefonica, Telemar/Oi and Brasil Telecom: still
fixed and broadband services
• Integration of fixed and mobile services
• Triple play (voice, data and video)
Evolution of fix and mobile phones 19942006
120
80
fixed phones in service
60
mobile phones
40
20
0
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
million of phones
100
year
Source: www.teleco.com.br
General data about the Brazilian
telecommunications market
(in million of units)
Brazil
Fixed telephones
Mobile telephones
Pay TV subscribers
Internet subscribers
Broadband Internet
Source: www.teleco.com.br
2003
39,2
46,4
3,5
20,5
1,2
2004
39,6
65,6
3,8
17,9
2,3
2005
39,6
86,2
4,2
18,9
3,8
2006
38,5
99,9
4,6
22,1
5,6
Gross Revenue of the main
telecom operators in Brazil
US$ billion
Gross revenue
Telefonica/Vivo
18,1
Telemar/Oi
América
Móvil/Telmex
Brasil Telecom
Tim
Source: www.teleco.com.br
12,0
12,0
7,5
6,9
Impacts of Telecommunications Restructuring
Process
on the innovation system
– Disarticulation of the innovation system
• Privatisation of CPqD, uncertainty and change
of role in the system
• Increase in technology imports
• Decrease of the use of national technology
– Entrance of new equipment suppliers
– Increase in imports of telecom equipment
and acquisition of dynamic nationally
owned firms by MNCs subsidiaries
Impacts on the innovation systemDenationalization of the equipment industry
Year
1988
Market share of 77%
the
nationally
owned firms
Market share of 23%
the foreign firms
1997
41,5%
2000
8,7%
2003
4,3%
58,5%
91,3%
95,7%
Source: Oliva, 2002 and Szapiro, 2005
Impacts on the innovation system - Increase in
telecommunications imports of components,
parts, pieces and final products
6.000,00
4.000,00
Imports
2.000,00
Exports
0,00
Trade balance
-2.000,00
-4.000,00
1996 1997 1998 1999 2000 2001 2002 2003 2004
Imports
Exports
2.087 2.752 2.682 2.710 3.434 3.752 1.510 1.482 2.306
154
288
330
494 1.311 1.551 1.547 1.548 1.452
Trade balance -1.93 -2.46 -2.35 -2.21 -2.12 -2.20 36,5 65,5 -855
Source: Szapiro, 2005
Innovation in the equipment
industry (Pintec)
• Reduction of the number of innovative firms
from 167 in 2000 to 136 em 2003 (although the
number of firms in the segment has increased in
the period)
• Reduction of the innovation rate from 2000 to
2003: 56% to 44%
• Investment reduction in innovative activities
from 2000 to 2003: 4,97% to 4,25%
• Investment reduction in internal R&D activities
from 2000 to 2003: 1,75% to 1,30%
Main results of telecom restructuring strategies
from the point of view of the innovation system
– Privatization: Maximization of the entrance of
foreign capital
– Entrance of multinational telecom operators
and denationalization of the equipment industry
– Uncertainty/change of role of the R&D telecom
laboratory
– Weakening and disarticulation of Brazilian
telecom IS
Organization of the “old”
telecommunications Industry
• Monopoly in the supply of services and oligopoly in
the equipment industry
– Vertical integration in the USA;
– “national championship” policy in the developing
countries;
– Developing countries that created a domestic
telecom equipment industry (Brazil)
• High level of interference of the government in the
telecommunications strategic decisions
• Concentration of the R&D activities in the services
operators laboratories
Organization of the “new”
telecommunications Industry
• Oligopoly in the services supply
• Concentration of the R&D activities in the big telecom
equipment industry
• Some new “entrants operators” entering the telecom
market with low R&D efforts
• International incumbents maintaining sigficative R&D
investment
• Importance of the role of the state on the strategic
decisions of the sector (for developing and developed
countries)
• Growing internationalization of the services market in
developing countries (especially in Latin America)
Perspectives of the telecom
innovation system
• Funttel (Telecommunications Technological
Development Fund): problems of continuity
• Fust (Universalization of Telecommunications
Services Fund): problems of operation
• Definition of the Digital TV pattern
• Universalization of broadband access:
“window of opportunity” for the development
of WiMax technology?
Perspectives of the telecom innovation system
- Definition of the Digital TV pattern
• Creation of a Brazilian Digital Television
System based on the Japanese pattern
– Development of a research program
involving CPqD (as the coordinator) and
research institutes and universities
– Funding: Finep with the resources of
Funttel
– Opportunities of development of softwares,
middlewares, set-up-boxes, audiovisual
content
Perspectives of the telecom innovation system
– Universalization of broadband internet access
• Governmental initiatives to promote the
universalization of broadband internet access to
schools and hospitals in many parts of Brazil
• Use of this opportunity to foster the local
development of technological and industrial
capabilities
• Procurement power as a strong policy instrument
• Window of opportunity for the development of fix
WiMax technology and production of Radio Base
Stations and Customer Premises Equipment (CPEs)