Brazil Pay TV Faces Regulatory Humps

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Sao Paulo, Brazil -- Many of Brazil's newcable-license holders are facing delays in their start-up businesses while awaiting newregulatory guidelines, executives said last week at Brazil's annual pay TV conferencehere, ABTA '99.

The country's telecommunications regulator, theNational Telecommunications Agency (Anatel), is slated to produce guidelines coveringso-called pole agreements any day now. These agreements address the cost of renting polesfrom local electric utilities to run cable from household to household.

Anatel is drawing up the rules in conjunction withBrazil's utility regulator, the National Electrical Energy Agency (Aneel).

Awaiting this ruling has frustrated cable licensees, manyof which have not been able to complete an important part of their build-outs.Pole-attachment agreements have also been a problem for operators in other countries, suchas Japan.

"Some [cable] operators have stated that they have notbeen able to negotiate pole agreements until the regulations are out," said AlexandreAnnenberg, president of cable trade group the Brazilian Association of SubscriptionTelecommunications (ABTA). Annenberg is also responsible for licensing activities at TVA,Brazil's No. 2 MSO.

Still, he credited Anatel for the"professionalism" and "transparency" with which it is managing the payTV franchise-licensing process: This year, it's slated to issue a total of 500licenses for cable and multichannel-multipoint-distribution-service franchises.

As Brazil continues to award the licenses, operators areaiming to get the new businesses up and running as soon as possible, especially inoverbuild areas. The wait for the pole-attachment ruling has little effect on wirelesscable companies.

Many of the new licensees are required to begin commercialoperations by the middle of next year, and they could face fines if they do not do so.

"We're waiting for the pole-attachmentagreements," said Andy McColm, president and CEO of Canbras/TVA, a partnershipbetween Bell Canada International and TVA that owns existing franchises and new licenseareas. "Once we get those, we can be up-and-running pretty quickly."

Anatel and Aneel cannot fix the monthly cost of rentingpoles, which must be done between the pay TV licensees and the utility companies.

The average cost of renting a pole stands at $2 per month-- a figure that can add up to about 3 percent of a cable company's gross revenue,Annenberg said. He argued that these costs are far too high for start-up businesses thatface a tough financial environment.

ABTA has recommended monthly rates of about 50 cents perpole, and it is arguing strongly against proposals by electricity companies for some kindof revenue-sharing arrangement between them and cable operators that use theinfrastructure. Annenberg called this last suggestion "unacceptable."

Anatel has other issues on its plate: It has said that onNov. 4, it will permit cable companies to offer bidirectional Internet traffic over theirnetworks.

The main beneficiary of this ruling will be Brazil'sleading cable company, Globo Cabo S.A. The operator plans the commercial launch of itstwo-way Internet service, Virtua, as soon as it gets the regulatory OK.

Currently, Anatel only allows one-way traffic, whichprompted Globo Cabo rival TVA to go ahead earlier this year with the launch of its ownhigh-speed Internet service, Ajato. Since its July launch, Ajato, a one-way service, hasattracted about 1,200 subscribers, according to TVA.

Despite the regulatory wait, most operators and vendors atthis year's ABTA show appeared relatively upbeat.

Brazil's economy, while still fragile in many senses,never tanked as much as expected, and it is showing signs of turning around. And with thenew licensees facing deadlines to begin operations, vendors said they'll be busy withcontract negotiations over the coming months.

Scientific-Atlanta Inc. and General Instrument Corp. bothsaid they've inked deals with new license holders for network equipment.

"It's not booming, but there's more activitynow," S-A regional vice president for Latin America George Stromeyer said.

On the programming side, TNT Latin America and Nickelodeonrecently launched dedicated feeds for Brazil.

"We're done with the [post-devaluation]recontracting, and we are back in a build phase," TNT and Cartoon Network LatinAmerica president Jim Samples said. TNT had planned to launch the dedicated Brazil feednext year, but it moved the date up to Sept. 1, he added.

Programmers also said they've made progress in talkswith Neo TV, a buying cooperative similar to the National Cable Television Cooperative ofthe United States, which represents smaller pay TV operators. While a contract with Neo TVdoesn't represent bona fide carriage, it gives vendors a "hunting license"to enter into talks with the group's members.

Even one of the most battered victims in Brazilian pay TVover the past year is starting to turn the corner: TV Filme Inc., an MMDS operator in theinterior of the country, completed a brutal restructuring that saw most of thecompany's equity go to bondholders.

"I've spent the past four months dealing with thebond restructuring. Now I will be able to concentrate on the operations," TV FilmeCEO Hermano Albuquerque said.

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