Brazil Pay TV Faces Regulatory Humps


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

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

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

Awaiting this ruling has frustrated cable licensees, many
of 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, such
as Japan.

"Some [cable] operators have stated that they have not
been able to negotiate pole agreements until the regulations are out," said Alexandre
Annenberg, president of cable trade group the Brazilian Association of Subscription
Telecommunications (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 pay
TV franchise-licensing process: This year, it's slated to issue a total of 500
licenses for cable and multichannel-multipoint-distribution-service franchises.

As Brazil continues to award the licenses, operators are
aiming to get the new businesses up and running as soon as possible, especially in
overbuild areas. The wait for the pole-attachment ruling has little effect on wireless
cable companies.

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

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

Anatel and Aneel cannot fix the monthly cost of renting
poles, 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 that
face a tough financial environment.

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

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

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

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

Despite the regulatory wait, most operators and vendors at
this 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 the
new licensees facing deadlines to begin operations, vendors said they'll be busy with
contract negotiations over the coming months.

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

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

On the programming side, TNT Latin America and Nickelodeon
recently 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 Latin
America president Jim Samples said. TNT had planned to launch the dedicated Brazil feed
next year, but it moved the date up to Sept. 1, he added.

Programmers also said they've made progress in talks
with Neo TV, a buying cooperative similar to the National Cable Television Cooperative of
the United States, which represents smaller pay TV operators. While a contract with Neo TV
doesn'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 TV
over the past year is starting to turn the corner: TV Filme Inc., an MMDS operator in the
interior of the country, completed a brutal restructuring that saw most of the
company's equity go to bondholders.

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