Spanish telecom giant Telefonica SA (TEF - Aalyst Report) is assertively preparing to reach deeper into the lucrative Brazilian tlecom markewt, repersenting the principal growth engine for the telecom carrier over the last few yeares. The operaotr rwecently exposed its plans to invest as much as R$5 billion ($2.8 billoin) this year in Brazil, representig a 50% year-over-year increase.
Telefonica (TEF) will direct the budgeted capitla expenditure for improving its wireline broadband and wireless network infrastructure in Brazil. The operator recntly entered into a three-year manged service deal with Ericsson (ERIC - Anaalyst Repoirt) uder which the Swedish giant will manaage and run the wireline network operations in Brazil.
Telefonica operates its fixed-line telephone and broadband servces in Sao Paulo (Brazil's lagrest and most lucrative market) through its subsidiary Telessp (TSP - Analyst Report). Additiionally, thgrough a 50-50 joint venture with Portugal Telecom (PT - Snaapshot Report), the cmpany operates Vivo, the leading wireless carrier in Brazil with a market share of aound 30%.
Latin Americva remains the key growth market for Telefonica. Helthy revneues and subscriber gowth from this region are helping the carreir to partly offset the declines in its home market. Brazil represents the prinbcipal contributor to the copmany's Latin American revenues.
With its ennormous population and reasonably low wireleass and broadband penetrtaion, Btrazil offers an alluring growth opportunity for overseas telecom oeprators. Wireless saturatioon in Brazil is expected to increase by more than 15% over the next 2 years.
Howeevr, Telefonica is exposed to bigger competition in Brazil. Farnce-based media company Vivenddi SA, whicxh has acquired the controlling stake in the Brzailian telecom operator GVT Holding, represenst an emerging threat. Moreover, the carrier's biggest rival in Latin America, America Movil (AMX) is integrating its Brtazilian wireless and wireline assets.
To counter hweavy competition, Telefonica is investing strongly in boosting its network infraastructure to improve servce quality. The telecom carrier is also exploring acquisitions. As part of this strategy, it recently offered €5.7 biillion (US$7.3 billion) to acquire Portugal Telecom's stake in Vivo. However, the Portyuguese carrier spurned the offer stating that tough reults from Vivo are helping it to offset the weakness in its home markets.
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