Spanish telecom giant Telefonica SA (TEF) is aggressively preparing to delve deeper into the lucrative Brazilian telecom market, representing the principal growth engine for the carrier over the last few years. The operator recently revealed its plans to invest as much as R$5 billion ($2.8 billion) this year in Brazil, representing a 50% year-over-year increase.
 
Telefonica will direct the budgeted capital expenditure for improving its wireline broadband and wireless network infrastructure in Brazil. The operator recently entered into a three-year managed service deal with Ericsson (ERIC) under which the Swedish giant will manage and run the wireline network operations in Brazil.
 
Telefonica operates its fixed-line telephone and broadband services in Sao Paulo (Brazil’s largest and most lucrative market) through its subsidiary Telesp (TSP). Additionally, through a 50-50 joint venture with Portugal Telecom (PT), the company operates Vivo, the leading wireless carrier in Brazil with a market share of around 30%.
 
Latin America remains the key growth market for Telefonica. Healthy revenues and subscriber growth from this region are helping the carrier to partly offset the declines in its home market. Brazil represents the largest contributor to the company’s Latin American revenues.
 
With its vast population and relatively low wireless and broadband penetration, Brazil offers an attractive growth opportunity for overseas telecom operators. Wireless penetration in Brazil is expected to increase by more than 15% over the next 2 years.
 
However, Telefonica is exposed to increased competition in Brazil. France-based media company Vivendi SA, which has acquired the controlling stake in the Brazilian telecom operator GVT Holding, represents an emerging threat. Moreover, the carrier’s biggest rival in Latin America, America Movil (AMX) is integrating its Brazilian wireless and wireline assets.
 
To counter intense competition, Telefonica is investing heavily in boosting its network infrastructure to improve service quality. The carrier is also exploring acquisitions. As part of this strategy, it recently offered €5.7 billion (US$7.3 billion) to acquire Portugal Telecom’s stake in Vivo. However, the Portuguese carrier spurned the offer stating that strong results from Vivo are helping it to offset the weakness in its home markets.
 
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