Maintenance of a CDMA network will provide the company with a competitive advantage in the future, since Europe's 3G consists of W-CDMA. The joint venture is not expected to participate in the auction of leftovers of bands D and E that Brazil's regulatory authority, Anatel, is holding in late November 2002. The bands for sale, incorporate GSM frequencies, which would result in additional investments. The cheaper and more secure option, to expand the company's presence, would be to acquire other mobile companies operating in areas outside of the joint venture's concession. Another reason for sticking with CDMA, is to form a technological barrier against GSM newcomers. Captive subscribers would have to buy new phones that incorporate the GSM technology.

The need to expand operations quickly is growing with the entrance of TIM's nationwide GSM network. Market sources already comment on the possibility of Telefonica Celular negotiating the acquisition of band A operator TCO, in central west Brazil. The acquisition would give the joint venture dominance in the country's capital Brasilia. TCO has been testing both technological paths to upgrade its network. Although neither GSM nor CDMA have been chosen, the operator plans to gradually overlay its TDMA network. They are not proposing a complete overlay, only to have to repeat the process again. With the possibility ofbeing taken over by the joint venture, TCO will most likely invest in CDMA.

Besides making acquisitions, another possibility for the joint venture to extend its operations, would be through operational accords with fixed line operator Vesper. The company, which operates a CDMA wireless local loop, could participate in auction of the bands D and E. Vesper has suffered a number of judicial actions against its products, since they allow users added mobility, but the operator does not have a mobile licence. Regulations allow the company to rent out its networks for mobile services, plus the network already covers most of Brazil's important cities.

This research article is an extract from EMC's Latin America & Caribbean Communications Report. For more details and order form see: http://www.emc-database.com/website.nsf/index/replaccr

Ana Hermoso, ahermoso@emc-database.com, Tel +44 1932 266 930
Ana is a Research Analyst within both EMC's Americas and European teams. Her special focus is Southern European investors and the regionally significant market of Brazil. Ana joined EMC in September 2002, having worked as a telecommunications consultant for Accenture in Madrid. Ana holds degrees in both Marketing and Business Administration, having studied at the Pontificia University in Madrid.