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UNCLAS SECTION 01 OF 02 BRASILIA 001400 
 
C O R R E C T E D   C O P Y - FCC INFO ADDRESS ADDED 
 
SENSITIVE 
SIPDIS 
STATE FOR EEB/CIP/BA TFINTON 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EINT BR
SUBJECT: Brazil's National Broadband Plan 
 
REF: 09 BRASILIA 615 
 
BRASILIA 00001400  001.2 OF 002 
 
 
¶1. (SBU) Summary:  Brazil's Minister of Communications (MOC), Helio 
Costa, unveiled Brazil's national broadband plan (NBP) aimed at 
addressing Brazil's soaring broadband usage demand (reftel) on 
November 24. The proposal, entitled "A national plan for broadband 
- Brazil at high speed," lays out MOC goals, to be accomplished by 
2014 when Brazil hosts the World Cup, of increasing individual 
access to fixed broadband service in Brazil to 30 million people, 
providing 60 million users with mobile broadband access, and 
connecting all government agencies, public schools, public health 
facilities, public libraries, and federal state and local law 
enforcement agencies to the plan's expanded broadband network.  The 
plan also calls for the construction of 100 thousand new community 
telecenters (reftel) with broadband access designed to reach the 
rural areas of Brazil.  In describing the NBP as essential to 
sustaining Brazil's economic growth, increasing its economic global 
competitiveness, and enhancing the social welfare of its citizens, 
the plan envisions a concession model that utilizes existing 
telephone fiber optic networks, and calls for government investment 
of U.S. $ 26.49 billion and $ 49.01 billion in private investment. 
To stimulate private investment, the plan proposes IT related tax 
breaks, favorable financing terms through Brazil's National 
Development Bank (BNDES), and regulatory reform.  President Lula is 
currently evaluating MOC's NBP proposal along with alternative NBP 
option from Brazil's Ministry of Planning that recommends the use 
of private energy companies' power lines as the NBP network.  GOB 
has not yet reached consensus regarding how the Plan will be 
funded. President Lula has said that he will be meeting with MOC, 
the Ministries of Finance, Planning, and Energy within the next two 
weeks to decide these two fundamental questions of how broadband 
will be delivered (phone lines or electricity lines) and how the 
expansion will be funded.  However, Mission believes these 
questions will not be resolved before the end of the year.  End 
Summary. 
 
 
 
PLAN'S STRATEGIC GOALS/APPROACH 
 
------------------------------- 
 
 
 
¶2.  (SBU) Communications Minister Costa highlighted that expanding 
Brazil's broadband infrastructure would forward GOB strategic goals 
including universal access, greater governmental operational 
efficiency, improved public interface experience with government 
services, enhanced development of Brazil's telecommunications 
networks, contribution to the industrial and technological 
development of Brazil's ICT sector, increased competitiveness of 
Brazilian small and medium enterprises in other sectors as well as 
companies in the ICT sector thereby adding jobs, and GDP growth. 
Costa stated that without the NBP, Brazil would reach about 21 
million broadband users by the end of 2014, representing 
approximately 31.2 accesses per 100 households, a number lower than 
the 37 per 100 households found in the analysis of the broadband 
infrastructures of Argentina, Chile, China, Mexico and Turkey. In 
contrast, Costa argued that implementing the proposed Plan could 
result in Brazil achieving an access ratio of 50 per 100 
households.  The key to achieving this growth, according to Costa, 
is to target rural area broadband usage where geographical 
isolation and lower income levels have contributed to lower 
broadband usage (Note: The Brazilian State of Sao Paulo accounts 
for 40% of Brazil's broadband use and is considered a saturated 
broadband market. End Note).  It is also critical that Brazil 
stimulate innovation, efficiency and competition aimed at expanding 
coverage and reducing consumer retail costs to USD30/month, a level 
MOC believes is critical in attracting middle to lower income 
consumers. 
 
 
 
NBP FUNDING 
 
-------------- 
 
¶3.  (SBU) Sources of government funding for the plan are still to 
be determined by President Lula, but recognizing that public money 
cannot subsidize the entire plan, the MOC's NBP calls for a 
combination of tax cuts and government financing to encourage 
needed private investment.  The NBP proposes to reduce social 
contribution tax rates on Brazil's social security tax (COFINS) and 
 
BRASILIA 00001400  002.2 OF 002 
 
 
its social integration tax (PIS) for IT companies, and to reduce 
the tax on broadband related goods and services (ICMS).  The plan 
recommends adding NBP-based businesses to the national micro or 
small business plan called "Simples Nacional."  This would provide 
IT companies with tax benefits, streamline licensing and market 
entry challenges, qualify the companies for attractive lines of 
credit, and allow them to receive services from Brazil's National 
Microbusiness Support Agency (SEBRAE) including business plan 
development, tax consultation, training, and market research.  The 
NBP proposes that BNDES offer attractive lines of credit to 
NBP-based companies for projects to expand broadband infrastructure 
for fixed and mobile services, for digital inclusion projects with 
broadband access aimed at rural areas, and for IT related training. 
 
 
 
 
 
REGULATORY CHANGES 
 
------------------ 
 
¶4.  (SBU) The primary goal of NBP regulatory reform is to stimulate 
competition and reduce consumer prices by expanding licensing 
regimes and reducing entry barriers for new service providers.  The 
NBP calls for an increase in the availability of new fixed and 
mobile concessions for cable TV with the goal of increasing by 25% 
the number of households with access to broadband internet via 
cable TV by 2014.  Additionally, the plan establishes a special 
broadband spectrum division within Brazil's Telecommunications 
Regulatory Agency (ANATEL) for the auction of broadband licensed 
blocks in order to facilitate the participation of large, medium 
and small providers of telecommunications services in the process. 
The division's responsibilities would entail identifying a 
spectrum's coverage and scope (national, regional or local), 
establishing a maximum allowable pricing regime with the service 
provider, defining long term, extended coverage commitments within 
each spectrum auction, and capping the maximum allowable bid during 
spectrum auctions in order to foster greater participation. 
Spectrum in the 450Mhz, 2.5GHz and 3.5GHz bands for mobile 
broadband will soon be released and the plan calls for the 
establishment of the broadband spectrum division before the 
auctions take place.  ANATEL's Jeferson Nacif told Econoff that 
these goals were consistent with ANATEL's agency objectives of 
fostering greater competition, enhancing operational efficiencies, 
and lowering consumer prices through regulatory reform.  In this 
sense, Nacif mentioned that ANATEL would be reviewing Brazil's 
compensation network regulations, IT infrastructure sharing 
regulations, and interconnectivity regulations to find asymmetries 
that create greater market access.  Nacif added that ANATEL will 
also be giving priority to the regulations on network neutrality 
(elimination of tiered internet pricing regimes) and to ensuring 
that service providers are delivering the connection speed that 
consumers are paying for. (Note: many of these topics will be 
included on the agenda during the ANATEL/FCC workshop in February 
2009 in Washington.  End Note) 
 
 
 
 
 
¶5.  (SBU) Comment:  As bold as the strategic thinking of MOC's NBP 
appears to be, it is still just an introductory proposal.  Until 
GOB addresses the critical issues of how broadband is to be 
delivered (via landline telephone infrastructure or electricity 
grid infrastructure - either option would require expansion of 
existing networks) and how the government will fund expansion, 
strategic planning will not turn into tangible implementation.  As 
in Brazil's energy and aviation sectors, Brazil's IT infrastructure 
has failed to keep pace with demand.  There is no doubt that past 
underperformance in this sector has had a negative impact on 
potential GDP growth and economic competitiveness, as well as on 
Brazil's social inclusion goals, due to limited information access 
for Brazilians in rural areas with lower income.  The GOB sees an 
opportunity to help bridge those gaps and, with Brazil hosting the 
World Cup in 2014 and the Olympics in 2016, realizes fundamental 
decisions on delivery mode and funding must be made soon.  That 
said, Mission believes GOB is unlikely to meets its December 
deadline to make these decisions.  End comment. 
KUBISKE