EUR 850.00 For Business Accounts Only

Morningstar | New Viv

We believe Telefonica Brasil is the strongest telecom carrier in Brazil, but given the challenges in the market, we still don’t believe it will generate strong returns on capital for the foreseeable future. The industry’s structure, with four major players often fighting each other for share, has created a price-sensitive market. Telefonica Brasil is trying to take the lead around pricing discipline, with promising results recently despite continued economic weakness. The industry still has a long way to go, however, and the threat of renewed competitive pressure remains present. Telefonica Brasil is the largest telecom carrier in Brazil, the product of the merger of Telesp, the incumbent phone company in Sao Paulo state, with Vivo, the largest wireless carrier in the country. The 2015 acquisition of GVT, a phone company with a high-quality fiber network, has allowed the expansion of the firm’s fixed-line capabilities across much of the rest of Brazil. The firm now holds 32% of the wireless market, including 40% of the more lucrative postpaid business, and about 23% of the fixed-line Internet access business.Telefonica Brasil’s reputation for quality, as seen in its outsize postpaid wireless presence and steadily expanding fiber-to-the-home fixed-line network, should serve it well going forward. The firm can offer converged wireless and fixed-line services across a substantial portion of Brazil, including Sao Paulo, enabling it to effectively serve the high end of the market. As wireless technologies continue to advance toward 5G, we also expect this combination of networks will enable Telefonica Brasil to efficiently maintain high service levels. However, price wars have plagued the Brazilian wireless market over the past few years. The four big carriers generated about as much revenue in 2018 as they did in 2013, despite increased adoption of data services and the sharp depreciation in the Brazilian real. While revenue per customer has increased nicely in recent quarters, a return to aggressive pricing is a real possibility with Oi, the largest incumbent phone company in the country, poised to exit bankruptcy with a solid balance sheet and fresh capital.