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Brazil: Ready for mobile Internet?
Telecom Investor / October 2000

By Larry Luxner

SÃO PAULO -- As Brazilian cellular operators have rushed to embrace the prepaid concept, their subscriber base has grown dramatically -- while revenues per user have tumbled.

The Yankee Group says that in 1997, the average customer spent 209 minutes on the cellphone per month, translating into monthly revenues to $101. By 1999, that had fallen to 132 minutes worth $31 -- and by 2001 is expected to drop further, to 125 minutes worth only $29.

"Given Brazil's uneven income distribution and low GDP per-capita," says a recent Yankee report, "average revenue per user will continue to fall as penetration extends beyond the high-income segment of the population."

To combat that revenue slide, Brazilian phone companies are looking for innovative ways to boost usage -- including the use of cellphones as a vehicle to access the Internet.

"All operators are struggling with how to get subscribers to use their phones more," says Lars Jehrlander, vice-president of Ericsson's wireless operations in Brazil. "That's why we're so interested in getting into mobile Internet."

In mid-May, Ericsson inaugurated its own Mobile Internet Institute in Berrini, a São Paulo suburb known for its concentration of Internet access providers and software companies. The institute has so far hired 40 full-time employees for the project, which seeks to develop Wireless Applications Protocol (WAP) technology and certify WAP developers.

"WAP is a way of moving the content you have on the Internet to a wireless device. It's a standard used worldwide to adapt the Internet to a small screen," said the institute's director, Kennet Larsson.

The institute, similar to ones established by Ericsson in Argentina, Chile and Mexico, represents an investment of nearly R$10-15 million. Two other equipment vendors, Nokia and Motorola, are also said to be working on mobile Internet applications for Brazil, though details of their activities are hard to come by.

"In Japan, there are 10 million mobile Internet users," says Larsson. "We see that this has increased cellphone usage there by 20%. I would expect the Brazilian telecom market to grow, within three years, to more than 40 million cellular users. At least four million of them will be utilizing some kind of mobile Internet services. Our ambition is to repeat what's happening in Japan."

Ericsson recently signed a letter of intent with Universo Online, Brazil's largest ISP, to establish an Internet portal specifically for wireless users. Operators are also said to be in talks with leading Brazilian banks, and the day might not be far off when banks will actually give away free WAP-enabled phones so their customers can bank online, saving the banks money in the long run and helping them retain customers.

But mobile Internet's potential extends beyond e-commerce. Brazilians, and Latins in general, like to do their shopping in person. That means the Internet is more often than not used for checking soccer scores, restaurant reviews or the latest gossip.

Yet it may take awhile for mobile Internet to catch on here.

"It's an extremely overrated service at this point," says The Yankee Group's chief Brazil analyst, Jamila Xible. "Carriers do hope to increase minutes of usage. That's what driving this from a carrier's perspective. And for portals, it's one more source of revenue, and a way to reach consumers. SMS allows a limited number of characters, and it's only one-way. WAP-based applications allow you to send messages and browse the Internet. Since users send and receive data, they can customize data to the user's profile."

In August, Ericsson announced its intent to begin assembling WAP-enabled handsets at its São José dos Campos manufacturing facility before the end of this year.

The major factor driving mobile Internet here is the exorbitant cost of personal computers, which -- unlike the United States -- is beyond the reach of even many middle-class Brazilian families.

"If you have local production of WAP-enabled handsets, they will be relatively cheap," said Larsson. "Another factor [driving the market] is wireless penetration. We think wireless penetration in Brazil will surpass fixed penetration by 2001."

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