International Business : Brazil’s Telephone Monopoly Is About to Become a Party Line : Telecom: The industry lags far behind current standards, which analysts say spells enormous potential.

Brazil’s state-controlled telecommunications market, the largest in Latin America, is on the threshold of dramatic changes that promise billions of dollars in new business opportunities for private companies.

One of the many U.S. corporations in the running, big and small, is Sprint. “We are going to make the necessary investment to become a big player in Brazil,” said Francisco A. Loureiro, Sprint’s general manager here. “This is a key market for Sprint.”

Others jockeying for position include giant multinationals such as AT&T; and Motorola, and smaller outfits such as Selectone, a Hayward, Calif., company that sells trunking systems for wireless communications in rural areas.

John J. Sullivan, Selectone’s vice president for sales, said the company is spreading into Brazil and other Latin countries after successes in the Chinese and Russian markets.

“I think the potential in Brazil in five years is the best in South America,” Sullivan said.

His assessment is shared by just about everyone who watches telecommunications developments in this nation of 155 million people. A U.S. Commerce Department report estimates that the Brazilian telecommunications market will grow from about $9 billion in goods and services this year to $15 billion in 1996.

Until August, Brazil’s constitution guaranteed a government monopoly in public telecommunications services. But the congress has passed an amendment that opens the field to private competition. The biggest telecommunications monopoly in the hemisphere is being split. If all goes as planned, state-run companies will soon have to compete with the private sector and eventually will be privatized.

First will come privately operated cellular telephone systems. Then, analysts foresee similar openings in data transmission and satellite services. Finally, Brazil is expected to allow foreign and domestic companies to enter the local, long-distance and international telephone business.

New capital and competition should dramatically improve technologies and services, which have fallen far behind. Government officials estimate that investments totaling more than $75 billion will be needed in the next eight years.

Many Brazilian nationalists and leftists, who have long favored government monopolies in “strategic” industries, opposed private competition in telecommunications. But the constitutional amendment to break the telecom monopoly passed in the lower house of the congress by an overwhelming 348-140 margin.

Few have argued that private competition will result in job losses. With the pent-up demand for telecom expansion, it appears more likely that private competition will bring growth in business and employment.

By government estimates, up to 10 million Brazilians who want and could pay for conventional telephones don’t have them. Brazil has only about seven telephone lines for every 100 people, compared to 94 per 100 in the United States.

A telephone line installed by a subsidiary of Telebraz, the government monopoly, costs the customer $450. But because the waiting period can be two years or longer, many people spend 10 times that or more to buy a line on the black market.

Meanwhile, the Telebraz system has become heavily overloaded. Businessmen fume at the difficulties in making inter-city connections, especially between Sao Paulo and Rio de Janeiro. Crossed lines, strong static and disconnections are continual frustrations. High-speed data transmission is all but impossible on most lines.

To be competitive internationally, Brazil will need the latest in telecommunications capabilities.

In Latin American countries that are ahead of Brazil in market reforms, foreign companies have already invested billions of dollars in privatized telephone companies, cellular systems and other telecommunications businesses.

The biggest investor is Spain’s Telefonica Internacional, which has bought telecom interests in Argentina, Chile, Venezuela, Colombia and Uruguay.

But nowhere is the potential as great as in Brazil, which has the world’s fifth-largest national territory--half of the South American continent--and one of the world’s 10 biggest economies.

Even before the regulatory framework is in place for massive private investment in telecommunications, U.S.-based multinationals are establishing bases and forming partnerships with local companies. Meredith M. Persily, who reports on the Brazilian telecommunications market for Pyramid Research, said the whole sector is famished for expanded services and new technology.

“We’re really focusing on the incredible demand in Brazil, and that’s the key issue--there’s such a lot of unmet demand in Brazil,” Persily said. “I think the companies that are already here are going to be in a better position for that. But even as we speak, there are companies setting up offices here.”

Nearly 2 million Brazilians are on waiting lists for cellular telephone connections. The number of cellular phones is expected to jump from about 1 million now to 3 million by the end of 1996 and as much as 9 million by 2000. So annual billing of about $1,000 per cellular phone could eventually add up to $9 billion a year in sales.

AT&T; recently was the first multinational to announce that it is forming a consortium to provide cellular service. The U.S. giant will join forces with Bradesco, one of Brazil’s largest banks, and Globo, the country’s biggest broadcasting enterprise.

Other U.S. companies will soon follow suit. Among those negotiating with Brazilian companies to form cellular consortiums are Sprint, Motorola, BellSouth, Atlantic Bell, Southwestern Bell and US West.

Motorola, already the biggest supplier of cellular equipment in Brazil, is planning to open a Brazilian factory for full assembly. “We want to supply equipment to anyone who wins the bids,” said Flavio Grynszpan, Motorola’s country manager.

Players in the cellular phone market will need deep pockets. Sprint’s Loureiro said successful bidders for the concession in Sao Paulo will probably have to pay close to $1 billion for the license alone.

Besides cellular, Sprint wants to provide data communications for businesses in Brazil.

And when Brazil’s long-distance market opens to private competition late in the decade, Sprint will be waiting to jump in.

As a whole, Loureiro said, Brazil’s telecommunications are attractive to foreign companies because this is the only large market in the world that is still mostly untouched by private competition. “The potential for growth is almost unlimited,” he said. “No one can afford not to have a big presence in Brazil.”

Or at least some presence. Several less-than-gigantic U.S. companies were testing the waters recently at a telecommunications fair in Sao Paulo called Comnet Fenasoft Brazil 95.

They were attracted in part by Brazil’s decision to permit foreign companies to sell personal computers and accessories in this country, junking a failed policy that had protected that market for local manufacturers. Since then, computer sales have been booming, and as the use of computers spreads, so does the need for telecommunications systems to handle data transmission.

Carlos Carnevali, country manager for Cisco Systems of San Jose, predicted that the opening of the telecommunications market will supercharge the expansion of communications services for computers.

“Everything is missing,” he said. “You can come here and offer public voice services, you can offer data communication services, you can offer value-added services. Service is going to explode.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Brazil Nuts About Cellular

Projected growth in Brazilian cellular subscribers, in millions:

1999*: 4.0

* Estimate

Source: Pyramid Research