Brazil: Telecoms

Competition Enforcement in the Brazilian Telecom Industry: ANATEL and CADE

The telecommunications regime in Brazil

The Brazilian telecommunications industry underwent significant restructuring in the 1990s, especially towards overcoming the system of state monopoly and the establishment of a competitive environment.

In this context, the issuance of the Constitutional Amendment No. 8/1995 was of great importance. The Brazilian Constitution, prior to such amendment, provided that telecommunications services should be operated directly by the state or through concessions to companies under state control. Private companies could only render 'information services' through the state owned telecommunications network. The Constitutional Amendment No. 8/1995 authorised the provision of telecommunications services by private companies through concession, permit or authorisation, and stipulated the creation of a regulatory organisation.

Afterwards, Law No. 9472/1997 was enacted. Known as the General Telecommunications Law (LGT), it amended the state's role from a direct service provider to a regulator and sought to meet the elements of promoting competition among providers and providing universal access to telecommunications.

It was defined that certain types of services would be provided under a public regime, and others under a private regime. In the public regime, the provider must comply with obligations of universalisation and continuity, and the National Telecommunications Agency (Anatel) can establish the pricing structure for each type of service. In the private regime, meanwhile, freedom is the rule, making an exception of the prohibitions, restrictions and interference from the government (article 128, I). Exceptionally, in light of relevant reasons of collective nature, the Agency may grant the authorisation to the private regime service provider on condition of acceptance, by the interested individual, of commitments of collective interest (article 135).

The establishment of competition was expected in both the private and public regime. Under the LGT, concessions do not have an exclusivity nature (article 84), and it is possible to exploit, concomitantly, the same service in both the private and the public regime (article 65, III). It was also established that, after a minimum of three years following the contract's execution, the Agency could, if wide and effective competition among providers of the service was present, submit the concessionaire to the open-tariff regime.

Only the fixed switched telephone service was explicitly identified as being provided under the public regime (article 64, sole paragraph), although the possibility is foreseen that the Executive Branch may insert, under this regime and by decree, another type of service (article 18, I). Moreover, regardless of whether assurances are made that the fixed switched telephone service is in the public regime, it is admitted for it to concomitantly render in the private regime, by authorised representative companies, in competition with the public service concessionaires. Other telecommunication services such as mobile telephony, the multimedia communication services (SCM) and cable TV are rendered in the private regime.

For the fixed switched telephone service (public regime) concession, the country was divided into four regions by the General Concession Plan (PGO), approved by Decree No. 2534/1998, for the concession service to four different economic groups, who would acquire privatised state companies.

That is how Telemar became the concessionaire of Region I; Brazil Telecom of Region II; Telefonica of Region III (regional concessionaires); and Embratel of Region IV (long-distance concessionaire). Over a period of quarantine, regional concessionaires were unable to obtain authorisation to provide local services in other areas, a rule which aimed to facilitate the entry of new players. Later, this restriction ceased to exist, enabling additional competition among regional concessionaires. Nevertheless, the concessionaires did not come to offer a significant local telephone service outside their regions.

Decree No. 6654/2008 approved a new General Concessions Plan of Telecommunications Service, rendered under the public regime, revoking the former plan. The new PGO, unlike its predecessor, authorises the transfer of control of a fixed switched telephone concessionaire that results in an economic group with concessionaires in more than one region.

The rendering of telecommunications services in the private regime is subject to prior authorisation of the Agency, which results in the right use of the necessary radio frequencies. The authorisation is a binding administrative act that permits rendering, in the private regime, of a type of telecommunications service, once the necessary objective and subjective conditions are met (article 131 of the LGT). There is no limit to the number of service authorisations, except when technically impossible or, exceptionally, when the amount of competitors may compromise the rendering of a service modality of collective interest (article 136 of the LGT).

This summarises how the telecommunications regime in Brazil was restructured, by introducing competition in the sector.

However, it was not stated that the competition would be the sole regulator of these new markets agents. Competition in the telecommunications sector has specific characteristics in relation to the regime of Law No. 8884/1994. Article 7 of the LGT established that the general rules governing the protection of the economic order apply to the telecommunications sector, when consistent with the LGT. This exception does not imply an immunity to enforcement of the antitrust law, referring to the 'applications that require more appropriate care to the market specificities, as well as the considerations that make it possible for implementing industrial policies and benefits for end consumers, which, in each case, could prove to be incompatible with ample competition (rule of reason).' ¹ Here, competition is a means, among others, to provide quality and affordable prices to the largest possible number of consumers. ²

Below will be described how Anatel's functions and the Brazilian Competition Policy System (BCPS) are composed.

Corporate transactions (mergers) in the telecommunications industry

Law No. 8884/1994 (Antitrust Law) provides that all acts that may limit or restrain open competition or that result in the control of relevant markets for products or services shall be submitted to the review of the Brazilian Competition Policy System (article 54). Paragraph 3 of this article presents objective criteria for the delimitation of what acts are to be reported to the antitrust authorities: acts involving economic concentration resulting in a market share exceeding 20 per cent or acts in which any of the companies has earned, in Brazil the former year, ³ gross annual revenue exceeding 400 million reais.

The rule of the Antitrust Law for submission of mergers to the BCPS is that they must be notified to the Secretariat of Economic Law (SDE), prior to, or at the latest 15 days of, its execution, by filing the documentation. After the issuance of opinions by SDE and the Secretariat for Economic Monitoring (SEAE), the Administrative Council for Economic Defence (CADE) decides on the transaction.

CADE's analysis also occurs in mergers involving telecommunications services provider. However, the LGT provides that these should be submitted to CADE by the regulatory organisation (article 7, sections 1 and 2). In this case, Anatel exercises the competence that, according to the Antitrust Law, should be SDE's and SEAE's (article 19, XIX of LGT), and SDE and SEAE do not act in the telecommunications market merger. On this matter, SEAE has already manifested itself as follows:

Under the provisions of LGT, Anatel has the legal prerogative to replace SEAE and SDE in the instruction of economic concentration acts between telecommunications companies, strictly in relation to telecommunications services. However, by reading the legal provision above, it appears that SEAE and SDE maintain their jurisdiction to instruct the merger between telecommunications companies with respect to all other services provided by the companies and that are not considered telecommunications services'. (SEAE Opinion No. 6364/2009/RJ in Merger Review No. 08012.005789/2008-23).

Therefore, the notification of transactions involving telecommunications markets should be made before the Agency, so that the latter issues a technical opinion and then sends the act to CADE's trial. The procedure under Anatel is governed by Rule No. 7/1999 of that Agency.

Moreover, beyond CADE's analysis of the antitrust perspective (which, by the current regime, occurs a posteriori), the telecommunications legislation requires Anatel's consent for the transfer of corporate control. In this context, Anatel's decision-making body exercises this role considering, also, the objective of promoting competition in the sector. However, the analysis of Anatel may differ from that held by CADE, which also aims, in particular, towards the achievement of the objectives defined in the industry's legislation.

The purpose of requiring Anatel's prior consent in some modalities of telecommunications services is to ensure that the holder of the concession granted by the Agency will be able to acomplish the regulatory requirements and to fulfill the contract demands. Besides there is a concern with the effect of the merger in competition. However we interpret that such concern does not mean a full competitive assessment of the operation within the prior consent, but is limited to the enforcement of regulatory norms issued by Anatel expressing anti-competitive concerns.

Anatel regulated the subject in the Regulation for Control and Verification of Transfer of Control in Telecommunications Service Provider Companies, annexed to Resolution No. 101/1999, which defines control as 'power to manage, directly or indirectly, internally or externally, actual or legal , individually or by agreement, the social activities or the operation of the company' ⁴, and defines coalition as the detention by a legal person, directly or indirectly, of at least 20 per cent of voting capital of another, or the ownership of the voting capital of both, of at least 20 per cent, by the same individual or legal person.

When it comes to providing telecommunications services in the public regime, the LGT provides that the spin-off, merger, transformation, incorporation, reduction of the company's shares or transfer of its corporate control is subject to prior approval by Anatel, which shall be granted if the measure is not harmful to competition and does not jeopardise the execution of the concession contract (article 97 of the LGT).

Both requirements protect the regulatory objectives of the telecommunications industry. Nonetheless, while the latter relates specifically to the preservation of continuity and quality of the provided public service - an assignment of the Authority and the Regulatory Agency - the first relates to the regulatory goal of preserving competition, a competency of Anatel, which does not exclude the analysis of the antitrust authorities.

Similarly, the transfer the concession contract depends on prior consent of the Agency (article 98 of the LGT). ⁵ The legally established requirements are:

• the service must be in operation for at least three years, with the proper performance of the obligations;

• the assignee must meet all requirements of the concession, including the guarantees, the legal and fiscal good standing, and technical and economic financial qualifications; and

• the measure cannot harm competition or jeopardise the execution of the contract.

The prior consent of Anatel is also required for the transfer of the term of authorisation for telecommunications provider (private regime). In this case, the approval of Anatel depends on the observance of the same requirements for the transfer of the concession described in paragraph above (article 136, section 2).

In turn, the transfer of corporate control of the telecommunications service operator in the private regime follows specific rules for each modality of service. Thus, the prior consent of the Agency is required when dealing with a company that provides mobile telephony or provides cable TV service. But consent can take place after transferring control to the multimedia communication service provider (SCM), within 60 days from the date of the registration of the corporate change in the competent organisation.

Conduct analysis (violations to the economic order) by telecommunications operators

The provisions of the Competition Law regarding violations to the economic order also apply to providers of telecommunications services. In this regard, the LGT provides that:

Article 7 – The general rules governing the protection of the economic order shall apply to the telecommunications industry whenever they do not conflict with the provisions of this Act and section 3 will practice violation to the economic order the telecommunications service provider that in the execution of goods and services supply agreements, adopts practices that could limit, restrain or in any way injure open competition or free enterprise.'

The investigation process of violation to the economic order within the BCPS (not restricted, therefore, to telecommunications), occurs as follows: SDE, before evidence of violation to the economic order, when these are insufficient to establish an administrative procedure, promotes an investigative proceeding called 'preliminary inquiry'. Once finished, SDE either initiates an administrative procedure or shelves the preliminary inquiry, appealing voluntarily to CADE. In the administrative procedure, SDE determines the conduct of investigations and the production of evidence, giving investigated companies the opportunity to submit their full defences. Once the investigation is concluded, SDE decides for the remittance of the case records to CADE for trial, or to shelve it, appealing voluntarily to CADE, in the latter case.

Anatel has power, equivalent to that of SDE's, in the investigation of violations to the economic order in the telecommunications industry. As mentioned above, article 19, XIX of LGT assigns to Anatel, regarding telecommunications, the legal powers in terms of control, prevention and suppression of violations to the economic order, except those belonging to the CADE. The Anatel Rule No. 07/99 regulates Anatel's actions in the investigation and suppression of violations to the economic order, establishing its performance in the proceedings and referral of the records to CADE for trial. There is no doubt, therefore, that the decision-making body is CADE. Even if Anatel shelves the investigative proceedings, it should appeal ex officio to CADE, as occurs when SDE shelves the inquiry.

Furthermore, with regard to investigative competence, it is understood that this assignment to Anatel does not exclude SDE (general investigative competition authority), since there is no legislative provision in this sense. The LGT would have added only one more organistional body among those responsible for conducting the procedures of violation to the economic order. Therefore, SDE has investigated, conducted investigations and issued opinions in relation to anti-competitive practices in the telecommunications industry, and CADE has affirmed that the powers are concurrent. There are pronouncements of the judiciary in that sense, in a lawsuit sponsored by mobile telephone operator Vivo, with the intention to annul the administrative procedure that investigates the practice of violation to the economic order by that company.

Notes

1

Ferraz Jr, Tercio Sampaio; Maranhão, Juliano Souza de Albuquerque. Lei Geral de Telecomunicações e Direito da Concorrência. In: Interesse Público, volume 5, issue 22, November/December 2003, p15.

2

Ibid.

3

In the application of the threshold established in article 54, section 3 of Law No. 8884/94, the annual gross revenues registered exclusively on Brazilian territory is relevant' (CADE Precedent No. 01/2005).

4

Analogous to controller, the person:

• participates or appoints a person as a member of the Board of Directors or equivalent body of another company or its parent;
• has a veto right on any statutory or contractual matters or determination of the other;
• has sufficient powers to, for any formal or informal mechanism, prevent the verification of installation of a qualified quorum or decision required, in virtue of statutory or contractual provision, in relation to the decisions of another, except if provided by law; and
• holds stocks or shares of the other, in such way as it class ensures the right to vote separately as referred to in article 16, III, of Law No. 6404/76.

5

Here, it is the transfer of the concession contract to another person, which is therefore different from the change in corporate control of the operating company, described above.