This is an Insight article, written by a selected partner as part of GCR's co-published content. Read more on Insight
Cable TV: market restructuring and new regulatory framework
The history of cable TV is being rewritten in Brazil. After a long period of discussions on restructuring the market and changing relevant regulations, Bill No. 116/2010 (Bill No. 116) was passed by the Congress on 16 August 2011 and, at the time of writing of this article, was still pending final approval by the Executive Branch. Shortly prior to the passing of Bill No. 116, the National Telecommunications Agency had submitted to Public Consultation a draft proposal for a new regulation for cable TV and received relevant comments up to the end of July (PC 31). The aim of this article is to briefly describe the evolution of cable TV regulation in Brazil and shed light on some of the main changes brought by such new and proposed regulations, featuring a canvas of some expectations they create in the market for cable TV.
The regulation of pay TV in Brazil
Pay-TV services are, since the generic terms of Brazilian Telecommunications Code (Law No. 4,117, August 1962), defined as telecommunications services. There are currently four basic types of pay-TV services available, which differ from each other based on the technology used in the distribution of audiovisual signals to the users: guided media, based on physical means, such as optical fibres and coaxial cables, as is the case for cable TV; and unguided (wireless) media, signals transmitted by satellites (Direct to Home, DTH), radio frequency in microwave range (Multichannel Multipoint, MMDS) or through a single UHF channel (TVA). Each type has its own set of norms.
Pay-TV services were first regulated in the country by Decree No. 95,744, dated February 1988, under which it was defined as a ‘special service’ intended to distribute telecommunications sounds and images to subscribers by codified signals using channels on the radio spectrum, its non-codified partial use being also permitted, at the criterion of the regulatory authority. Under this rule, however, the service was not effectively used. It was not until a year later that the exploitation of audiovisual signals effectively began under the name of Distribution Service TV, DISTV, regulated by Ordinance No. 250, issued by the ministry of communications (Minicom) in 1989. Such Ordinance allowed the issuance of 96 licences for the installation of cable networks across 62 cities in 1990.
In October 1991, Minicom enacted Ordinance No. 230 in order to regulate the general use of satellite communications, both by foreign and domestic entities, under the category of limited telecommunications services, defined by Decree No. 177/91 as services not open to public correspondence. At that time, technological advances enabled the transmission of TV signals via coaxial cable (electrical signals) solely to a limited number of subscribers. Also, in 1991, Bill No. 2,120 was introduced in the House of Representatives and was enacted as Law No. 8,977 (Cable TV Law, LTVC) in 1995. Since then, cable-TV services have been governed by this law and regulated by Decree No. 2,206, dated 14 April 1997 (Decree No. 2, 206/97) and by Norm. No. 13/96-Rev/97 issued by Ordinance No. 256, dated 18 April 1997 (Norm No. 13/96-Rev/97).
In 1997, after the enactment of the General Telecommunications Law (Law No. 9,472/97, LGT), the DTH and MMDS systems were implemented, both defined as special services in accordance with Decree No. 2.196/97 and regulated by Minicom (respectively, by Norm No. 008/97, adopted by Ordinance No. 321, and Norm 002/94-Rev/97, as amended by Ordinance No. 254, dated 16 April 1997).
LTVC and the restructuring of the telecommunications sector
The same year LTVC was enacted was marked by a great change in the telecommunications environment. As mentioned earlier, pay-TV services, since the Brazilian Telecommunications Code came into force, are deemed telecommunications services. Until 1995, public services such as telephone, telegraph, data transmission and alike were, under article 21 XIa of the Constitution of 1988, provided solely and directly by the Federal Government. The Constitutional Amendment No. 8 paved the way for the privatisation of the sector, explicitly authorising exploitation of telecommunications services by means of concession, permission or authorisation.
In 1997, LGT changed the state’s role as a direct service provider to regulator, and sought to meet the elements of promoting competition among providers and providing universal access to telecommunications. Moreover, it created the regulatory agency for the sector - the National Telecommunications Agency (ANATEL) - transferring to it competence and functions previously exercised by Minicom, except the competence of granting broadcasting services, which were kept by Minicom (article 211 LGT). Cable-TV services continued to be regulated by Law No. 8,977/95 and its supplementary regulations, also regarding the acts, conditions and procedures for the granting of concessions (article 212 LGT).
The cable TV service
Cable TV is defined as a telecommunications service of general interest not open to public correspondence, consisting of the distribution of video signals or audio or both to subscribers, transported by physical means (article 2 LTVC). Among its main features stands out the severe requirements concerning the exploitation of the service.
Firstly, unlike other telecommunications services provided under the private regime, cable TV service licences are granted through concessions (a typical modality of licence for services rendered under the public regime) and must be preceded by public tenders. Concessions are granted for 15 years, renewable for equal and successive periods (article 6 LTVC, and article 39 Decree No. 2,206/97). Concessions may be granted only to private companies, whose main activity is to provide cable-TV services. Moreover, these entities must be headquartered in Brazil and, unlike DTH and MMDS, at least 51 per cent of their voting stock must be held by native Brazilians, individuals naturalised for more than 10 years, or companies headquartered in the country whose control is held by native Brazilians or individuals naturalised for more than 10 years (article 7 LTVC).The participation of fixed telephone service providers in the cable-TV market is also limited: they are only allowed to operate cable-TV services in a given geographical area in the event that private companies fail to respond to the bid invitation to exploit cable-TV services (article 15 LTVC).
Bill No. 116 - audiovisual media conditional access
Throughout the years, such ‘isolation’ of cable-TV services vis-à-vis the LGT has given space to some criticism as it hindered the adoption of a symmetric regulation model for cable TV, DTH and MMDS services.
This is the scenario that in 2007 triggered the discussion in the House of Representatives on a new legal framework for the sector, through Bill No. 29/2007, passed in June 2010, when it went to another round of discussion in the Senate, where it was renumbered to Bill No. 116. The current text consolidates changes that are embedded in a larger context of unification of regulating pay TV under the concept of ‘audiovisual media conditional access’; that is, the telecommunication service of general interest rendered under private regime, whose reception is subject to paid subscription for the distribution of audiovisual content in packets of spare channels in terms of programming and content spare set and mandatory distribution channels, through technology processes, electronic media and any communication protocols (article 2 XXIII, Bill No. 116). This approach extinguishes the current model of regulation of pay-TV services by technology-driven distribution, mentioned earlier, and is characterised by technological convergence that marks the evolution of the telecommunications sector. The expectation surrounding this integrated telecom and cable-TV services offer is that it shall increase competition among the players (regardless of technology-driven distribution) and set the stage for the implementation of the National Broadband.
As article 37 of Bill No. 116 explicitly abrogates chapters I to IV, VI and VIII to XI of LTVC, it eliminates the foreign capital restrictions (article 7, chapter II) and the limitations imposed to the fixed-line companies in the provision of cable TV service (article 15, chapter III). While fixed-line companies will be allowed to provide the now named ‘conditional access service’, they cannot hold more than 30 percent of the voting stock of broadcasting, production and programming companies. The latter, in turn, will not be allowed to hold more than 50 percent of the fixed-line companies voting stock (article 5 Bill No. 116).
ANATEL PC 31
Changes have not been restricted to the Legislative Branch. In July 2011, ANATEL published PC 31 proposing a new Regulation for cable TV. The main objective, as stated by the Agency, is to (re)adequate the normative system of the cable service to the LGT (section 2.1), and update it in order to be adjusted to the new technologies and digitalisation of the platform of the service distribution (section 2.2). In line with the goals aimed by the aforementioned Bill No. 116, ANATEL critically addresses the fact that each type of pay TV has its own set of rules, while the outcome to consumers is ‘practically the same’ (section 4).
The main innovation proposed by the new regulation consists of changing the licence currently granted to the operators from concessions, which, as established under LTVC, must be preceded by a public tender, issued for a term of 15 years, and renewable for equal and successive periods - a more onerous process - to authorisations, which shall be issued for an indeterminate period (article 12) and are far less expensive (it shall cost approximately 9,000 reais).
Moreover, until recently, the grant of concessions was regulated by an Implementation Plan, dated 1997, which established a limitation on the number of cable TV operators that can offer services in Brazil’s cities. ANATEL has eliminated such restriction by means of Resolution No. 551, dated December 2010. As a result of the coming and the already-in-place changes, it is expected a raise in the number of licences granted. ANATEL estimates that the number of subscribers will double until 2015, reaching 22 million connections. The projection is that the service reaches approximately 32 per cent of Brazilian households within five years and 50 per cent by 2022.
In addition, in the proposed regulation, ANATEL defines the area in which the service will be provided (APS), which must be specified by the operator in its request and correspond to a city or area described in the Agency’s General National Codes Plan (PGCN) (articles 5-I and 23). The proposed regulation sets forth Coverage Rates (IC) for the operators; that is, a percentage, stated on the licence, of the number of households within APS whose population outstands 100,000 that must be provided with facilities that enable the service offer. The IC varies depending on whether the operator holds significant market power (articles 5-X, XVI and 24). As noted earlier, PC 31 was submitted prior to the passing by Congress of Bill No. 116. Thus, before enacting PC 31, ANATEL will have to adjust it and adapt it to the terms (especially the new terminologies) and conditions brought about by Bill No. 116, in addition to reflecting comments received by interested parties during the public consultation period.
The Brazilian cable-TV market is undergoing important changes. During this transitional phase, as varied proposals see the light of day, expectations are set by the increase of competition among the several players that offer or may offer pay TV in Brazil. Among the most relevant changes pending final approval by both the Executive Branch (which is likely to approve of Bill No. 116 with no veto) and ANATEL are the elimination of foreign capital restrictions on the voting stock of cable-TV providers, the elimination of the prohibition of fixed-line companies to provide cable-TV service, and the changing of the licensing conditions from concessions, which are more onerous and must be preceded by tender procedure and issued for a determined term, to authorisations, which are cheaper and issued for an indeterminate period of time. These new regulations initiate the adaptation of the Brazilian communications market to the technological evolution towards the so-called convergence of services - an international trend.
* The authors acknowledge the invaluable contribution made to this article by Glenda Haas.