By Todd Benson
SAO PAULO, Brazil (Reuters) - Spanish telecoms giant Telefonica (TEF.MC: Quote, Profile, Research, Stock Buzz) is betting on broadband services to underpin growth in Brazil, where the market for traditional wireline phone systems is stagnant and the company's mobile operation is losing market share to fierce competition.
Fernando Xavier Ferreira, chief executive of Telefonica's Brazilian unit, said on Friday that the company has earmarked some 2.7 billion reais ($1.24 billion) for investments this year in Latin America's largest country, where high-speed Internet services boomed in 2005.
"The broadband market, without a doubt, is the future" of the telecoms business, Xavier Ferreira said at the Reuters Latin America Investment Summit in Sao Paulo.
"We're gradually transforming our entire fixed-line network ... into a broadband base," he added, citing the example of South Korea, where he said more than 70 percent of all fixed lines also subscribe to broadband services.
Telefonica's local unit, Telesp (TLPP4.SA: Quote, Profile, Research, Stock Buzz), controls about 96 percent of the fixed-line market in Sao Paulo State, Brazil's wealthiest and most populous state. But for the last three years its client base has remained stagnant, forcing it to invest heavily in new technologies like high-speed Internet and other broadband services.
In 2005, that strategy began to pay off. The company's broadband client base expanded by a whopping 46 percent, finishing the year with 1.21 million clients. Xavier Ferreira said he expects the client base to grow between 25 percent and 30 percent in 2006, to about 1.6 million.
Telefonica, which has invested more than $18 billion in Brazil since the country's telecoms sector was privatized in 1998, already had 1.3 million broadband subscribers in March -- or about two-thirds of Sao Paulo's broadband market.
Asked about the long-term growth potential of Brazil's telecoms market, Xavier Ferreira acknowledged that low salaries and nagging poverty remain serious obstacles. Continued...
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