Summary
Telefonica's R$ 2 Billion Capex for 2010 is actually lower than what the operator invested during 2009 and similar to the announced investments from other market players such as TIM and Oi
Analysis
The fact that the announcement took place after Vivendi outbid Telefonica on the race for GVT is not a coincidence. Part of this new investment would be directed at expanding the fixed network as well as upgrading/replacing portions of the existing infrastructure in order to be able to offer high data transmission speeds – over the 20 Mbps. This would give some room of maneuver to the operator when trying to differentiate its bundled service offer. Furthermore, improving the quality of service should be a priority for the operator especially after all the problems that it experience during with its broadband service during the current year.
If we look into average investment during the 2009 – 2011 period we get that Telefonica investment is lower than the announced investment by operators such as Oi (R$ 12.3 billion in the period) and TIM (R$ 7 billion in the period). That said, we need to highlight the difference among the various operators networks and to account that the investment announced by Telefonica does not include a mobile operation. As of 3Q09, Telefonica and Portugal Telecom Capex investment in Vivo had already surpassed the R$ 1.69 billion and will most likely surpass the R$ 2 billion mark by year-end 2009.
Finally, any expansion outside Sao Paulo state will be targeted to selected geographic niches. A R$ 2 billion Capex investment is not enough to build out a massive national presence when the operator is urged to modernize its network on its home turf.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
