Time to Rebuild the Balance Sheet

Jul 1, 2002

After several years of sinking billions of dollars into government-mandated expansion programs, Brazil's phone companies are finally ready to start increasing revenues and reducing debt.

The Brazilian government had several clear and simple goals when it privatized its state-run telecommunications company Telebrás in 1998: stimulate competition and ensure widespread telephone usage. The government also wanted to sell the Telebrás network for as much as it could. The plan, despite its flaws, worked. The government raised $18.92 billion from the Telebrás privatization auction.

Before privatization, telephones were only for members of middle class and up. Since 1998, penetration rates for fixed-line phones have risen steadily as foreign companies poured another $20 billion worth of investments into the sector. And competition did indeed surge after the government broke Telebrás into a mosaic of regional and national local networks, long-distance carriers and cellular providers.

Although the network now operates tolerably well, the industry is rife with shareholder disputes and bitter rivalries between companies struggling to get ahead in...

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