1 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY 3 2 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY SUMMARY OPPORTUNITIES..........................................................................4 REGULATORY................................................................................7 RELEVANT EXPERIENCES..........................................................11 OVERVIEW OF THE SECTOR IN BRAZIL..............................18 MAIN CONTACT..........................................................................22 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY 5 4 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY A) Passive infrastructure B) Fiber optics A booming passive infrastructure market, boosted by the need for increased penetration and of mobile telephony networks and the implementation of 5G networks, largely as a result of coverage obligations arising from the recent radio spectrum Bidding within the 700 MHz, 2,5 GHz, 3,5 GHz e 26 GHz. Public policies within the telecommunications sector focus on the expansion of fiber-optic networks. The demand for high-capacity connectivity is widely known, aid there are benefits for investing on unserved locations, as well as in small or uncompetitive municipalities, at all levels. There is a growing demand from service providers for different formats and types of equipment (camouflaged antennas, street level solutions, and small cells), aimed at indoor and outdoor operations. Important players of the industry, such as ISPs and “infracos” (telecommunications companies that own infrastructure without providing services in the retail sector), have been carrying out efforts and investing in the construction and expansion of high-capacity networks (backbone, backhaul, longhaul, access networks, etc). Strong market consolidation trend, consisted of the acquisition of small ISPs by regional providers, in addition to the acquisition of fiber networks of wholesale offers. 5G and connectivity solutions based on the free spectrum (NR-V, WIFI 6E e 7, etc.) create opportunities for smart city initiatives, involving massive use of “street furniture”, and enabling partnerships between the Government and private entities. A new regulation from ANATEL on returnable assets and the potential adaptation of fixed telephony services, which provides on the exemption from burdens related to returnability, in addition to strengthening the offloading trend involving towers from telecommunications services providers. MAIN OPPORTUNITIES IN THE BRAZILIAN TMT MARKET OPPORTUNITIES TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY 7 6 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY MAIN OPPORTUNITIES IN THE BRAZILIAN TMT MARKET HOT TOPICS OPPORTUNITIES REGULATORY C) Spectrum A) ADAPTATION OF FIXED- LINE TELEPHONE CARRIER CONCESSIONS AND DISCUSSIONS ON RETURNABLE ASSETS B) SECONDARY SPECTRUM MARKET: A recent amendment to the General Telecommunications Law enabled the creation of a secondary spectrum market, which, in turn, enabled the sharing, leasing, rental or transfer of radio frequencies. Given the imminent termination of fixed-line telephone carrier concessions, to take place in 2025, discussions will intensify regarding the migration of One of the most important discussions to be held, which can significantly impact the sector, concerns returnable assets especially in regard to whether they are to be returned to the federal government. There is significant dissent between the opinions of ANATEL and the Federal Audit Court on the topic. The Brazilian Telecommunications Agency (ANATEL) is soon expected to change its regulation regarding spectrum, in order to facilitate and stimulate the radio spectrum market. Implementing remedies, resulted from the sale of movable assets owned by Grupo Oi, creates new opportunities for entry into the mobile services market, based on sharing spectrum with incumbent players through systems enabled by the secondary use of frequencies, ran-sharing and MVNOs (mobile virtual network operators). There is a consistent trend in Brazil regarding balancing policies for the regulation of licensed and unlicensed spectrums, such as the recent approval of 1.200 MHz for unlicensed use in the 6 GHz band, encouraging new business models that employ restricted radiation. Recently, ANATEL regulated technical and operational aspects of the implementation of private networks with access to the spectrum, in the 3.7-3.8 GHz and 27.5-27.9 GHz bands. concessionaires into the private framework of service providers, which will involve issues such as (A) mandatory investments for migration (expansion of broadband networks, investments in transport infrastructure, etc), (B) convergence of existing fixed-line services in the future and (C) rebalancing of concession contracts, requested in arbitrations by concessionaires. 9 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY REGULATORY HOT TOPICS C) REGULATORY SIMPLIFICATION D) WHOLESALE NETWORKS ANATEL is currently allocating efforts to simplify its telecom regulation, especially considering: i) a convergence between different telecom services, which would therefore require an equivalent regulatory treatment, and ii) the need to address important issues/ demands of the telecom sector, such as the regulation (or not) of wholesale- only operators and authorization of regulatory sandboxes. The draft regulations under discussion aim to reduce the regulatory burden applicable to telecom operations. Regarding regulatory sandboxes, the drafts aim to provide flexibility for the operation of innovative/disruptive telecom services, allowing players to operate under regulatory sandboxes and facilitating access to licensed and unlicensed spectrum for experimental purposes. Subsequent to the emerging of large wholesale operators, many of which result from the structural segregation of major telecommunications conglomerates, ANATEL will face issues related to methods and criteria applied to the establishment (or not) of its regulation, particularly in regard to competition matters. ANATEL’s treatment of the topic will impact not only wholesale operators, but all those who contract through them. E) AUDIOVISUAL MEDIA REGULATION There is a growing simplification trend regarding traditional audiovisual media distribution services (V.G., pay-TV services, in all types of technology), with the reduction of the regulatory burden, due to competition with over-the-top platforms. In parallel, ANATEL has expressed interest in becoming a regulatory entity within the audiovisual scope, undertaking duties currently allocated to the Ministry of Communications (open-channel TV services) and the Brazilian Film Agency (ANCINE), such as production, programming and packaging. TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY 11 10 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY RELEVANT EXPERIENCES Advised Algar on the radiofrequency auction that will enable the implementation of 5G technology in Brazil and in several matters concerning the TMT sector. Advised Claro on regulatory matters and negotiation of strategic agreements with MobiTV concerning services of TV signal transmission via mobile phones. Advised GlobeNet on the attainment of prior approval for the acquisition of Vtal’s control. Advised on important regulatory approvals involving telecommunications and media markets in Brazil, such as the acquisition of WarnerMedia by AT&T. Advised SES on matters concerning the TMT sector and data protection. Advised Google on litigation concerning Google Ads, with representation in leading cases. Advised Disney on a regulatory dispute with ANATEL and ANCINE involving the classification of audiovisual streaming offers in Brazil. Advised two important market players on recent discussions about the revision of their General Plan of Competition Goals (“PGMC” i.e., ANATEL’s antitrust regulation). Advised Camara-e.net on topics of interest to its members before ANATEL and ANCINE, such as the broadcasting of audiovisual content by OTT platforms, battle against audiovisual piracy, responsibility of marketplaces in trading non-approved equipment and cybersecurity, among other topics. Advised an important international satellite operator on its operations in Brazil, including the structuring of a partnership with the Government to meet the goals of the National Broadband Plan. Advised important players in the satellite industry on obtaining landing rights for operation of NGSO constellations over Brazilian territory, including LEO and MEO satellites. Advised SKY and its controlling shareholder on the implementation of a control transfer operation, including on obtaining all necessary regulatory authorizations; and on the negotiating of contracts of the subscriber base of another important Brazilian player. Advised one of the largest streaming platforms through the entire process of implementing its business in the country, including licensing of content, evaluation of regulatory aspects of the operation and structuring of the business model in Brazil. Advised an important player on the defense of its pilot-project for the implementation of an optic fiber network using light poles in the city of São Paulo. Advised an important player in the neutral networks market on the negotiation of complex agreements, including provision of FTTH network services and provision of backhaul and backbone services. Advised important OTT companies on the process of vacating the 6 GHz band for the implementation of Wi-FI 6E technology in Brazil. TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY 13 12 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY RELEVANT EXPERIENCES Advised SEJA DIGITAL on matters regarding the fulfillment of public notice obligations related to 700 MHz band. Advised Shopee on several matters within the TMT sector, especially focusing on ANATEL’s activities to restrain the sale of non-approved products on marketplace platforms. Advised FEBRABAN on several matters concerning the TMT sector, notably related to telemarketing. Advised Grupo Conexão on several matters within the TMT sector. Advised OBVIOUS on several matters within the TMT sector. Advised V.TAL on several matters within the TMT sector. Advised FIBRASIL on several matters within the TMT sector. Advised the UOL Group on several matters within the TMT sector. Advised CNN on several matters within the TMT sector. Advised Vero on obtaining regulatory authorizations for the transfer of authorizations and implementation of corporate transactions, in order to consolidate the ISPs market. Advised American Tower on several matters related to the TMT sector, including the sharing of infrastructure and municipal government licensing. Advised Digital Realty on the incorporation of its joint venture with Brookfield for the operation of Ascenty, the largest Brazilian data center company. Advised ABR on regulatory matters and negotiation of strategic agreements. Advised several players in the telecommunications sector with matters concerning the use of electricity distribution poles, including in disputes before the Conflict Resolution Commission of Regulatory Agencies. For the last 17 years, we have constantly advised several companies in the telecommunications sector on the defense of their interests before ANATEL, including within the scope of PADOs, handling the most different matters (consumer rights, reversible assets, violations of rules for service provision, irregular spectrum usage etc.). Advised Eletromidia on several matters within the TMT sector. 15 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY OVERVIEW OF THE SECTOR IN BRAZIL Over the last years, the telecommunications, media and technology sector has grown significantly in Brazil and around the globe. In addition to being the object of several government policies aimed at its development, the sector was also impacted by the COVID-19 pandemic, which played a role in fostering the sector’s growth and rendering it more dynamic and competitive, following an increase in the demand for remote connectivity and entertainment. The IT services sector in Brazil showed a 5.9% growth in 2021, amassing over BRL 46 billion in revenue. The main factors for this development were hosting and IT consulting services, which grew 12% and 8% respectively. 2021 was a year marked by expansions in a more heated market, capitalizing on benefits arising from modernization and digital transformation accelerated by the pandemic. The software and ICT services industry is expected to grow 8.2% in 2022. Cybersecurity still presents IT Services (2021) Hosting (2021) IT Consulting Services (2021) Software and ICT Services Industry +5.9% 46 billion (BRL) +12% +8% 8.2% expected 2022 opportunities for growth, as well as the recently implemented 5G network -- as companies rally to make full use of the newly available spectrum. The Brazilian media market grew 19% in the first three months of 2022 alone, reaching BRL 3.450 billion in revenue. Such growth indicates a market recovery following the pandemic, which considerably affected the advertising industry in 2020 and in early 2021. All media recorded growth when comparing jan-mar/2021 to jan-mar/2022. Internet remains the main medium driving overall growth due to advertising investments: in the first TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY 17 16 TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY quarter of 2021, BRL 675.8 million in media purchases were recorded. Now, in the first three months of 2022, this amount has risen to BRL 951.2 million (an increase of more than 40%). The telecommunications sector is expected to invest BRL 33.5 billion in 2022 as per estimates by Anatel (Brazil’s telecommunications regulatory agency). The amount is 20% higher than in 2021, when approximately BRL 28 billion was invested. Overview of the sector in Brazil The expectation is that the capital allocated will increase in the coming years due to the obligations established in the 5G auction (recently held and newly implemented in major cities). Anatel estimates growth of 10% per year for fixed broadband, which should reach 45.7 million accesses Media Market (2022) Media Purchases (2022) Media Purchases (2021) +19% 3.450 billions (BRL) +40% 951.2 million (BRL) 675.8 million (BRL) Telecommunication 2021 2022 estimate 28 billion (BRL) 33.5 billion (BRL) +20% than 2021 In regard to 5G and telecommunication towers specifically, Brazil currently has 103 thousand transmitters. To fully consolidate 5G nation-wide, up to 1 million antennas will need to installed to achieve national coverage. The installation program, which spans the next six years, is fertile ground for companies and investors. Considering current trends and results, it is safe to assume that TMT will continue to provide opportunities now and in the years to come -- and we will be here to assist you www by the end of 2022. Optic fiber already accounts for 66% of all accesses in Brazil, but there is still room for growth. TELECOMMUNICATIONS, MEDIA AND TECHNOLOGY 18 MAIN CONTACT TOMÁS PAIVA Partner tpaiva@demarest.com.br demarest.com.br/en