Brazil: Small and Midsize Business Telecommunications Profile, 2002 (Executive Summary) Executive Summary

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1 Brazil: Small and Midsize Business Telecommunications Profile, 2002 (Executive Summary) Executive Summary Publication Date: October 30, 2002

2 Author Marta Kindya This document has been published to the following Cluster codes: TELC-WW-EX-0488 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 Brazil: Small and Midsize Business Telecommunications Profile, 2002 (Executive Summary) One hundred small and midsize businesses were interviewed to determine their current services and find out their need for future services. The businesses were selected at random in several cities in Brazil. The needs of small and midsize businesses must be at the core of each service provider's marketing strategy. This is critical in the slow economies of Latin America, which are because of the slowdown of the U.S. economy and economic crisis in Argentina. Business customers (of all sizes) are demanding increasedcustomerserviceandmorecustomizedsolutions,aswellasbetter price,performanceorboth.thepreferenceisforawiderangeoftelecommunications services. However, uncertainty abounds as to what will be needed or available in five years. Gartner Dataquest initiated a survey of small (100 to 300 employees) and midsize (301 to 700 employees) businesses to enlighten audiences, such as carriers, financial analysts and equipment vendors, of the realities of the marketplace. Businesses with fewer than 100 employees were not considered for this survey. Thedataandvoicecommunicationsneedsofthetwosegmentsinvestigated show differences in the patterns of preferences. An interesting result was the extent of international communications from Brazil. The largest amount was to the United States, followed by the other Mercosur trade union countries. In other words, one would expect significant international traffic emanating to and from Brazil. However, the opposite is true: Brazil is a self-contained country when compared with other countries in Latin America. Table 1 provides a summary analysis of telecommunications penetration for each business size segment. A subjective telecommunications rating (very low to high) was assigned to each service within each segment. Market penetration wasthemaincriterion.theseassessmentsprovidearoadmapastowhere opportunity lies. Voice communications needs are served with PBXs and individual lines. Brazil does not have a lot of Centrex. Leased lines are used for voice and data. Mobile phone usage is very high. Businesses are interested in access to the Internet dial-up penetration is considered moderate, but the interest is in faster connections by all sizes of businesses. More intuitive is the low use of ISDN for Internet access. Instead, dial up for Internet access seems to be the vehicle of choice for most companies. DSL deployment for Internet access is catching up, with low to moderate ratings. This service has ample room for growth. Traditional services such as leased lines are used ubiquitously and plentifully by every size of business, including such outsourced services as managed private lines Gartner, Inc. 1

4 2 Brazil: Small and Midsize Business Telecommunications Profile, 2002 (Executive Summary) Table 1 Market Penetration by Business Category Service Small Businesses Midsize Businesses Voice Services PBX High High Centrex Very low Low Private Line Moderate Moderate Individual Line High Moderate Internet Access Dial-Up Moderate Moderate DSL Low Moderate Cable Modem Moderate Moderate ISDN BRI Low Moderate ISDN PRI Very low Low MMDS Low Low LMDS Low Low Data Services Satellite Low Low Leased Lines Moderate Moderate Frame Relay Moderate Moderate X.25 Low Low ATM Very low Very low Managed Services IP-VPN Low Low WAN Very low Very low Frame Relay Low Low ATM Very low Very low IP Low Low Private Line Low Low LAN Low Low Very low signifies less than 5 percent of companies responding. Low signifies 5 percent to 20 percent of companies responding. Moderate signifies 20 percent to 50 percent of companies responding. High signifies 50 percent to 75 percent of companies responding. Source: Gartner Dataquest (November 2002) Data services continue to grow. As has been projected for several years, the penetration of X.25 is being overtaken by frame relay, mostly through migration encouraged by the carriers, primarily Embratel. ATM remains an expensive, rarely used service. In tune to expectations, managed services are in low demand by small and midsize businesses. Managed services are in their infancy today, but interest in these outsourced services will grow as security concerns are addressed by service providers. BusinessinitiativessuchasERP,CRMande-commerceareintheirinfancy withlimitedinterestatpresentbutofgrowingimportancetosmallandmidsize businesses Gartner, Inc. October 30, 2002

5 Brazil: Small and Midsize Business Telecommunications Profile, 2002 (Executive Summary) 3 Opportunities As demonstrated by the findings, Brazil shows ample opportunity for traditional services. These opportunities stretch across every business and area. The challenge is to change the way some businesses, especially small and midsize, are served, that is, the same as large businesses. Service providers particularly startups often overlook smaller businesses in favor of catering to larger accounts. Many times smaller business have no competitive choice and are not offered more favorable offerings such as bundled solutions. In the area of IP-based services, so-called next-generation services, a much needed customer education program, is required. Value propositions must have near-term demonstrable and tangible benefits because capital investment is involved, as well as the effect on business-critical operations. The small business community often does not understand the importance of IP and broadband services. Small Businesses Opportunities for small businesses are as follows: Despite being hit hard by the economic slowdown and the devaluation of the real, small businesses will realize growth from their operations. Indeed, this growth will translate into increased and enhanced telecommunications services, particularly enhanced services. The penetration of services such as frame relay, managed services, ATM, DSL, cable modem and ISDN services is considered moderate to low. Because take-up rates are particularly low, growth in these enhanced services will be brisk. LMDS service is almost nonexistent, with only a handful subscribing to these services. Moderate penetration of leased lines has been seen among small and midsize businesses. The opportunity lies in additional lines. Carrier-managed services are expected to increase significantly, from low to moderate penetration, during the next five years. Midsize Businesses Opportunities for midsize businesses are as follows: Fixed wireless services such as MMDS will become prevalent in this business sector. While LMDS can provide alternative broadband access, it is dependant on operators that are interested in obtaining an LMDS license when it's available. Accordingly, LMDS deployment has been slow in Brazil and is expected to remain so. DSLserviceswillleadthewayforInternetaccess.Thereasonisbudgetary DSL prices are considered affordable in most regions. IP-based services are considered affordable, and growth will be strong. On the other hand, ATM is considered costly. As business demands increase, prices will come down to some degree. ATM services are not expected to have a large impact in this sector, except for businesses with a lot of data, such as banks. For the full report, see the Gartner Dataquest User Wants and Needs Brazil: Small and Midsize Business Telecommunications Profile, 2002" (TCPS-WW-UW-0113) Gartner, Inc. October 30, 2002