Winning bidders' obligations
Requests for clarification and possible objections
At an extraordinary meeting on 24 September 2021, the board of the Brazilian Telecommunications Agency (Anatel) unanimously approved the bid notice for the auction of radio frequency bands that will enable fifth-generation technology (5G) to be implemented in Brazil. The document's final version was published on 27 September 2021.
Scheduled for 4 November 2021, the auction will enable innovative technologies to be implemented in Brazil. On a scale not seen before in Anatel's history, the agency will auction the 700 megahertz, 2.3 gigahertz, 3.5 gigahertz and 26 gigahertz bands, granting authorisations for either 10- or 20-year terms that can be renewed under regulations in effect at the time of their expiration. Considering the public price for the radio frequency band authorisations and the existing net value of the winning bidders' obligations, the value of the 5G auction comes to approximately 49.7 billion reais (roughly $9 billion).
The socioeconomic potential of 5G is as significant as the size and complexity of the auction itself. Considered the main part of the 5G-compatible spectrum, the 3.5 gigahertz band's availability marks the first step towards promoting other innovative technologies such as the internet of things, artificial intelligence and augmented reality.
Although it is known as the "5G auction", the lots awarded in the bid process also include radio frequency bands suitable for fourth-generation technologies (4G), the coverage of which will be expanded. Thus, 5G technology is expected to enable a new cycle of development in the country, as more and more locations become connected and the possibility of implementing new technologies with low latency and high-speed networks increases.
Anatel first started the 5G auction project in 2018. In February 2020, a public consultation concerning the bid notice was held, which the board deliberated on in November of the same year.
On 25 February 2021, Anatel approved the document and then sent it to the Federal Court of Accounts (TCU), which approved it on 25 August 2021. Anatel then evaluated the TCU's recommendations, putting the matter to a vote at an extraordinary meeting on 13 September 2021 before it was approved on 24 September 2021.
The non-collection auction model that Anatel has adopted directs a significant part of the funds collected towards investments in communication infrastructure and connectivity in unserved areas. For this reason, the winning bids that exceed the minimum prices corresponding to each auctioned lot will have the extra funds converted into additional obligations.
Therefore, those that win these lots will be bound to fulfil a series of commitments related to each radio frequency band, including the following.
Connectivity in public elementary schools
The amount corresponding to nine times the minimum value of the 26 gigahertz bands must be directed towards implementing connectivity projects as indicated by the Ministry of Education. This initiative seeks to improve access to information and communication technologies for academic purposes in public elementary schools, in compliance with the Connected Education Innovation Policy, established by a 2021 law and a 2017 decree. To enable such projects to go ahead, the winning bidders of the 26 gigahertz band must establish a School Connectivity Administrator Entity.
Instituted by a decree enacted in 2021, the Integrated and Sustainable Amazon Programme (PAIS) is an offshoot of the Connected Amazon Project, which the Brazilian army has already implemented. The programme aims to expand underwater fibre-optic telecoms network infrastructure to connect people living in the Amazon's main cities.
Federal government's private communication network project
The project consists of creating a fibre-optic network for all federal government agencies and an exclusive mobile network for public use, in accordance with an ordinance issued by the Ministry of Communications. It is worth mentioning that because of certain TCU contributions and because Anatel's commissioner Moisés Moreira demanded it as a condition for casting his vote, a decree was published on 17 September 2021, removing Telebras's exclusive right to build private government networks. Third-party operators may now also provide such a service.
To make it possible for the winning bidders to meet their commitments, the 3.5 gigahertz Band Administrator Entity (EAF) will be created. Composed of the 3.5 gigahertz band's winning bidders, the EAF will run the PAIS and manage its funding, and will also implement the government's private network and promote the clearing of the 3.5 gigahertz band.
Among other specific commitments, the winning bidders of the 3.5 gigahertz band must vacate the radio frequency band adjacent to the spectrum fraction awarded, called the "C-band" (from 3.7 gigahertz to 4.2 gigahertz) and migrate to the Ku-band. Clearing the C-band is necessary as 5G networks in this band can interfere with television receive-only signal transmissions.
However, during voting on adjustments to the bid notice, this item was deemed controversial, as part of the board considered the July 2022 deadline for complying with the obligation to be too short.
In addition, the board suggested the possibility of bringing forward the use of the 3.5 gigahertz band in state capitals that use mostly the digital signal (and would therefore suffer little from reception interference). Eventually, most of the Anatel board supported Moreira's proposal to release the band on 30 June 2022, with a possible 60-day deadline extension for technical reasons.
Another issue that stirred debate concerned whether the specific order in which the 5G network coverage is rolled out should be relaxed. According to a draft of the bid notice presented by commissioner Emmanoel Campelo, certain winning bidders of national lots would be able to bring 5G to medium-sized cities sooner, while the original schedule prioritised rolling out services to the state capitals first.
In the end, the board decided against relaxing the order of the rollout, siding with the counterargument that this could reduce competition for regional lots and drive out small internet service providers.
While analysing the draft bid notice, the TCU added certain performance guarantee requirements. In addition to their financial contributions, the auction winners must also offer guarantees for carrying out their commitments, which will be passed on via the EAF.
As stated in the document draft, failure to fulfil commitments may result in a loss of authorisation to exploit the personal mobile service and to use radio frequencies.
Requests for clarification and possible objections
Bidders wishing to request clarification or object to the bid notice must submit their arguments to the president of the Special Bidding Commission within 10 days of the publication of the document in the Official Federal Gazette.
For further information on this topic please contact Fabio Ferreira Kujawski, Paulo Marcos Rodrigues Brancher, Thiago Luís Sombra or Thays Gentil at Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email ([email protected], [email protected], [email protected] or [email protected]). The Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados website can be found at www.mattosfilho.com.br.
An earlier version of this article was first published on Único.