Even if the tariff increase approved by Anatel, averaging 28.75%, is justified in law and complies with the terms of the ILECs? license, it?s far more than would have been warranted based on the increase in their costs, say financial analysts consulted by TELETIME News.
Indeed, the difference between the tariff increase and the rise in telco costs over the last 12 months will be the main argument presented by consumer defense associations that plan to challenge the hike in the courts.
The terms of the ILECs? license specify annual tariff reviews linked to the IGP-DI index, which rose 32.75% in the 12 months through March 2003. The revenues and costs of the three ILECs behaved quite differently in the same period:
* Telefonica São Paulo (Telesp Fixa): revenues rose 13.9% and costs 16.34%
* Brasil Telecom: revenues rose 14.35% and costs 13.06%
It?s worth noting that revenues rose more than costs except for Telefonica São Paulo. Moreover, all three ILECs reported substantial profits despite the sharp increase in interest expense in the period. Indeed, Telemar?s net income rose 22% year over year in the first quarter of 2003, partly owing to appreciation of the local currency.
Telemar reported net income of 514 million Brazilian Reals, Telesp 1.084bn BRL, and Brasil Telecom 473m BRL (all numbers for operating companies only).
Legality
Some telecoms experts who are highly familiar with the General Telecoms Act and the terms of the ILECs? license disagree with the argument that refusing to grant the tariff increase now would have been tantamount to breach of contract. According to one source, for example, clause 11.1 of the license states that tariff reviews ?may? be linked to the IGP-DI and doesn?t employ the word ?must? or any similarly categorical term. Only interconnection rates must be index-linked, as specified in clause 11.2. In conclusion, notes the source, there was indeed scope for negotiation.
