Prepared for the Globelics Academy The Telecommunications Restructuring Process in the 90s: a comparative study of the impacts on the Brazilian and Spanish innovation system Marina Szapiro PhD Candidate and Associate Researcher of the Research Network on Local Productive and Innovative Systems - RedeSist, Economics Institute, Federal University of Rio de Janeiro, Brazil Prepared for the Globelics Academy Lisbon 25th May to 3rd June, 2004

Structure of the presentation Theoretical Framework Research aim Hypothesis Methodology Preliminary findings

Theoretical Framework: Neo- Schumpeterian Literature National Innovation Systems Conceptual instrumental for the understanding of innovation dynamics Developing countries specificities: macroeconomic environment as a constraint to technological and innovative development; instability of institutional, political, and financial environment. Economics of Telecommunications New set of influences based on internet technologies: fundamental changes transforming the telecom industry; Institutional changes in the telecommunications industry: liberalization and deregulation; New technological regime: R&D intensive activities concentrated in the equipment suppliers.

Objectives and Relevance of the research To study the international process of regulatory and institutional changes in the telecommunications sector To analyse the telecommunications restructuring strategies in Brazil and Spain and its impacts on their innovation system Why this comparison? In the 80s, Brazil and Spain had similar situations on the telecommunications sector; Actually, Telefonica (Spain) is the major carrier in Brazil; and To continue studying the telecommunications innovation system in Brazil.

Hypothesis The adoption of different liberalization and deregulation strategies produces diverse impacts on the structure and organization of the telecommunications sector and on the national innovation system The existence of implicit and explicit industrial and technological policies influences substantially the results of the process

Methodology Literature review on NIS and Economics of Telecommunications Field Research in Spain and Brazil Spain: Interviews with Telefonica, Telefonica I+D, CMT, equipment suppliers, Researches etc. Brazil: Interviews with Telefonica, other carriers, equipment suppliers, Anatel, CPqD, Communications Ministry, etc.

Brazilian telecom innovation system (From the 1980s to mid 1990s)

Brazilian telecom innovation system: main achievements Gradual involvement of multinational subsidiaries in the process of innovation and technological capability development Establishment of a network of local suppliers (120 local firms responsible for 17% of the market in 1982) Local development of key technologies for the telecom system expansion (Trópico) Reduction in the investment costs of building the Brazilian telecom network

The Context of Telecommunications Restructuring Processes in Brazil and Spain (I) SPAIN: Internationalization of Telefonica in the end of 80s, Liberalization (EU) and privatization in 1995 and 1997 (with golden share) End of Telefonica’s monopoly Strong presence of Telefonica in Latin America BRAZIL: Trade liberalization of the beginning of 90s, Liberalisation process (1995) and Telebrás’ fragmentation and privatisation (1998) Entrance of new international operators Increase in investments Increase in number of fixed and mobile lines

Impacts on the innovation systems (I) Spain Internationalization of national equipment suppliers Increase in innovation investment and activities by national SME and multinational subsidiaries Strengthening of Telefonica I+D Brazil Entrance of new equipment suppliers Increase in imports of telecom equipment and acquisition of dynamic nationally owned firms by MNCs subsidiaries Privatisation of CPqD and uncertainty

Impacts on the innovation system (II) Brazil: Denationalization of the equipment industry

Impacts on the innovation system (III) Brazil: Increase in telecommunications imports of components, parts, pieces and final products

Impacts on the telecom innovation system (IV)

Impacts on the innovation system (V) Spain: Growth and Internationalization of Telefonica I+D (links with national system of innovation)

Impacts on the innovation system (VI) Spain: Increase in innovation related investment by national equipment industry Increase in R&D activities of multinational subsidiaries in Madrid during the 90s (Rama et alli 2002). Significant increase in exports of national firms (almost 40% of production in a sample of 5 firms) (López and Molero, 2004). Important interactions among Telefonica I+D and the Spanish telecommunications industry

Preliminary Findings Brazil and Spain: Adoption of different telecom restructuring strategies with impacts on the innovation systems Brazil Privatization: Maximization of the entrance of foreign capital Entrance of multinationals carries and denationalization of the equipment industry Uncertainty of the R&D telecom laboratory Weakening of Brazilian telecom IS Spain Internationalization of Telefonica and links with Spanish telecom industry Growth of Telefonica I+D Strengthening of Spanish telecom IS