BRAZIL - ATSC DTV ADVOCACY AND SPECIAL

UNCLAS SECTION 01 OF 03 BRASILIA 003278

SIPDIS

SENSITIVE

USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON
STATE FOR EB/CBA AND EB/CIP

E.O. 12958: N/A
TAGS: ECPS ECON EINV BR
SUBJECT: BRAZIL - ATSC DTV ADVOCACY AND SPECIAL
REPRESENTATIVE MERMOUD MEETINGS

REF: STATE 221409


1. (SBU) Summary: The Charge delivered reftel letter from
Secretaries Rice and Gutierrez to Communications Minister

SIPDIS
Costa in a December 13 meeting. Costa stated his principal
concern with the ATSC standard was the expense of repeater
stations to enhance broadcast coverage. The letter was a
well timed follow-on to the December 7-9 visit to Brasilia
and Sao Paulo of Special Representative for Business Affairs
Frank Mermoud, who also advocated strongly for Brazilian
adoption of the ATSC digital television standard, including
in an interview with economic daily Valor. Mermoud met with
U.S. business representatives in both cities, pressed for
improvements to the business climate and advocated with
telecommunications regulator ANATEL on behalf of U.S.
company Qualcomm. In addition, he heard views on trade,
investment and the economy from Sao Paulo's federation of
industries (FIESP). End Summary.


ATSC Letter
--------------


2. (SBU) The Charge used a previously scheduled meeting (on
U.S. non-immigrant visa issues) with Costa on December 13 to
deliver a copy of reftel letter from Secretaries Rice and
Gutierrez and pressed for Brazilian adoption of the ATSC
Digital Television (DTV) standard. Costa said his biggest
concern was a technical one, i.e. that ATSC's (alleged) poor
broadcast coverage would force Brazilian broadcasters to go
to substantial expense to put in additional repeaters to
reach the majority of Brazilians who do not have access to
cable. Unlike in the U.S., he said, where television
programming principally arrives via cable or satellite,
Brazil relies on "terrestrial" broadcasting. He asked that
the ATSC forum send an "engineer, not a salesman" to discuss
the issue with his ministry, principally to explore whether
all the added repeater stations would be able to operate on
the same channel. Costa further claimed that the Japanese
and Europeans had put more on the table in terms of joint
research projects and other incentives, while the U.S. offer
of up to $150 million in possible OPIC financing for joint
projects had never been formalized in writing. Post is
following up with ATSC forum representatives on Costa's
request and meeting offer.

Mermoud ATSC Advocacy
--------------


3. (SBU) As Communications Vice Minister Tito Cardoso was
forced to cancel his scheduled December 9 meeting on ATSC
with Mermoud because of a family emergency, post has
delivered Mermoud's follow-up ATSC advocacy letter to
Cardoso. While in Brasilia, Mermoud advocated for Brazilian
adoption of the ATSC standard with Public Services
Superintendent Marcos Bafutto of telecommunications
regulator ANATEL and with Investment Director Ingo Ploger of
the Ministry of Development, Industry and Trade (MDIC).
ANATEL has a seat on the interagency committee that is
reviewing the DTV decision, Bafutto said. While not on the
interagency DTV committee, Ploger said his ministry has
involved itself in the debate on a DTV standard to ensure
that Brazil pursues an option that does not isolate it
(comment: an implied criticism of Brazil's previous decision
to create its own version of the PAL analog color TV system,
currently used only in Brazil and Laos) and which maximizes
opportunities for Brazilian business in both production and
research. Ploger welcomed greater detail on ATSC proposals
and on the possibility of OPIC financing for research and
development work in Brazil.

QUALCOMM
--------------


4. (SBU) Mermoud urged ANATEL to find a way, in a
commercially relevant timeframe, for cellular operator Vivo
to obtain bandwidth nationwide. Vivo is the leading
Brazilian user of Qualcomm's CDMA cellular phone technology
but has been losing market share to GSM operators that have
been able to obtain a nationwide footprint. Bafutto said
ANATEL would likely move to allow Vivo to use the 1.9
megahertz band in states where it does not currently have
bandwidth. However, since these frequencies are currently
dedicated to wireless local loop (WLL) services there would
be limits on Vivo's use of the frequencies. In particular,
Vivo would only be able to provide roaming access for
existing customers from other states, and not sign up new
customers in the states where it currently has no bandwidth.
Also, since existing regulations limit the number of mobile
phone services in a single state to four, Bafutto said,
ANATEL would have to hold public hearings on the change. He
expected the existing operators in those states would
express significant opposition. Bafutto nevertheless
expected to move forward with the change by mid-2006.
ANATEL was planning, Bafutto said, to tender licenses for
third generation cellular services by the end of 2006. Vivo
also would be welcome to bid for nationwide bandwidth in
those auctions.

Impediments to Business
--------------


5. (SBU) In a December 8 meeting with Mermoud, Philippe
Prufer of Eli Lilly explained to Mermoud the Sao Paulo
Amcham's focus on creating a better business climate in
Brazil. Prufer acknowledged the Chamber's advocacy efforts
had seen mixed results. On the macroeconomic level things
have greatly improved, while on the microeconomic level,
Prufer believed, things have actually worsened. Currently,
the Amcham is focusing on five areas for improving the
business environment in Brazil: regulatory agencies; IPR and
Innovation; fiscal reform (i.e. tax reform); piracy; and,
job creation.


6. (SBU) International Affairs Director Roberto Gianetti of
the Sao Paulo State Industry Federation (FIESP) enumerated
similar concerns when asked about his organization's view of
the principal impediments to doing business in Brazil.
FIESP's list includes: taxation; bureaucracy; a judicial
system where judge's interpretations of laws and contracts
are arbitrary and subject to frequent change; and, market
uncertainty caused by the political scandals. FIESP,
Gianetti said, will lobby the next government to change the
system of appointing judges for life without confirmation
hearings. FIESP supports having Congress choose from a list
of three candidates nominated by the President, according to
Gianetti.

IPR/Piracy and Pharmaceutical Patents
--------------


7. (SBU) In a roundtable session in Sao Paulo, Isabel Franco
of the IPR-focused law firm Demarest & Almeida discussed
recent efforts made to combat pirated goods, including
intensified law enforcement activity and public awareness
campaigns to emphasize the loss of jobs that have resulted
from the sale of pirated goods. She said progress has been
made in the legislative area and that draft language under
consideration for new legislation against piracy includes an
arbitration clause which bodes well for resolving future
cases more expediently. Steve Solot of the Motion Picture
Association stated the GoB is making progress in its efforts
to protect IPR and a National Council has formulated a
comprehensive 99 point plan to attack the problem. Solot
further opined that a decrease in value added taxes could
help provide incentives to encourage the sale of legal
products. On a separate issue, Solot expressed worry
regarding pending legislation, promoted by the Brazilian
media giant GLOBO, which would restrict foreign direct
investment in areas such as the provision of internet
service (i.e., activities that might compete with GLOBO's
lucrative cable pay television programming).


8. (SBU) Both Mario Grieco of Bristol-Myers and Prufer
discussed the challenges faced by the pharmaceutical
industry in Brazil. The GOB's recent threat to compulsory
license several anti-AIDs drugs produced by U.S.
manufacturers, Prufer and Grieco said, represented a short-
sighted solution to the current financial problems in the
country's health system. The bigger problem, they argued,
was that a sizable portion of the population lacks access to
affordable healthcare. This has resulted in a 3 tiered
distribution system for pharmaceuticals in Brazil - 1)
patented drugs, 2) generic drugs, and 3) similar drugs, with
medicines in this last category sometimes lacking in
quality, effectiveness, and safety. This system, they
declared, encourages the use of substandard medicines and
perpetuates a disjointed pricing reality in which patented
drugs that would typically sell for a cost of $100 in the
U.S. might cost approximately $220 in Brazil.


9. (SBU) Meanwhile, during their December 9 meeting in
Brasilia, Mermoud told MDIC Investment Director Ingo Ploger
that the importance of intellectual property to tech firms,
which were significant sources of economic and technological
development, argued for strong IPR protections. These firms
created significant local supply chain linkages, Mermoud
said, that helped spread technology and innovation through
the economy. Ploger replied that improving IPR protection
was a goal MDIC took seriously, particularly since his
ministry oversees the Brazilian patent institute.

Energy Sector
--------------


10. (SBU) Mickey Peters of Duke Energy observed that the
Lula government is implementing a new electricity sector
model in Brazil which, in effect, is reversing the trend of
privatization in an attempt to deliver lower prices to
consumers. The new law acts as a disincentive for potential
investors to build new power stations and many interested
parties, mainly from the European Union are walking away, he
said. This could result in electricity shortages in 3-5
years as the demand fueled by new growth will likely outpace
new energy supplies.


11. (SBU) In his meeting with Isaac Averbruch, a director of
electricity sector regulator ANEEL, Mermoud urged him to do
what he could as a regulator to mitigate the worst aspects
of the new energy model in their December 9 meeting.
Averbruch acknowledged that there would be a potential
shortfall in generation capacity beginning in 2009 or 2010.
In addition to the concerns raised by companies such as
Duke, Brazil's tortuous environmental licensing process was
also an important problem, he said.


12. (U) This joint Sao Paulo/Brasilia cable was cleared by
EB/CBA.

CHICOLA