The International Finance Corporation, a unit of the World Bank, has decided to invest US$97 million in Brazilian telecom carrier ON Telecom to help the South American country bolster its telecommunications infrastructure.
The financing package is comprised of US$27.5 million in equity purchase and a loan of up to US$70 million, including the equivalent of approximately US$40 million in syndicated loans.
Low Internet penetration has long been a hurdle for Brazil to boost its economic fortunes, with low Internet speeds also becoming an increasingly common complaint across the country.
The World Bank believes that in Latin America every 10% increase in penetration of broadband services can result in a 1.3% increase in economic growth. ON Telecom’s potential market consists of more than 10 million people in 133 cities and towns where broadband Internet penetration is very low.
Many of the company’s customers are first-time broadband users who had no previous connection to broadband services, or users who switched from other Internet service technologies with significantly lower speed and capacity.
ON Telecom, which has investor George Soros as one of its partners, seems to have taken aggressive steps to widen its subscriber base. It is building a fiber-optic cable network connecting smaller cities across Sao Paulo State, and has even launched 4G telecom service to sign up business customers.
“ON’s team is proud to dedicate its efforts to the purpose of connecting the unconnected. We are very excited to have IFC joining us in this mission,” said Farès Nassar, CEO, ON Telecom.
“Improving access to broadband is key for Brazil’s competitiveness and economic growth, said Aniko Szigetvari, head of telecom for the IFC in Latin America and Africa. “Our investment in On Telecom plays an important role in the IFC’s strategy to help address Brazil’s infrastructure bottlenecks and unlock the innovation and efficiency gains that are created by increased internet access”.
Since 2008, the IFC has committed close to US$1bn to supporting the telecommunication sector in Latin America. In fiscal year 2014 the IFC’s commitments to the telecom sector in Brazil represented 55% of overall commitments to the telecommunications sector in Latin America.
In addition to telecom, the IFC has been investing about US$2 billion per year in Brazil to help address the country’s most pressing development challenges, including those of urbanization, social inclusion, competitiveness and productivity, as well as management of natural resources.