The Brazilian Legal Profession

Volume 4 • Issue 6 • September/October 2018
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Calling All Corporate Lawyers

The development of the Brazilian telecom sector

For half a century, the Brazilian economy centered on the state. State-owned enterprises (SOEs) dominated core sectors of the economy, and tactics such as import substitution were widely utilized to support domestic industrialization and economic development. By the 1990s, this all began to change. As Brazil reopened its political system following two decades of military rule, it also began to reform its economy—a process that was supercharged by globalization. This shift brought a whole set of economic changes to Brazil, including reduced tariffs, the privatization of SOEs, reductions in regulations, increased foreign direct investment, and the growth of overseas investment. Of course, an economy does not transform overnight. Privatization, for instance, is an extremely complicated and messy process in which long-standing and vested interests often collide with new economic and political realities. This article examines one critical component of that dynamic in context—the role of corporate lawyers in the economic development of Brazil—based on an in-depth examination by Fabio de Sá e Silva and David M. Trubek.

Sá e Silva and Trubek explain the trajectory of the Brazilian telecom sector “resembles that of the country.”

To take a step back, Sá e Silva and Trubek’s study on corporate lawyers in the political economy of Brazil is part of the Harvard Law School Center on the Legal Profession’s wider Globalization, Lawyers, and Emerging Economies (GLEE) research project. On a macro level, GLEE examines how globalization reshapes the market for legal services in some of the world’s most important emerging economies, including India, China, and Brazil. GLEE includes a series of studies focused on how globalization has impacted the corporate legal profession’s major players, such as law firms, in-house legal departments, the bar, law schools, and other critical stakeholders. (For more, see “The Brazilian Legal Profession.”) Sá e Silva and Trubek’s research into the political economic development of Brazil offers a micro-level portrait of the role of corporate lawyers in mediating economic development and change. “We wanted to highlight how lawyers were contributing to making all this happen and playing a role—an active role—in constructing the legal institutions that facilitate globalization. We did that through an in-depth examination of the Brazilian telecom sector,” says Trubek.

In their 2018 Law and Social Inquiry article, “Legal Professionals and Development Strategies: Corporate Lawyers and the Construction of the Telecoms Sector in Brazil (1980s–2010s)” (a version of this piece was also published in The Brazilian Legal Profession in the Age of Globalization: The Rise of the Corporate Legal Sector and Its Impact on Lawyers and Society [Cambridge University Press, 2018]), Sá e Silva and Trubek argue that the development of Brazil’s telecom sector offers a prime example of the role corporate lawyers play in negotiating economic change. “The concept of globalization underlined throughout the GLEE project is, in many ways, concerned with the changes and continuities in the economics of Brazil, India, and China,” explains Sá e Silva. “And so it was important to explain the connection between the corporate sector and these processes. Using the telecom sector as a case study offered an illustration of that broader interplay between corporate lawyering and economic development in Brazil.”

The research includes in-depth interviews with 25 lawyers and other professionals involved with Brazilian telecom from the corporate bar, government, nongovernmental organizations, and academia. Interview protocol was structured with two types of responses in mind: each individual’s narrative of their own experience with the telecom sector as well as their conception of where legal professionals and their practices fit into those narratives. Sá e Silva and Trubek then employed qualitative methods of analysis, such as coding of transcripts, to arrive at their findings.

As Sá e Silva and Trubek explain in the paper, the trajectory of the Brazilian telecom sector “resembles that of the country.” At first, it was a state monopoly facilitated by SOEs. In the 1990s, it was privatized, and a regulatory structure was raised to support competition among private enterprises. The next decade then saw new forms of government intervention, paradoxically owing to those new regulatory structures that were established to facilitate the activities of private companies within and around the telecom sector. And at each stage, corporate lawyers were there. Below we explore the role that corporate lawyers played through the telecom sector’s transformation.

How Brazilian telecom evolved

“In the first stage, through 1995, the telecom sector was trying to work within the existing Brazilian legal structures and the existing legal rules. But it wasn’t doing what they wanted” explains David M. Trubek.

The Brazilian telecom sector in the first half of the twentieth century was, as Sá e Silva and Trubek describe, fragmented. A cacophony of more than 900 distinct enterprises ran the country’s telecom services without the aid of strong sector-wide regulation or coordination to measure and maintain adequate service delivery. In the 1960s the government restructured the sector to take the reins of its development and, after a civil-military coup, established a number of SOEs aimed at better integrating telecom services. And although the sector performed well for a time during this period—the number of connected landline phones increased from 2 million to 12.4 million between 1975 and 1985—the state monopoly was underfunded, outdated, and vulnerable to issues rooted in the larger government budget by the time the country began its transition to democracy in the late 1980s. Starting from that point, Sá e Silva and Trubek chronicle four moments in which corporate lawyers engaged with the development of the telecom sector.

Stage 1: Opening the Brazilian market (late 1980s–1995). As the state monopoly began to fall apart in the late 1980s, the sector was exposed to new pressures. International telecom companies were pushing to enter new markets like Brazil, and likewise Brazil was looking to attract foreign investment. As the authors note, this moment brought about immense challenges and opportunities for the small number of highly credentialed lawyers who had positioned themselves in proximity to telecom. At this point, however, lawyers were trying to work within existing legal regimes. “You have to understand that this is a gradual process of privatization,” says Trubek. “The creation of the legal structure of privatization—and the effort to defend it, make it work, and perfect it—took time.”

After the passing of the 1988 Constitution and through the early 1990s, Brazil took some steps to open the door to private interests getting more involved in the provision of telecom services, but the sector was still operating under the same opaque system it had before—one in which legal issues were often considered secondary to more technical concerns. “In the first stage, through 1995, they were trying to work within the existing Brazilian legal structures and the existing legal rules,” explains Trubek. “But it wasn’t doing what they wanted. So rather than just interpreting existing laws, they decided that they needed to create a whole new legal system. That was the second stage.”

Stage 2: Constructing a new legal regime (1995–1997). Disagreement over competing interpretations of existing law culminated in the passage of new law aimed at attracting foreign investment, a process in which corporate lawyers tried to participate by drafting and submitting suggested norms that would help guide the opening of the sector. Over time, however, it became clear that a constitutional amendment was necessary to create an environment where investors would feel safe putting their money. In 1995 that amendment was passed, marking the end of state monopoly over the telecom sector. This change, in conjunction with the passage of related law, provided the ground upon which corporate lawyers could begin advocating for the interests of private enterprise in a serious and meaningful way.

“Rather than just interpreting existing laws, the telecom sector decided that they needed to create a whole new legal system,” says Trubek.

To create that investor-friendly environment, Brazil sought to emulate the regulatory structures of other countries. “They wanted to create a new legal system based on foreign models, particularly the idea of an independent regulatory agency, which was drawn from the United States’ experience,” says Trubek. The establishment of that regulatory agency in 1997, ANATEL (Agência Nacional de Telecomunicações), marked a new development in Brazilian law, and lawyers were a critical component required to put it in place. “The establishment of ANATEL took a lot of creative lawyering because the American model didn’t fit well within Brazilian doctrinal categories,” explains Trubek. “The corporate lawyers turned to elite scholar-practitioners expert in regulatory and public law, and brought them in to help devise this novel system. That was the creation of the basic legislation that’s still in effect.” In this way, corporate lawyers proved to be a critical intermediary.

Stage 3: Legitimizing the institutions (1998–2007). “The third stage was about trying to make this new system work,” continues Trubek. As Sá e Silva and Trubek note, constitutional and legal shifts notwithstanding, the inaugural board of ANATEL drew from the same population that had helped steer the state monopoly (whose controlling interest the state sold off in 1998). In other words, the regulatory agency’s board was dominated by engineers, and as Sá e Silva and Trubek put it, “old characteristics survived in new structures.” General disregard for lawyers and legal reasoning was among those characteristics to survive the initial transition, and it lingered on through the early days of ANATEL. As such, the engineers’ technical expertise guided the agency’s regulatory activity, which was often unclear and unpredictable to private companies trying to comply.

“You could say they get to a point where it basically works,” says Trubek. “But meanwhile there is this new government that takes office in 2002.”

This challenged the role for corporate lawyers on multiple fronts. On one side, there was a general “antilawyer” culture and an ongoing aversion to legalese. This made it difficult for corporate lawyers to mount legal arguments to push back against ANATEL’s often opaque policies. At the same time, if they relied too heavily on the courts in matters of regulation, they risked creating a whole new set of problems. Many corporate lawyers feared judicial overreach would be just as bad for their clients, believing that independent regulatory agencies should be left to regulate independently. “Once the courts are admitted into the conversation, you never know for sure how they will rule,” stresses Sá e Silva. “If you invite judges to participate and to decide upon the legality of these telecom policies and the behavior of the telecom companies, rather than just leaving these issues to the regulatory agencies, you may not like the result.” Indeed, if the telecom lawyers and private telecom companies were having a hard time navigating ANATEL’s regulations, the courts would hardly be in a better position to parse through the complexity. And this is all to say nothing of the enmity that could be produced and encountered if the courts were utilized in this way.

Despite all these challenges, corporate lawyers saw opportunity as well. Rather than confronting ANATEL directly or challenging them in court on behalf of their corporate clients, lawyers opted to file their own lawsuits as aggrieved citizens denied due process by the administrator. And, as this “creative insurgency” garnered some positive results, companies began to take the risk of filing due process lawsuits to avoid some of the steeper fines levied by ANATEL. “Even though corporate lawyers, as a general rule, didn’t want the Judiciary to intervene in regulatory policy, when they found that the state was going too far, they went to court,” explains Sá e Silva. As these tides were turning in court, changes in the government shifted leverage within ANATEL from the engineers to the lawyers. It was now required that regulators select legal counsel from among government lawyers, and their general counsel were now required to report to the attorney general. This confluence of events led ANATEL to be more sensitive to legal procedures, brought the intended effect of a more market-friendly structure into focus, and thus elevated corporate lawyers as the conduit between the private companies and the regulatory landscape around telecom.

“This third stage is marked by this consolidation,” explains Trubek. “And you could say they get to a point where it basically works. But meanwhile there is this new government that takes office in 2002. They don’t get around to telecom right away, but when they do, they have ideas of their own.”

Stage 4: Emergence of a new developmental state (2007–2014). With the ascendance of President Luiz Inácio Lula da Silva, former union leader and standard bearer of Brazil’s Workers’ Party, a new strain of state activism took hold in the executive. As Sá e Silva and Trubek report, Lula once said in reference to ANATEL that his predecessor had “subcontracted the business of governing.” Unable to directly steer telecom—since by that time private enterprise accounted for all telecom service providers—Lula tried to chart its path through executive decree, proclaiming “social inclusion” and “industrial development” as central goals for the sector to achieve. Soon after, ANATEL had a new president (a Lula appointee), a new board of directors, and the agency began issuing “counterpart obligations” in line with the Lula administration’s goals when private companies sought approval for what were previously routine requests—obligations such as expanding broadband internet access to thousands of municipalities and providing free broadband internet to tens of thousands of public schools.

The regulatory agency’s board was dominated by engineers, and as Sá e Silva and Trubek put it, “old characteristics survived in new structures.”

“They begin to press companies to do things that aren’t strictly consistent with the understanding of the relationship between the state and regulated industry, basically trying to force the companies to invest in infrastructure,” explains Trubek. “And don’t forget, this is also the time when the internet is beginning to be much, much more important.” He continues:

So you’ve got a new government coming in with a popular mandate trying to improve the condition of poorer groups in the country and trying to get the public schools to be more internet connected. Only, they don’t have a firm hold on the telecom sector. So instead, they conditioned certain regulatory approvals that the companies needed on their agreeing to make these investments themselves. Meanwhile, the corporate lawyers are asking themselves, “Do we fight this, or do we work with them?” And on that the corporate bar was split.

From this point, as Sá e Silva and Trubek describe it, comes a period in which the corporate bar adopted two different approaches to the government’s efforts to exercise control of the industry by manipulating the regulatory regime. Some championed outright resistance to what could be seen as illegal extractions, while others showed a willingness to negotiate with the government. “You could treat it as two different responses from the same group, or perhaps as its two faces,” explains Trubek. “In other words, the resistance strengthens the negotiations, and the negotiation is really what it’s all about.” As we see below, the give-and-take that emerges from this period leads to a peculiar balance between private interests and government efforts.

Symbiosis of the private sector and the state

The development of the Brazilian telecom sector is a story of tension—tension between state power and the development of private enterprise. Before the late 1980s, that tension was more or less thwarted by a closed economy. As the economy opened, a new regulatory regime sought to lesson this tension by easing private enterprise back into the fold. The state monopoly that had once dominated telecom was sold off, ostensibly completing the process of privatization.

“Together they are—or at least were, by the time of our research—creating this space for the private sector to contribute to the public good,” explains Fabio de Sá e Silva.

Only, in Brazil, the story did not end there. With the rise of the Lula administration came a resurgence of state involvement in telecom, albeit working with the same regulatory structure intended to facilitate the involvement of private companies. “It turns out that it wasn’t so easy, because of the partial successes in the period 1998–2007,” says Trubek. “So what emerges is a perhaps a more cooperative form of state activism based on a much more equal partnership with the private sector.”

“It’s hard to find that balance, but one thing to come out of our research into the Brazilian telecom industry is that a balance can be found,” says Sá e Silva. He explains:

It’s an ongoing conversation. Even though each side is defending one position, there’s always some room for compromise, and that’s where corporate lawyers are able to work together with government officials to make policies that are adequate to the needs of their clients but also adequate to developmental objectives of the government. Together they are—or at least were, by the time of our research—creating this space for the private sector to contribute to the public good.

As Sá e Silva indicates, this balance works—in many ways—because corporate lawyers were able to mediate between private enterprise and the state. When the market opened, it was lawyers who endeavored to transition a state monopoly into an investor-friendly sector of the economy within the existing legal framework. When that effort failed, it was lawyers who helped create a new one and, over the decade that followed, worked to legitimize that system to benefit all parties involved. The result is a telecom sector in an emerging economy with a unique flexibility baked in—one where the state can set meaningful goals while the private sector can feel relatively safe investing.

Beyond telecom

As Sá e Silva and Trubek note in their paper, the development of Brazilian telecom is emblematic of the development of the larger Brazilian economy—moving toward market liberalization but never fully privatizing, instead settling in a peculiar balance of state power and private capital. What larger lessons can be drawn from this case study?

Within Brazil, the development of the telecom sector and the role that corporate lawyers played offers an example of how a new regulatory structure based on foreign models served to facilitate the privatization process. Other areas, however, did not privatize to the same extent as telecom. “We believe similar things are happening elsewhere in Brazil,” notes Trubek. “But telecom turned out to be not simply a very good example but probably one of the clearest areas where this is happening.”

“Rather than just defending the interest of their clients and handling transactions under a set of ground rules, the work of these corporate lawyers involves understanding and engaging with the demands from the state,” concludes Sá e Silva.

Outside Brazil, similar patterns of market liberalization have emerged in other countries like China and India, but the implications of this case study are less clear. As the GLEE project documents, these other countries have undergone similar negotiations over how their economies strike the right balance, but as Trubek is careful to note, more research is needed before drawing any overarching conclusions. “One of my regrets is that we were never able to make this into a larger project,” he confesses. “It seems almost inevitable that this dynamic is going to be very common in countries that are partially liberalized in order to promote the domestic private sector and attract foreign capital while still maintaining sufficient state control. But without doing the research, of course, I could not say for sure.” Trubek concludes, “This was the first stage in a larger project, which should be carried out both in other sectors in Brazil and in other countries.”

“There are, however, three broad takeaways that grow from our research,” says Sá e Silva in closing. He summarizes:

First, in regimes whose economic development is more dependent on the state, corporate lawyers are still important. Second, rather than just defending the interest of their clients and handling transactions under a set of ground rules, the work of these corporate lawyers involves understanding and engaging with the demands from the state. And third, ironically, in doing so, corporate lawyers may help produce a new developmental legality, legitimizing hybrid regimes, marked by both free initiative and state leadership.

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The Brazilian Legal Profession Volume 4 • Issue 6 • September/October 2018

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