Telefonica Acquisition of TI Likely to Face Regulatory Opposition

Spain's Telefónica is likely to face regulatory opposition in Brazil after having secured control of Europe's fourth largest telecoms operator Telecom Italia on Saturday (Apr 28), Brazilian newspapers reported.

A consortium of Italian firms and Telefónica reached an agreement to indirectly acquire a 23.6% controlling stake in Telecom Italia for around 4.1bn euros (US$5.60bn), TEF said in statement.

Through the deal, TEF ends up with a 42.3% share of the new holding company, Telco and calculates that its overall stake in TI is equivalent to about 10% of equity.

Telefónica already operates in Brazil through a joint venture with Portugal Telecom in Vivo, Brazil's leading mobile phone company, which ended February with a 28.6% market share, according to the industry watchdog Anatel.

In second position is Telecom Italia's unit TIM Brasil, which held a market share of 25.7% at end-February, followed by Claro, controlled by Mexican group América Móvil, with 24%.

Telefónica's latest acquisition gives it control over an estimated 54% of Brazil's 102mn mobile telephone subscribers, Brazilian newspapers reported.

Communications minister Hélio Costa was quick to show his concern. "When one company reaches above 50% of the market I think it is always a worry," newspaper Estado de S Paulo reported Costa as saying.

Costa echoed the words of Anatel board member Jose Leite Pereira who last week warned that América Móvil or Telefónica could face regulatory obstacles in Brazil if they pursued plans to buy an indirect stake in Telecom Italia.

VIVO OR TIM

The news of the deal raises questions about whether Telefónica will pursue plans to wrestle control of Vivo from PT. Last week several newspaper reported Telefónica had already sealed an agreement to take control of Vivo from PT, quoting unnamed sources linked to the two groups.

However, Thomas Abreu, telecoms analyst with US company Pyramid Research believes Telefónica was more concerned about Mexican mobile holding América Móvil, which was also bidding for TI, gaining control of the second largest operator. For that reason Telefónica concentrated its efforts on the TI acquisition.

Although initial signs indicate Vivo and TIM intend to remain independent of one another, local media speculation is mounting that Telefónica would like to merge Vivo with TIM.

However, IDC telecoms analyst Brendan Conroy believes Anatel and the Brazilian government are unlikely to allow the consolidation of Brazil's two largest mobile phone companies.

"This would create two huge players in the market and the government is unlikely to accept this," Conroy told BNamericas.

"If there are just two main operators, they can more or less do what they want, whereas with three players there is more competition which leads to more choice and better prices for customers," he said.

Telefónica's plans for TIM and Vivo will largely depend on decisions by telecoms regulator Anatel and Brazil's antitrust agency Cade.

"As the regulatory authorities are unlikely to allow the two operators to join forces, Telefónica may leave Vivo and go with TIM alone," Conroy said.

TIM has a good network, a strong operation and Telefónica would be able to concentrate its capex investments for deploying 3G in the future in one company, he added.

Vivo has been losing market share and despite investing 1.08bn reais (US$530mn) in a GSM overlay in 2006, Telefónica is likely to opt to stay with TIM and leave Vivo to PT, the analyst believes."

Posted to the site on 1st May 2007