Telefonica May Trade TI Stake for Control of Vivo

Spain's Telefónica may consider trading its newly acquired controlling stake in Telecom Italia with Portugal Telecom in exchange for control of its joint venture with PT - Brazil's largest mobile operator Vivo, Spanish business daily La Gaceta de los Negocios reported.

Two weeks ago Spanish daily El Confidencial quoted sources close to both companies saying that Telefónica was close to negotiating the purchase of PT's part in Vivo.

However, securing a controlling stake in Telecom Italia, which controls Brazil's second largest mobile operator TIM Brasil, could bring it into conflict not only with Brazilian laws that ban companies from having control of more than one operator, but also with laws that ensure spectrum concessions are evenly distributed.

A consortium of Italian firms and Telefónica reached an agreement on Saturday (Apr 28) to indirectly acquire a 23.6% controlling stake in Telecom Italia for around 4.1bn euros (US$5.60bn).

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.

The Spanish firm has insisted that its participation in Telecom Italia, with only two representatives on the board of 19 executives, is not sufficient for it to have a controlling influence over TIM Brasil. The TI deal includes a clause that prohibits Telefónica from having a say in overseas TI units that compete with TEF, Brazilian daily Folha de São Paulo quoted a Telefônica Brasil executive as saying.

But the executive did admit that Telefónica will have veto power on the TI board, which it could use, for example, in the event that TI decides to sell TIM to Telefónica's biggest rival in Latin America América Móvil.

Furthermore, analysts suggest that the fact Telefónica is the only shareholder in Telecom Italia's controlling block with in-depth knowledge of the telecoms industry means that other shareholders will follow its lead in decision making. Effectively TI has become another asset of Telefónica, they say.

Telefônica Brasil has also confirmed that the group's presence in TI makes a roaming agreement between TIM Brasil and Vivo much more likely, finally giving Vivo coverage of Minas Gerais and the northeastern states."

Posted to the site on 3rd May 2007