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Analysts: TEF Can Legalize TIM Control Situation
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Spain's Telefónica will not fall foul of Brazilian antimonopoly laws if it can prove it will maintain separate management of mobile groups TIM Brasil and Vivo, analysts told BNamericas.
Telefónica stands to gain a position of influence in Brazil's second largest mobile phone company TIM Brasil as a result of its planned acquisition of an indirect stake in Telecom Italia.
On April 28, Telecom Italia accepted a bid by Telefónica and a consortium of Italian firms to indirectly acquire a 23.6% controlling stake in the group for around 4.1bn euros (US$5.6bn). This led many to assume that Telefónica would have control over TIM Brasil, which with Vivo would give it control over an estimated 54% of Brazil's 102mn mobile subscribers.
However, in a statement to Brazil's securities commission CVM on Friday (May 11) TIM Brasil insisted it would not undergo a change in control as a result of the TEF/TI deal.
Telefónica would have two members of the Telecom Italia board of management, but has stressed that it would not be able to vote on or participate in decisions related to TIM Brasil.
For Credit Suisse telecoms analyst Andrew Campbell, "the burden is on Telefónica to show that it does not have control," because if the deal goes forward the Spaniards would indeed have sufficient say in the management of TIM Brasil to represent a conflict of interests with respect to Vivo, the country's largest mobile operator.
Telefónica's 50% stake in Vivo, its joint venture with Portugal Telecom, is sufficient for its eventual control of TIM Brasil to conflict with Brazilian laws that prohibit a company from holding major stakes in more than one license holder, Campbell confirmed to BNamericas.
But, "if Telefónica can prove to [telecoms regulator] Anatel that it does not control TIM, this should also cancel out any problems with [antitrust agency] Cade," Campbell said.
The situation is similar to Telecom Italia's investment in Brasil Telecom, which became legal when TI agreed to allow the stake to be managed by a third party under trust.
Anatel gave Telecom Italia 18 months to resolve the Brasil Telecom ownership situation and the same should happen in this case, Eduardo Tude, president of telecoms research specialists Teleco, told BNamericas.
By avoiding a change of control at TIM, Telefónica would also avoid having to make an offer to buy ordinary shares in TIM for at least 80% of the price offered to majority shareholders, as required under Brazilian company law, newspaper Valor Econômico reported.
Eventual Merger
While there may be legal ways for Telefónica to get away with the TI takeover in Brazil, some analysts view this as a quick fix.
Although Telefónica may maintain separate control of TIM and Vivo, the company's long-term aim will be to merge the two operators, Romina Adduci, telecoms services director at consultancy IDC Latin America, told BNamericas.
The long-term trend is that all of these acquisitions will lead to two dominant players, América Móvil and Telefónica, she said.
In the long run it is too expensive to invest in two companies, so Telefónica will look at either merging TIM Brasil and Vivo, or selling one of them, IDC's senior telecom consultant Brendan Conroy told BNamericas.
If it comes to selling one of them, Telefónica is more likely to sell Vivo because joint control with Portugal Telecom is proving difficult, and TIM has a strong operation, according to Conroy.
All of the talk about TEF negotiating for PT's stake in Vivo is Telefónica's way of demonstrating to Brazil's government that control of TIM Brasil is of secondary importance to it, he added.
Despite the theorizing on a merger, "in the next 12-18 months, we expect the structure of the Brazilian mobile segment to remain the same with four main players," Campbell said.
After that point, if the environment eases in terms of consolidation, there could be changes, he speculated. "
Tags: [telecom italia] [portugal telecom] [tim] [idc] [credit suisse] [tim brasil] [brasil telecom] [anatel]
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