Brazil's Main Telecoms Win 3G Licenses, Pay High Premiums

Published on: 19th December 2007

SAO PAULO -(Dow Jones)- The main Brazilian telecommunications operators won all the licenses at the government's third-generation band spectrum auction on Tuesday and Wednesday.

The dominance of Vivo Participacoes, TIM Participacoes and Claro was to be expected, but the high prices paid for the licenses weren't.

The big three won licenses for all the areas offered so far, which include the key states of Sao Paulo, Rio de Janeiro and Bahia, with premiums ranging from 34% to 274% above the market price.

As a result, Brazil's National Telecommunication Agency, or Anatel, now forecasts the sale could raise 6 billion Brazilian reals ($3.3 billion). Originally, Anatel had expected to raise BRL4 billion.

The government is selling 44 licenses in 11 different regions. As of 2020 GMT, Anatel had auction licenses in six areas after two days of bidding.

The licenses provide operators with band spectrum to offer 3G cellular services, which focus on broadband Internet services. All the main Brazilian cellphone operators are foreign owned. Vivo is jointly controlled by Spain's Telefonica and Portugal Telecom, while TIM is owned by Telecom Italia. Claro is a subsidiary of Mexico's America Movil.

Operators started out offering extremely high premiums, with TIM offering BRL528 million, or a premium of 222.6%, for the rights to operate in Rio de Janeiro, Espirito Santo, Bahia and Sergipe states, but Claro soon topped it with a bid of BRL612 million, or a 273.9% premium, for a license in the same region.

After that, the bidding levels subsided.

Prices were considered to be extremely high, but the potential revenue "will more than compensate the investment," said Carlos Constantini, a telecom analyst at local bank Unibanco.

The price for the first region, which included Rio de Janeiro, was elevated by aggressive bidding from telecommunications firm Nextel, which didn't win a license but forced Vivo, Tele Norte Leste Participacoes, or Oi, TIM and Claro to compete harder.

The investments needed in 3G networks will only see returns in the long term, warned Luciano Leocadio, telecom analyst at the local Ativa brokerage firm.

The heavy investment and long timeframe for returns worried investors, but concerns were eased by a reduction in the premiums paid for licenses on the second day.

Vivo, TIM, Claro and Oi won licenses for the city of Sao Paulo, with premiums of between 34.1% and 59.3% on Wednesday.

The auction will likely lead to investments of BRL10 billion over the next two years, including the purchase of licenses, according to Anatel President Ronaldo Sardenberg on Tuesday.

Shares in Brazilian wireless companies have been on a roller-coaster ride for the last two days on the auction.

Vivo shares rose 6.5% on Tuesday, but subsided 4.4% to BRL8.60 on Wednesday, as investors struggled to calculate whether it was making a good investment buying licenses. Meanwhile, TIM shares rose 8.3% Tuesday and went 0.2% higher Wednesday to close at BRL6.29. Shares in Oi rose 2% on Tuesday and then fell 1.6% to BRL34.05 Wednesday.

-By Alastair Stewart, Dow Jones Newswires; 5511 3145-1479; alastair.stewart@dowjones.com

(END) Dow Jones Newswires

 

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