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Brazil Oi Says Talks Progress on Brasil Telecom Buy

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SAO PAULO (Dow Jones) The controllers of Brazilian phone and Internet operator Tele Norte Leste Participacoes, or Oi, said Thursday that talks are progressing over the restructuring of the company's share ownership and the possible purchase of a controlling stake in local rival Brasil Telecom Participacoes.

However, no deal has been reached as yet, said Oi in a statement.

The initial price estimate for a controlling stake in Brasil Telecom is between 4.5 billion Brazilian reals ($2.5 billion) and BRL5.2 billion, said Oi.

Oi added that the deal with Brasil Telecom wouldn't necessarily involve a merger of operations.

For some time, the controllers of the two telecom operators have been courting the idea of a deal to create a local telecom operator large enough to compete on a regional basis with Spain's Telefonica and Mexico's America Movil.

Oi's controlling group includes the Brazil National Development Bank, or BNDES; Previ, the pension fund for workers at state-owned Banco do Brasil; two local investment groups, GP Investimentos and La Fonte Participacoes, and industrial conglomerate Andrade Gutierrez.

Brasil Telecom is controlled by some local pension funds, including Brazil's largest, Previ, and Citigroup.

A memorandum of understanding on the deal should be concluded by the start of next week, according to unnamed sources quoted in local newspaper O Estado de S. Paulo Thursday.

However, for the deal to go through, President Luiz Inacio Lula da Silva would have to alter telecommunications legislation, which impedes one firm from operating in more than one region of Brazil.

According to Communications Minister Helio Costa, the necessary decree could be signed within the next month.

Democratas, the opposition political party, has vowed to contest the deal in the courts, arguing that the merger would create unwanted market concentration.

The merged company would become the main fixed-line phone operator in most areas outside Sao Paulo. In addition, it would control some 18% of the cell phone market and some 43% of the broadband Internet market.

-By Alastair Stewart, Dow Jones Newswires; 55-11-3145-1479; brazil@dowjones.com

(END) Dow Jones Newswires

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