Nov. 13 (Bloomberg) -- Brazil’s telecommunications agency Anatel cleared the way for a takeover of GVT (Holding) SA, the country’s fourth-largest high-speed Internet provider, by either Telefonica SA or Vivendi SA.

Anatel also imposed conditions on Telefonica’s Brazilian unit, Telesp - Telecomunicacoes de Sao Paulo SA, if it buys GVT, agency head Ronaldo Mota Sardenberg said yesterday. Telefonica raised its offer last week 5.2 percent to 50.50 reais ($29.09) a share. That’s 20 percent more than Vivendi’s 42-reais bid.

“This absolutely doesn’t change the position of Telefonica,” said Peter Lyons, a telecommunications analyst at Oscar Gruss & Son Inc. in New York. “If it was not serious about this bid, they wouldn’t have increased it.”

GVT’s 15,000-kilometer (9,300-mile) fiber-optic network would let Telefonica stop relying on third parties to carry long-distance traffic. It would also open doors for the Madrid- based company to expand outside Sao Paulo, Brazil’s richest state. For Paris-based Vivendi, GVT would bolster its presence in emerging countries, which are growing faster than its home market in Europe.

In the event of a Telesp takeover, the Telefonica unit would have to keep its operations, finances and commercial administration separate from GVT for five years and eliminate overlapping licenses, Sardenberg told reporters in Brasilia. Telefonica would also have to keep GVT’s brand for five years.

Benefits for Telefonica

“It will be difficult for Telefonica to get hold of the main benefits it was looking for” after Anatel’s decision “and therefore we would not be surprised if Telefonica changes the conditions of the bid,” Banco BPI analysts including Flora Trindade said in a note to investors today.

GVT fell 1.70 reais, or 3.2 percent, to 51.30 reais at 1:26 p.m. in Sao Paulo trading. Telesp fell 21 centavos, or 0.5 percent, to 43.13 reais.

Telefonica declined 4 cents, or 0.2 percent to 19.19 euros in Madrid, and Vivendi rose 10.5 cents, or 0.5 percent, to 19.725 euros in Paris.

Restrictions weren’t set on a Vivendi-GVT deal because Vivendi doesn’t operate in Brazil yet, Sardenberg said. Anatel may review and waive the conditions two years after the purchase if requested by the company.

Brazil-based spokeswomen for Telesp and Vivendi said their companies won’t comment on the decision. Miguel Angel Garzon, a Madrid-based spokesman for Telefonica, declined to comment. A spokesman for GVT said his company declined to comment.

Market Share

GVT, controlled by Global Village Telecom (Holland) BV and Swarth Group, emerged in 1999 during Brazil’s privatization of the telecommunications industry. Chief Executive Officer Amos Genish and Chairman Shaul Shani helped the carrier outpace growth at its older rivals by focusing on customers and businesses willing to pay for faster Internet speeds.

Telesp has a 27.6 percent market share for fixed-line services in Brazil, according to data from IHS Global Insight, a market-intelligence firm.

“Telefonica wants it badly,” Lyons said. “It needs GVT for two reasons: It’s a defensive move to protect Sao Paulo from the entrance of a competitor like Vivendi and it gives it the needed diversification outside Sao Paulo.”

Public Consultation

Sao Paulo’s federal prosecutor’s office opened a five-day public-consultation period this week into Telefonica’s bid. The government wants public input about whether a purchase would affect the company’s ability to invest in its Brazilian network and services.

Anatel in June blocked Telesp from selling its high-speed Internet service after clients endured four system failures in the past year, halting operations in private and public services including police stations and schools. Telesp was prohibited from selling its Speedy service for two months.

“Vivendi is in a position where they don’t have necessarily to show their cards right now,” said Lyons at Oscar Gruss. “It may have to only sit back and watch Telefonica deal with its problems in Sao Paulo. Telefonica has to convince more than Anatel about this transaction.”

GVT surged 46 percent since Vivendi’s Sept. 8 offer. The voting shares closed at 53 reais in Sao Paulo trading yesterday, after reaching a record high Nov. 11 of 53.50 reais.

Telesp fell 60 centavos to 43.34 reais yesterday in Sao Paulo. Vivendi dropped 14 cents to 19.62 euros in Paris trading.

GVT was formed as the government auctioned its stake in an international carrier and in three fixed-lines companies, each one operating in a different region. Brazil then auctioned licenses to create the so-called mirror operators to compete with the former state-controlled carriers.

GVT paid 100,000 reais for its license in August 1999 to operate in the same 10 states as Brasil Telecom SA while Telefonica bought Telecomunicacoes de Sao Paulo SA to operate in Sao Paulo, the most populous state.

To contact the reporters on this story: Maria Rabello in Brasilia at mrabello@bloomberg.net; Heloiza Canassa in Sao Paulo at hcanassa@bloomberg.net

Last Updated: November 13, 2009 10:36 EST