Oi Holding Out as Rivals Ready for $3 Billion Airwave Sale

Oi SA (OIBR4) is the last holdout seeking a delay of the government’s $3 billion wireless-airwave auction scheduled for August, said an official at Brazil’s telecommunications agency.

Oi’s main rivals -- Telefonica SA’s Vivo, America Movil SAB’s Claro and Tim Participacoes SA -- have backed off their earlier calls for a delay, said Carlos Baigorri, superintendent of mergers and acquisitions for regulator Anatel in Brasilia.

“Oi’s the only one that may have a problem,” Baigorri said in a telephone interview last week. “Tim and Vivo are on board,” and Claro has cash on hand to participate, he said.

Postponing the auction would give Oi more breathing room to complete its merger with Portugal Telecom SGPS SA while working to replenish its balance sheet, the most indebted among Brazilian phone carriers. The government, meanwhile, can use an auction in August as a quick way to shore up its coffers as it strives to meet its primary surplus target.

The bidding is for airwaves in the 700 megahertz spectrum band, currently used by TV stations. Anatel has no plans to delay the auction, Baigorri said. An Oi press official declined to comment, citing a silent period before a share sale.

Oi shares dropped 1.8 percent to 2.67 reais at 10:20 a.m. in Sao Paulo. They had fallen 24 percent this year through yesterday.

The mobile-phone companies need the airwave licenses to add capacity as more Brazilians use their devices for high-speed Internet access. All four major phone companies must participate in the auction to address those needs, Banco Itau BBA said in a note last week.

Down Payment

Auction winners will have to cover the broadcasters’ expenses to move to other frequencies, which will cost more than 2 billion reais ($892 million), part of total auction spending of about 7 billion reais, Banco Bradesco SA has estimated. The airwave licenses require a 10 percent down payment, according to Itau.

Oi plans to raise 14.1 billion reais in capital this month as part of its transaction with Portugal Telecom.

Oi had net debt of more than 30 billion reais at the end of 2013, about 3.4 times earnings, leaving out interest, tax, depreciation and amortization, according to data compiled by Bloomberg. After the merger, the ratio will slide to 3.3, according to regulatory filings. America Movil has a ratio of 1.7, and Vivo and Tim are less than 1.

SindiTelebrasil, a group that lobbies on behalf of the phone companies, asked earlier this month for a delay in the auction in a presentation to the lower house of Congress, saying preliminary tests indicate the need for deeper investigation into signal interference. The phone carriers, besides Oi, have since indicated they’re willing to move forward with bidding, Baigorri said.

Publishing Anyway

“After the companies saw that the request wouldn’t have any repercussion with Anatel -- they saw we were ready to publish the auction rules anyway -- they decided to review their position,” Baigorri said. “They’d prefer to have it delayed, but when they realized that it wasn’t going to happen, they decided they’re ready to participate.”

Telefonica Brasil SA Chief Executive Officer Antonio Carlos Valente said in an April 3 interview that while he’d love to have more time, his company is prepared to proceed with the auction. Tim Participacoes SA’s board last week recommended the company participate in the process.

“The 700 megahertz frequency is a very important resource in Brazil and in the rest of the world to strengthen 4G networks,” Tim CEO Rodrigo Abreu said in a statement this week. “Tim is interested in being part of the auction process, as part of reinforcing our strategy to develop broadband in the country.”

America Movil SAB, which owns the Claro brand in Brazil, declined to comment in an e-mail. Baigorri said the company has paid for assets in cash since 2007 and will probably do so again.

Difficult M&A

Proceeding with the auction could make it more difficult for companies to attempt mergers or acquisitions in the Brazilian telecommunications market, said Robin Bienenstock, senior analyst of European and Latin American telecommunications at Sanford C. Bernstein & Co., in an e-mail.

“An early spectrum auction considerably complicates consolidation,” she said. “It’s hard to bid in if you don’t know who owns what.”

The Finance Ministry will have to sign off on the auction rules before bidding can proceed, Baigorri said.

“The only thing that will delay this auction is if the treasury department has questions that need to be answered,” he said.

To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net Crayton Harrison, John Lear

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