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Telefonica, Oi Must Share Access at Fair Price, Brazil Says

Brazilian phone carriers Tele Norte Leste Participacoes SA, Telefonica Brasil SA and America Movil SAB will be forced to share access to their networks with competitors without charging an “abusive” prices, Communications Minister Paulo Bernardo said.

Companies that have fiber-optic networks must open up their ducts and passages to allow competitors to lay their own cables, Bernardo said. Mobile-phone companies that own towers will have to let other companies put antennas on the structures, he said.

“Companies are going to be required to share networks; this isn’t anything-goes,” Bernardo said in a Jan. 31 interview in his Brasilia office. “The company will be able to charge, but it can’t block access.”

The National Telecommunications Agency, known as Anatel, will vote before the end of June on rules to govern network-sharing, Bernardo said. Those rules will be part of a program that the agency is analyzing to improve competitiveness. Once approved, the rules would go into effect in 90 days, Bernardo estimated.

Tele Norte Leste, which operates under the Oi brand, owns Brazil’s largest telecommunications network. Telefonica Brasil, a unit of Madrid-based Telefonica SA, has the largest network in Sao Paulo state, the economic center of the country. America Movil controls phone carrier Embratel Participacoes SA and mobile-phone company Claro SA.

The telecommunication sector index, known as Itel, closed 0.6 percent lower, while benchmark Bovespa stock index was little changed at 65,223.72. Tele Norte Leste Participaçoes fell 0.6 percent to 16.97 reais and Telefonica Brasil rose 0.6 percent to 47.79 reais.

“We can’t attribute this fall only to the access sharing,” said Leonardo Nitta, Banco do Brasil’s analyst, in an e-mailed response to Bloomberg. “The movement was expected by the market, of course that arranging it that way will speed the evolution of access sharing, which should increase competition more rapidly.”

Market Power

Oi, Telefonica and Embratel are the three companies identified as holding significant market power, according to preliminary studies, and must share their networks, Anatel said in a Feb. 3 e-mailed response to questions.

The proposals for network access would apply to companies when they have been deemed to have substantial market power in a geographic area, said Jose Otero, an analyst at Signals Telecom Consulting in Montevideo, Uruguay.

Requiring companies to share rights of way and towers will be “extremely beneficial,” Otero said in an e-mail.

Network-sharing will encourage more services from “small, regional” companies that can expand to other parts of the country, Bernardo said.

The prices charged for the use of a network by another company will be market-based and can’t be abusive, the minister said. The phone companies themselves will create a self-regulating body to handle disputes between competitors.

“There will be a kind of reconciliation body to ensure no one is sticking a finger in another person’s eye,” Bernardo said. “If the cost is 100 reais, you can’t charge 1,000 reais.”

Supervised Market

The government will monitor the program and, if necessary, Anatel and the Administrative Council for Economic Defense, or Cade, can intervene and even ban a company.

“It’s going to be a free market with supervision,” Bernardo said. “You can’t refrain from selling to another company, and if you practice abusive pricing, you can be denounced.”

The sharing rules apply both to internal networks and to the cables that companies use to connect to homes and businesses, known in the phone industry as the “last mile.” To encourage investment, the rules won’t immediately apply to new last-mile installations as companies boost speeds to customers by extending fiber-optic lines to residences and offices, Anatel said in its e-mail.

In another bid to increase infrastructure spending, the government will propose a temporary measure to Congress by March to exempt equipment and network construction from some taxes. The Communications Ministry and the Treasury are recalculating the size of the exemption, which last year had been estimated at 6 billion reais ($3.4 billion) through 2014.

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