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Brazil Said to Consider Mobile Fee Cuts to Aid Competition

Brazil is considering cutting the fees mobile-phone companies charge to accept incoming calls from rivals to boost competition, a government official said.

The changes under review would reduce costs for smaller companies such as NII Holdings Inc., allowing them to offer more competitive rates to attract users from bigger carriers from Telefonica SA to Tim Participacoes SA, said the official, who asked not to be named because a final decision is yet to be made. Anatel, the industry regulator, probably will vote on the changes as soon as Nov. 1, the official said. Tim shares fell in Sao Paulo, while NII recovered losses in New York.

A reduction in interconnection fees could shrink Brazil’s base of mobile-phone subscriptions, according to Barclays Plc and Banco Itau BBA SA. The current fees are so high that Brazilians typically have multiple mobile-phone lines so they can call other users at in-network rates. Out-of-network calls cost an average of 70 percent more than in-network, so 85 percent of mobile-phone traffic in Brazil is in-network, according to the government official.

“If Anatel announces this, it’s going to have a strong impact on the companies, from the point of view of the way they handle billing as well as their share prices,” said Pedro Galdi, chief strategist at SLW Corretora in Sao Paulo, in a phone interview.

The changes Anatel is considering include eliminating completely the interconnection fee NII pays, the official said. Reston, Virginia-based NII, which operates a walkie-talkie-like service under the Nextel brand in Latin America, won airwaves last year in a government auction to begin offering 3G wireless service to compete more directly in the mobile-phone market. The company is expected to begin offering the new third-generation services in November, the official said.

Market Leaders

Telefonica Brasil SA, the local unit of the Madrid-based company, had 30 percent of Brazil’s 256 million mobile-phone lines at the end of June, making it the No. 1 carrier. Tim Participacoes SA had 27 percent, America Movil SAB had 25 percent and Oi SA had 19 percent, according to Anatel. NII had 4.2 million Brazilian subscribers at the end of June.

Anatel’s press office declined to comment, as did Oi’s, Telefonica’s and America Movil’s. Representatives of Tim and NII didn’t respond to requests for comment.

Tim Drops

Tim, based in Rio de Janeiro, dropped 4 percent to 6.95 reais at the close in Sao Paulo, the lowest price since January 2011. NII rose 2 percent at $7.11 in New York after earlier dropping as much as 5 percent.

“If Nextel wants, it can manage to become competitive,” said Valder Nogueira, chief analyst at Banco Santander SA in Sao Paulo, in a phone interview. “Anatel’s decision provides an opening for Nextel to enter the market.”

America Movil gained less than 1 percent to 16.94 pesos in Mexico City, Telefonica Brasil fell 1.2 percent to 43.54 reais, and Oi was little changed at 8.21 reais.

Under the rules Anatel is considering, a mobile-phone carrier would only have to pay interconnection fees to a competitor if it gets 40 percent or more of the incoming calls in traffic between the two companies, the official said. The change could reduce the overall costs of mobile interconnection fees, known in Brazil as VU-M, by 20 percent, the official said.

In addition, Anatel may decide to directly reduce the rate for interconnection fees, the official said.

The fees generate about 8 percent to 21 percent of each carrier’s revenue in Brazil, according to an Oct. 3 report by Vera Rossi, a Barclays analyst in New York. The fees should be cut by 50 percent to 80 percent to match the level of other Latin American countries, where they range between 3 and 9 U.S. cents a minute, she said.

Cutting the fees would reduce the “exclusive-club” advantage that big carriers get by encouraging users to make in-network calls, Itau said in an Oct. 4 report.

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