Brazilian telecommunications shares fell on speculation that regulator Anatel will seek to maintain competitive pressure in the industry by opposing a breakup of second-largest carrier Tim Participacoes SA.
Anatel would prefer an outright sale of Tim to a breakup, which would spread the operator’s assets among its three major competitors, said a person with direct knowledge of the matter. To keep four providers battling in the market, the telecommunications watchdog would welcome a foreign company such as Vodafone Group Plc or AT&T Inc. to acquire Tim, controlled by Telecom Italia SpA, said the person, asking not to be identified because the discussions are confidential.
Telecom Italia’s biggest shareholder, Telefonica SA, agreed yesterday to boost its stake in an 861-million euro ($1.2 billion) cash-and-stock deal as part of a plan to push the indebted Italian carrier to sell its stake in Tim. Telefonica Brasil SA, which sells services under the Vivo brand, is the country’s biggest wireless operator.
“We see an increased possibility that Tim Brasil will be sold, but reiterate that the buyer will probably be a player not yet operating in Brazil,” said Susana Salaru, an analyst at Banco Itau BBA, in a note to clients today. “The process could take some time to be completed, given the expected difficulty in finding an eligible acquirer.”
Tim fell 5.1 percent to 10.51 reais at the close of trading in Sao Paulo, retreating from yesterday’s 9.6 percent gain. Telefonica Brasil SA, the Spanish company’s local unit, dropped 2.4 percent to 50.28 reais, while Rio de Janeiro-based Oi SA slumped 8.7 percent to 4.70 reais. America Movil SAB climbed 1.3 percent to 13.35 pesos in Mexico City, where it’s based.
By increasing its indirect holding in Telecom Italia incrementally, Telefonica aims to circumvent any regulatory hurdles in the event of a sale or a breakup of Tim Brazil, another person familiar with the matter has said.
Anatel has yet to examine Telefonica’s stake increase in Telecom Italia, the person with direct knowledge of the matter said yesterday.
Argentina’s government will also examine the deal, since Telecom Italia and Telefonica together have about two-thirds of the South American country’s wireless subscribers. Planning Minister Julio de Vido asked the National Communications Commission and the antitrust agency to investigate whether the deal violates promises made by the two companies with the Argentine government in 2010 to maintain competition in the local market, according to a statement yesterday.
Telecom Italia Chief Executive Officer Franco Bernabe reiterated today that he’s against a sale of Latin American assets. Speaking at a parliamentary hearing in Rome, he said a disposal of Telecom Italia’s Brazilian or Argentine businesses would hurt the company’s international profile and cannot take place in the near term. The two countries accounted for almost 40 percent of Telecom Italia’s 2012 revenue.
He also said a capital increase is an option since “market conditions are favorable.”
Telecom Italia fell 4.7 percent to 57.2 euro cents in Milan. Telefonica rose 0.4 percent to 11.34 euros in Madrid.
Telefonica will increase its holding in Telco SpA, the investment vehicle that owns 22.4 percent of Telecom Italia, in two steps to 70 percent from 46 percent. Telefonica would then be able to completely buy out partners Assicurazioni Generali SpA, Intesa Sanpaolo SpA and Mediobanca SpA over time, pending the approval of regulators, including those in Brazil.
Anatel hasn’t received an official request from either of the companies involved and won’t comment on deals that haven’t yet been submitted for review, a press officer said by telephone.
Telefonica doesn’t need to ask Anatel for permission immediately because, under the terms of its agreement with other investors, it will still only hold a minority of voting shares, its Brazilian unit said yesterday in a statement. The Spanish company will need to get Anatel’s clearance to exercise an option later to acquire full control of Telco, it said.
Brazilian law doesn’t allow one company to control more than 50 percent of the market or more than one operating license from Anatel, Communications Minister Paulo Bernardo told reporters in Brasilia. Telefonica and three other mobile-phone companies -- Oi, America Movil and NII Holdings Inc. -- aren’t eligible to own Tim and their own Brazilian businesses at the same time, he said.
If Telefonica gained control of Telecom Italia and thus its Brazilian assets, it would have as long as a year to sell either Tim or Vivo, Bernardo said.
“Our objective is that one company cannot control another because we can’t have this kind of market concentration,” Bernardo said. “There would be one less competitor in the market, and for us this would be very negative.”
Brazil’s government imposes limits on the amount of spectrum -- the public airwaves used for mobile communications - - each wireless company can use. Even if Tim were split between its three largest competitors, the companies would exceed their spectrum caps and would have to return airwaves to the government, Itau’s Salaru said, citing a conversation with Carlos Baigorri, Anatel’s executive superintendent of competition.
The remaining wireless carriers would also have to shift Tim’s users to the spectrum the companies are licensed to use, which could cause service disruptions, Salaru said. Anatel doesn’t intend to increase the cap on spectrum holdings, she said.
“The most likely scenario appears to be the sale of TIM Brasil to a foreign player, thereby eliminating any market-concentration concerns as well as other issues related to Anatel’s current regulation,” Salaru said.