Oi Agrees to $903 Million Investment to Settle Government Finesby
Four-year plan focused on improving broadband, mobile services
Company trying to restructure almost 50 billion reais in debt
Oi SA, the most indebted phone operator in Brazil, agreed to settle some of about 5 billion reais ($1.41 billion) in government fines for poor landline service by investing more in broadband and mobile infrastructure.
The carrier will have to spend 3.2 billion reais ($902.8 million) over four years to resolve 1.2 billion reais in outstanding fines, leaving an estimated 3.8 billion reais in potential penalties.
Anatel, Brazil’s telecommunications regulator, approved the plan after more than two years of negotiations with the company and other government agencies. The agreement still needs a final sign-off from the Federal Court of Audit.
Under the four-year pact, Oi must provide 3G mobile data services to 84 percent of Brazil’s urban population, up from the current 79.5 percent, while upgrading its copper-based wired network in Rio de Janeiro with fiber technology. The company must also modernize call-center operations.
While the deal will require Oi to spend more on its network than it would have otherwise, it lets the company spend to improve its infrastructure rather than simply surrender money to the government. It also lets Oi spread its costs over time instead of having to make an immediate payment to cover its fine. That’s good news for a company struggling to climb out from under a massive pile of debt amid a deepening economic and political crisis in Brazil.
The preferred shares rose as much as 5.4 percent in Sao Paulo trading, the most in two weeks. They were up 3.2 percent to 96 centavos at 10:55 a.m.
The struggling carrier has been pressing the government for two lifelines: settlement of Anatel fines and looser regulations for telecommunications companies like Oi to encourage foreign investment and mergers and acquisitions. Chief Executive Officer Bayard Gontijo said he expects both to happen this year.
Oi, as a so-called “concessionaire” in the country, is required to maintain a vast network of landline infrastructure across Brazil, including 650,000 pay phones. This fast-declining part of Oi’s business carries with it a high cost -- and fines if service quality falls below acceptable levels.
Oi, in an e-mailed statement, said the settlement “establishes a virtuous cycle to improve service quality and generate development.”
Bradesco analyst Luis Azevedo, who has an underperform rating on the stock, said Anatel’s approval of the plan is an important step for both Oi’s turnaround efforts and the industry overall.
He warned, however, that the company still faces many risks, especially since it’s in restructuring negotiations over its 50 billion reais in debt. A large portion of that debt may be converted into equity, diluting the value of Oi shares, he said.
The carrier is working to negotiate similar deals with the government to reduce its remaining debt.