Global Insight Perspective | |
Significance | The final approval from Anatel has been granted for the two major fixed line incumbents Telemar / Oi Participoes and Brasil Telecom to merge |
Implications | This will create a larger incumbent company operating in what were previously separate regions. It will also help them to boost their mobile phone operations, a market in which they are less-significant players |
Outlook | The effect on their falling market share of the fixed line business will remain to be seen but as they still hold almost 90%, they are likely to see continued erosion by the new entrants. The intention is in part that the greater scale will help to look abroad, though having increased leveraging to complete this deal, acquisitions abroad are unlikely in the short term. |
Brazil’s telecoms regulator Anatel has approved the takeover of Brasil Telecom by Telemar-Oi Participacoes in a deal valued at up to 13 billion reais (US$5.46 billion) when all elements are included (see Brazil: 28 April 2008: Oi Signs Brasil Telecom Takeover Deal for US$3.5 bil.).
The deal will bring together two of the incumbent operators in the country. Oi is the regional incumbent in 16 federal states in the north-west, north, north-east and south-east of the country (Region I), while Brasil Telecom is present in the capital city of Brasilia and nine states in the south and centre-west (Region II). The only region they do not operate in is the Region III, which includes Sao Paolo state where Telefónica is the main fixed-line incumbent. The incumbents have been facing competition from new fixed-line service providers Global Village Telecom (GVT) in region II and Embratel (Vesper) in regions I and III. The have chipped away at the incumbents’ market share taking Oi from 92.6% at the end of 2006 to 90.8% share at the end of 2007 while Brasil Telecom fell from 90.7% to 88.4% over the same period.
The merger was forbidden under existing legislation and required a change in the telecoms law to allow the merged company to operate in more than one region (see Brazil: 21 November 2008: Regulatory Obstacle to Oi-Brasil Telecom Merger Dropped as Brazilian President Approves Change to Telecoms Law). According to Business News Americas, Anatel made a number of demands to pass the deal including the maintenance of the work force until 25 April 2011, the provision of broadband access to all municipalities, fibre-optic cabling deployment to 300 cities and the provision of a voice and data communications system to army border stations. The deal had almost been delayed past a deadline for 21 December by federal audit court, the TCU, citing a lack of information to approve the deal. This would have made Oi liable to pay a 490-million-real fine to Brasil Telecom. However, Business News Americas reports that manoeuvring by Telecommunications Minister Hélio Costa helped to drive the deal through. Together with approval from the anti trust body, the deal should be completed (see Brazil: 11 December 2008: Oi–Brasil Telecom Merger Gains Approval from Antitrust Agency and Brazil: 12 December 2008: Anatel Confirms Dates for Oi–Brasil Telecom Approval Sessions).
Outlook and Implications
- Market Dynamics: Brazil has seen rapid growth in mobile phone penetration, with 121 million mobile subscribers at the end of 2007 equating to a penetration rate of 63.9%. By the end of 2008 this is expected to hit 154 million subscribers or a penetration rate of 80.2%. In June 2008, Vivo led the market with 30.4% share, while Oi came fourth with 15.2% and Brasil Telecom took just 3.8% of market share. In the fixed-voice market there is still some growth, with a modest 0.9% growth in voice access lines expected between 2007and 2008 to 39.74 million The newly merged company will be the leading fixed line operator and fourth largest mobile carrier in the country.
- International Potential: By scaling up the business, it is hoped that the company will be better placed to compete in international telecoms markets. It is particularly a defensive manoeuvre against regional mobile phone operator giants Telefónica and America Movil which have successfully been building up operations across the continent. The deal is largely financed by Brazilian parties with national development bank BNDES and Banco do Brasil providing 6.8 billion reais of the deal