Brazil’s telecoms regulator, Anatel, is planning to auction 700 MHz spectrum in August. The tender comes as an antitrust question is currently hanging over the country’s two largest mobile operators, TIM Brasil and Vivo.
Last September TIM’s…
Brazil’s telecoms regulator, Anatel, is planning to auction 700 MHz spectrum in August. The tender comes as an antitrust question is currently hanging over the country’s two largest mobile operators, TIM Brasil and Vivo.
Last September TIM’s future was thrown into uncertainty after Telefonica, parent of Vivo, took control of its majority shareholder Telecom Italia (TI).
Shortly after, antitrust regulator Cade told Telefonica it could not keep its direct stake in Vivo and indirect stake in TIM. The watchdog said that Telefonica must either reduce its stake in TI’s controlling shareholder, Telco, or find a new partner to take joint-control of Vivo.
The situation does not look likely to be resolved before the 700 MHz auction and it is unclear how the situation around TIM and Vivo will interact with the tender.
Stefan Zehle, CEO at Coleago Consulting, explained that related entities are usually not allowed to both bid separately, but added that the strength of the rival operators’ affiliation was questionable.
“In this case the relationship seems fairly remote and tenuous, and you couldn’t say that Telefonica actually controlled TIM Brasil, but that’s a legal interpretation for Brazil … [which] they could use as a big stick [to resolve the TIM ownership question],” he said.
Wally Swain, senior vice president of analyst firm Yankee Group, noted that no time limit had been imposed on Telefonica to determine the ownership question and worried that there will be a lot of noise around the auction.
“It would clearly be a whole lot cleaner, and there would be a whole lot less likelihood that somebody is going to say, ‘You can’t have Telefonica and TIM Brasil both bidding for spectrum in this auction until we know what’s going to happen afterwards’, [if the situation was resolved first].”
Zehle added that if the regulator wanted to maximise the auctions proceeds, it should look to create certainty in the market.
TIM could be broken up
Both Swain and Zehle feel there is a chance the Brazilian authorities would allow TIM Brasil to be broken up and its assets bought by the other three operators in the market: Vivo, Claro and Oi.
Swain said that when Telefonica began to “float trial balloons” about TIM being split between existing players, Cade stayed pretty quiet.
“It hasn’t been rejected out of hand,” Swain noted. “The question is whether or not you can get it past Telecom Italia’s independent board.”
He added that breaking an asset up is not usually the way to get the best price, and suggested that Telefonica may be back-channelling with Claro and Oi to agree to make a decent offer.
Zehle felt that Brazil may look at consolidation favourably as it could see 4G services rolled out quicker and more effectively.
“The [Asia-Pacific Telecommunity] band plan could reasonably accommodate four operators, with each one getting 2×10 MHz – which is fine. [But] further consolidation [from four operators to three] would see each operator with 2×15 MHz, which is even better from a cost of rollout perspective,” he said.
“Maybe this is what the government is seeing, that more markets could be penetrated with LTE.”
Government may not allow concentration
However, there is another school of thought which says that Brazil would not countenance the market shrinking from four operators to three.
Jose Otero, president of Signals Telecom Consulting, did not anticipate the TIM/Telefonica situation impacting the auction.
“The Brazilian authorities won’t allow any of the three large mobile operators to acquire TIM,” he said.
“The only clear alternative that they have to acquire additional spectrum with a national footprint is the 700 MHz auction. Regardless of the ownership discussion, TIM will also participate in the 700 MHz auction.”
Otero added that he did not think Anatel or Cade would allow TIM to be broken up and divided between its three rivals.
Informa senior analyst Marceli Passoni was similarly minded.
“It is unlikely TIM would be sold to another Brazilian operator – the antitrust agency would not allow it due to market concentration,” she explained.
She said that if TIM was in a sale process, it was unlikely to affect the 700 MHz auction as the operator would bid for licences anyway, given the importance of the band.
Passoni pointed that local triple-play operator GVT had been rumoured as a buyer for TIM and that a potential transaction between the two would not impact the auction. She concluded that the operators were unlikely to pay a high premium for the 700 MHz frequencies as they are still investing heavily in rolling out 4G services in the 2.5 GHz band, auctioned in 2012.
