Telefonica lost an appeal against a December ruling by Cade, Brazil’s anti-trust regulator, to scale back its operations in the country. It means the Spanish and Latin American giant must either exit its stakeholdings in Tim Brasil or get a new partner for its Vivo mobile subsidiary.
According to local reports it seems Telefonica favours the former option, although Telecom Italia has long insisted that its majority shareholding in TIM Brasil is a strategic asset. It would be unwilling to see its Brazilian subsidiary dismantled.
There have been reports that executives from Telefonica and Oi – Brazil’s fourth-largest mobile operator – have discussed as recently as April a potential deal to split Tim Brasil among Oi and two other mobile operators – Telefonica’s Vivo and Claro, owned by Carlos Slim’s America Movil.
Tremors in the Brazilian market came in the wake of Telefonica’s decision to up its stake in Telco, a consortium which owns 22.4 per cent equity in Telecom Italia. This, said Cade, broke a 2010 agreement signed by Telefonica that it would not raise its stake in Tim Brasil’s parent company.
What worries the anti-trust regulator is that Telefonica, which also wholly-owns Vivo – Brazil’s largest mobile operator in terms of subscribers – has more than half the country’s mobile market when taking into account its direct and indirect stakes in TIM Brasil.
For good measure, Cade slapped a BRL15 million ($6.6 million) fine on Telefonica for its transgressions (a penalty confirmed at the rejection of Telefonica’s appeal).
GVT, a Vivendi-owned broadband player in Brazil, is keen that a Tim Brasil break-up does not happen. Marco Patuano, Telecom Italia CEO, is said to not only favour keeping Tim Brasil but expanding the subsidiary through an eventual GVT merger.
In a statement to Bloomberg, GVT said that a split of Tim “would be a total disservice to society and would do irreparable and unacceptable harm to the Brazilian market”. GVT added that, if necessary, it would work with the government and Anatel, Brazil’s telecoms regulator, to “highlight risks and avoid a split”.
Telefonica has 18 months to comply with Cade’s ultimatum to either exit Tim Brasil or water down its interests in Vivo.
According to local media, Telefonica is considering taking the matter to the civil courts. The argument is that Telefonica’s agreement to raise its stake in Telecom Italia (through Telco) will not affect the Brazilian market as the additional shares don’t have voting rights.