Telefonica loses appeal over Cade ruling to limit its operations in Brazil

9 Jun 2014

Spanish giant Telefonica has lost its appeal against the ruling issued by Brazil’s antitrust regulator (Cade) to scale back its operations in Brazil, specifically that it must reduce its influence over TIM Participacoes (TIM Brasil), the local unit of Telecom Italia (TI), or find a new partner for its own Brazilian mobile venture, Vivo. According to local press reports the Spanish parent favours the first option, although its Italian counterparts are insistent that the Brazilian business is a strategic asset and does not want to see TIM Brasil broken up.

In December 2013, CommsUpdate reported that Telefonica was given 18 months to loosen its grip on Brazil’s mobile market by Cade, after ruling that the Madrid-based group relinquish its direct and indirect stakes in mobile operator TIM Brasil or find another new investor for its own directly controlled telecom operation in the country. At the meeting on 4 December, Cade bosses also adjudged that whoever emerges as the aforementioned new partner will not be allowed to own equity in another Brazilian carrier. The ruling, which is said to be definitive, was seen as the clearest indication yet that Telefonica’s decision to up its stake in TI – which controls TIM Brasil – via the consortium Telco, faces severe obstacles if it is to be approved. In its ruling, Cade noted the Madrid group’s failure to comply with the terms of a performance agreement – signed in 2010 – in which it promised not to participate in TIM Brasil’s management decisions or raise its stake in TI. The Telco consortium owns 22.4% equity in the Italian group.

As recently as April this year Telefonica and Brazil’s fourth-placed carrier, Oi SA, reportedly discussed a plan to break up TIM Brasil and divide its assets among Oi, Vivo and Claro – the local unit of America Movil (AM). One scenario under consideration would involve the use of a financial vehicle, dubbed Comissario Mercantil, to acquire TIM Brasil and then split the business among the other operators, the sources said. TIM Brasil has a market value of USD13 billion and Milan-based TI owns 67% of the company.

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