Telecoms: Brazil Sees Merger Between Oi and Brasil Telecom

october

24th

Telecoms: Brazil Sees Merger Between Oi and Brasil Telecom

In June 2008, Brazil’s telecoms regulator Anatel approved changes to Brazil’s telecoms laws so that a single telecom operator can hold two separate operating licences, effectively paving the way for Telemar, trading as Oi, to complete its takeover of Brasil Telecom (BrT). The deal is still awaiting final government approval, but should be finalised before end-2008.

To ensure that the merger would not compromise competition, Anatel ruled that companies with concessions in more than one operating region must provide services on a national basis. Besides promoting competition, this proviso should prevent telcos from cherry-picking lucrative densely populated areas at the expense of less attractive rural markets.

In 2007, merger plans gained momentum after the Brazilian government expressed itself favourably disposed to changing telecoms regulations. The fact is, it saw a merger of Oi and BrT as a way of creating a strong national player able to compete with foreign-owned giants America Movil and Telefonica. In February 2008, it accepted an official request by Oi and BrT to emend the telecoms law.

In April 2008, Oi paid R$5.9 billion (US$3.5 billion) to acquire shares in BrT through its wholly owned subsidiaries Copart 1 Participacoes and Copart 2 Participacoes, and said it would spend as much as R$6.5 billion more on buying additional shares. Oi continued to purchase shares of BrT in the following months, ending June 2008 with 8.1% of Brasil Telecom (through Copart 2 Participacoes), and 15.3% of BrT’s parent group Brasil Telecom Participacoes (through Copart 1 Participacoes).

Once the acquisition is complete and the government has given its approval, Oi plans to conduct a corporate restructure whereby Brasil Telecom Participacoes will be merged into Brasil Telecom, which will become a wholly owned subsidiary of Oi through a process of share exchange.

The Oi/BrT merger will create a company with the following market positions:

*Fixed-line market - Oi is already the market leader, while BrT is the number three operator behind Telefonica. The merged company will own approximately 57% of Brazil’s fixed lines in service.

*Mobile market - Oi is the number four and BrT the number five operator. Even adding together Oi’s and BrT’s customers, the combined firm will still only occupy the fourth position, with a market share of about 18%;

*ADSL broadband market - BrT and Oi occupy the second and third place respectively, but a combined Oi/BrT will overtake Telesp (Telecomunicações de São Paulo S.A) to become the market leader with a share of about 55%.