Brazil Orders Telefonica to Reduce Market Share in Mobile Market

The Brazilian antitrust authority CADE has ruled that Spain's Telefonica, which owns stakes in two firms operating in the Brazil mobile market, must sell its stakes in TIM Participações SA or seek a new partner for Vivo, Brazil's largest mobile phone carrier and part of Telefonica Brasil.

As can often be noted, communications regulators and antitrust authorities often play key roles in creating, modifying or blocking firms from participating in communications markets.

Without spectrum, legal rights to participate or compliance with rules affecting prices and market share, no communications company can get into business, stay in business, take advantage of revenue opportunities or pursue some business models.

CADE believes Telefonica, which generates most of its growth from South America, has

too much market share.

In addition to imposing a fine on Telefonica of $6.3 million, CADE also ordered Telefonica to to reduce its own holdings in the country.

That might be done by ceding full ownership or Vivo or convincing Telecom Italia to sell its TIM Participacoes unit. The reason is that Telefonica is an investor in Telecom Italia, which owns TIM Participacoes.

At the moment, Vivo and TIM Participacoes have more than 50 percent market share in the Brazil mobile market.

Telefonica owns 66 percent of Telco, which in turn owns 22.4 percent of Telecom Italia, which further owns TIM Participacoes.

CADE wants to reduce Telefonica's market share to its level before 2010. CADE does not want the number of competitors in the Brazil mobile market to be reduced. That might prohibit America Movil, Oi and Vivo making a joint bid, then breaking up TIM Participacoes between them.

Vivo has 29 percent share of subscribers, TIM has 27 percent, America Movil has 25 percent and Oi has 19 percent.

So it would seem the easiest path forward is for Telecom Italia to sell TIM Participacoes to a third party. It would be complex for Telefonica to unwind its position in Telco.

So the issue is which other firm would want to buy TIM Participacoes, if Telecom Italia can be persuaded to sell, something Telecom Italia has opposed.