European Telcos Will Rearrange Brazil Mobile Market

It is one mark of the amount of globalization in many telecom markets that decisions made by a few European service providers will materially affect the Brazil telecom market in 2014, shaped by pressure from Brazilian regulators for at least one service provider to reduce its effective market share in the Brazil market.

Analysts think it is probable that TIM Brasil will be dismantled, with parts of the company being purchased by the other three players in the Brazil mobile market.

In Brazil, 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.

That also involves Telecom Italia, which owns TIM Participações. Portugal Telecom, which has decided to move its headquarters to Brazil, and which operates Oi in Brazil, likewise might be a factor in any upcoming consolidation or asset sales and purchases.

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

too much market share, and is acting to force Telefonica to reduce its presence, since Telefonica has equity stakes in two of the four leading mobile service providers in Brazil.

Telefonica owns all of Vivo and has indirect ownership of TIM Participacoes.

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

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

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

Cade also 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. That might suggest an opportunity for a new contestant to enter the Brazil mobile market.

Some also speculate that Vodafone might bid to acquire Vivendi SA's Brazilian broadband operator GVT and Telecom Italia SpA's TIM Brasil.

Consolidation will appeal to Brazil’s mobile operators because the market is saturated. Annual revenues at Brazil’s big operators have grown at under four percent over the last three years, according to  Deutsche Bank. Likewise, earnings growth (before interest, tax and depreciation) has been flat.