The telecommunications market woke up agitated on Monday morning (16) because of a possible purchase intention of Hi by Telefónica, owner of Live in Brazil. The Spanish group would be evaluating a partial purchase of Oi’s assets, which has a market value estimated at US $ 6.7 billion.
The information was revealed by the Spanish newspaper El Confidencial, who in the past was one of the first to report the Panama Papers scandal. Vehicle sources say that Telefónica has already hired an investment bank to advise on a possible deal.
Oi’s situation is delicate: the company is facing a judicial reorganization process that began with debts of more than R $ 65 billion. In the last balance sheet release, the operator ended the second quarter with a loss of R $ 1.5 billion in the period and a net debt of R $ 12.5 billion.
The operator tries to raise R $ 2.5 billion in cash to avoid running out of funds for next year. The government denies intervention after the poor performance, and Anatel hopes that a “market solution” will allow Oi’s customers to continue with their services functioning.
The disclosure of the strategic plan for the next three years made it clear that Oi intends to focus on the fixed business with the expansion of its fiber optic network: the operator wants to reach 16 million homes with FTTH coverage by 2021 and sell non-strategic assets, real estate and data centers. Oi’s board did not rule out the sale of the cell phone arm to be able to invest in the fixed network.
What will Vivo want to buy?
Vivo is very likely to be interested in the fixed services portion of Oi. Oi is the largest fixed-line operator in Brazil in number of municipalities served, but it is also the smallest among the four major operators in the mobile segment. The extensive fiber optic backhaul is one of Oi’s most strategic assets, which has a presence in more than 2,000 cities and brings a competitive advantage by expanding FTTH coverage and offering connectivity services, including to other operators.
The recent approval of PLC 79 benefits both Oi and Vivo, but it is very important if Telefônica acquires Oi’s fixed services. The change allows concessionary operators to change to the authorized model, incorporating the reversible assets with the exchange for investments in band wide. This brings legal certainty, since fixed networks would not return to the government in 2025.
At the same time, Oi threw the mobile business to the side, with the plan to maximize revenues with the least possible investment. A purchase of Oi Móvel by Vivo would leave the competition even further from the leadership. Vivo Móvel is already the largest Brazilian operator in the number of customers, and data from Teleco indicate that Vivo has 32.3% of market share, while Oi is in 4th place with 16.4%.
In either case, regulators need to evaluate any merger or acquisition. Nextel was recently acquired by Claro and the Economic Defense Administrative Council (Cade) approved the deal. The council argued, however, that reducing the number of mobile phone players from four to three “would result in a clear concern about increasing the possibility of coordinated action between them”, such as the formation of a “cartel” between companies acting.