05/24/2010


What changes with the merger of Claro and Embratel?

 

The decision taken by the Mexican businessman Carlos Slim about promoting the merger of his fixed and mobile operation in Latin America, with the incorporation of Telmex International (Embratel’s controller) by Améria Móvil (Claro’s controller) has as a result the merger of Claro and Embratel in Brazil. According to reports in the press, the fact is likely to happen in two months Jul/10).

 

The company, result of this merger, will be the second operator in Brazil in revenue, behind only Oi.

 

 

In one scenario of convergence in services and networks, the consolidation of fixed and mobile operators in one single integrated company is a world trend, because:

  • Makes easier the offer of integrated services fixed and mobile;
  • Improves operators’ profitability with economies and better optimization of investments.

This integration permitted, for example, Tim to offer in 2009 its plans Infinity and Liberty, in which local and long distance calls for Tim’s cell phones (using 41) have the same cost. By this offer, Tim became the operator leader in long distance in Brazil, overtaking Embratel.

 

 

 

The law doesn’t allow Claro to be a log distance carrier, since Embratel (which is owned by the same group) has already one license for this service. So the revenue for mobile calls to outside the local area (same Area Code) made from Claro’s cell phones counts for the long distance operator which pays Claro the tariff of network usage. That makes difficult to come up with offers like Tim’s.

 

“Oi conta total” is another example of integrated offer.

 

Broadband is also an accelerator of this process. With mobile broadband, mobile operators need to use fiber networks in backhaul transmission that connects their cell sites, accelerating the convergence of mobile and fixed broadband networks. The offer of packages in which are including mobile and fixed broadband is a world trend as well. Vodafone, as example, is making it in the United Kingdom and in Spain.

 

In other words, the merger of Claro and Embratel will create a more efficient carrier with conditions to have more competitive offers in the Brazilian market. This new company is expected to become even stronger when the law allows it to incorporate Net in order to offer also Pay TV in an integrated way. The Proposed Law 29 (PL 29), which is passing through the Brazilian Congress removes the limit imposed for foreign ownership in Pay TV operators and terminates the limits for the offer of Pay TV in Brazil.

 

Carlos Slim’s movement, Telefonica’s main competitor in Latin America, puts more pressure on Telefonica’s efforts of promoting the merger with Vivo. The offer made for Portugal Telecom’s ownership in Vivo was refused, but Telefonica continues to insist seeking for a solution.

 

The purchase of GVT by Vivendi is an additional factor to accelerate this consolidation process. The expectation is that Vivendi will increase its investments in Brazil and will start to operate in an integrated way in the future with mobile and fixed services.

 

Oi is the only group to have integrated operation of all its services, what gives the company an advantage over the others. That can, however, be only temporary given the competitors’ movements.

 

You could ask:

  • Can the merger between Claro and Vivo increase the company’s aggressiveness inside the mobile market?
  • Will the merger between Vivo and Telefonica happen in 2010?
  • Or, will Telefonica prefer to sale its ownership in Vivo in order to acquire Tim?
  • Is Oi getting benefit from the advantage of being the only group to have integrated operation of all its services?
  • How can Vivendi’s entrance affect this climate?

 

 

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Note: The opinions expressed in the published articles in this section are their authors' responsibility.

 

 

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