What changes now that Portugal Telecom left Vivo and went to Oi?
After three years of negotiation, and teh cost 2.5 times more expensive than the first offer made in 2007, Portugal telecom (PT) agreed to sell its stake for Telefonica for € 7.5 billion (more details).
PT announced also an agreement with Oi for the acquisition of stake in the group's companies, so PT will have 22.38% of Telemar Norte Leste S.A. (TMAR), Group's operational company, for the maximum investment of R$ 8,4 billions (€ 3.7 billions).
The fact that PT left Vivo will permit Telefonica to promote the merger of its fixed and mobile operations in Brazil, forming one single integrated operator capable of offering fixed telephony, cellular, broadband and pay TV in the same service package (more details)
This process may be accelerated after the Brazilian congress approval for the PL 29 (Proposed Law 29) which removes the limit imposed for foreign ownership at cable TV operators.
In 2011, the 3 main telecom groups in Brazil (Telefonica/Vivo, Oi and Claro/Embratel/Net) will have integrated its fixed and mobile operations.
The competition between convergent operators may increase the offer of integrated services and lead to heavy investments in optical fiber networks for high speed broadband (10 to 100 Mbps) to clients houses and to cell sites that offer mobile broadband.
In this climate will be important to observe if the entrance of PT at Oi will implicate in changing the strategy developed by the operator over the last 12 months.
By acquiring BrT, Oi's net debt increased from R$ 11.0 billion in 2008 to R$ 22.4 billion in 2009, what provoked the reduction if investments. Oi invested R$ 518 million in the first semester 2010 against R$ 994 million in the same period of 2009.
Company's net revenue in the first semester 2010 raised 0.5% over the same period of 2009. On the other hand, EBITDA margin increased 36.2% in 2Q10.
This strategy led to market share loss in fixed telephony, cellular and broadband over the last 12 months.
Oi's mobile accesses raised 9.7% over the last 12 months, less that the Brazilian average (16%). In Apr/10, the operator lost the leadership in Region I for Vivo and is growing only inside the state of São Paulo.
In this period, Oi gained market share in pay TV, encouraged by its DTH operation. Even so, the company presented 6.4% drop in pay TV accesses in 2Q10.
Along with PT's entrance at Oi, it's expected Telemar Norte Leste S.A.'s capital increase of R$ 12 million, what will also happen in its controller TeleNorte Leste participações S.A.
According to PT: capital increase will have as main targets the reduction of Telemar Norte Leste's net debt and fund the international expansion of this partnership and its controlers'.
Oi expects to reduce its leverage which nowadays is two times its net debt/EBITDA for 0.8. It's also expected the acquisition of 10% of Portugal Telecom's capital by Telemar Norte for about R$ 1.8 billion.
This capital increase will also permit the operator to invest heavily in fixed and mobile broadband, under the possibility of getting disadvantage in this new competition scenario.
Finally, life may become tougher for Tim, which doesn't have significative operations in fixed telephony, and for GVT as well, as the company doesn't operate mobile telephony, in this new competitive scenario with integrated operators.
You could ask:
- Is there room for a fourth group of the same size as Telefonica/Vivo, Oi and Claro Embratel/Net inside the Brazilian market?
- What changes in Tim and GVT's strategy in this new scenario?
- Should Oi seek expansion to international market or invest in the modernization of its network in Brazil?
- Can PT become Oi's controller in the future?
- Is there room to relaunch Telebras?
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