MADRID (Reuters) – Brazil’s antitrust watchdog has given Telefonica 18 months to comply with a ruling to loosen its grip on the Brazilian mobile market, sources said, time which may help the Spanish group ward off a growing rebellion over its strategy.
Brazilian regulator Cade said this month that Telefonica must sell its interest in TIM Participacoes, the local wireless unit of Telecom Italia, or seek a new partner for its Vivo mobile phone business.
Vivo is the largest mobile operator in Brazil and TIM – which Telefonica partly owns via a stake in Telecom Italia – is the second-biggest.
The regulator did not say at the time how soon Telefonica must comply with the demand.
The 18-month timeframe means Telefonica can deal with the Brazilian competition problem as planned – by pushing for Telecom Italia to sell TIM between mid-2014 and mid-2015 – and will strengthen its hand against rebel Telecom Italia shareholders who oppose the TIM divestment plan.
Beside solving the Brazilian anti-trust problem, a sale of TIM, valued at $11 billion, would help Telefonica recoup part of its loss-making investment in Telecom Italia.
Telefonica’s goal is to break up TIM and divide its assets and network between itself and the other two mobile operators in Brazil, America Movil, and Oi, say sources familiar with Telefonica’s plans.
But the plan is threatened by a dispute over the best way to revive debt-burdened Telecom Italia that is both financial and political, given the company’s status as one of Italy’s largest employers.
Three sources familiar with the matter said Cade had given Telefonica 18 months to comply with its ruling.
“We shouldn’t expect much to happen in the next 18 months,” said one senior banker with knowledge of the confidential elements of the ruling. “That’s the time Cade has given Telefonica to comply and, if I had to bet on something, I would expect them to wait until the first half of 2015 to move on TIM.”
Telefonica declined to comment. Telecom Italia, Tim and Cade did not return calls for comment.
REBELLION
The timetable given by Cade will also allow Telefonica to gauge the political mood in Brazil after presidential elections due in October next year.
Any decision to reduce the number of mobile operators to three from four in the eventuality that TIM is sold and broken up would be politically sensitive in the country, since it carries the risk of higher prices for consumers.
Findim Group, a key investor in Telecom Italia that believes selling TIM would damage a business already suffering from years of sluggish growth and 28 billion euros ($38 billion) of debt, is pushing for the removal of Telecom Italia’s board at a shareholder meeting on Friday.
Led by investor Marco Fossati, Findim Group believes Telecom Italia’s board is betraying the interests of all shareholders under pressure from Telefonica.
It remains unclear how giant U.S. investor BlackRock, which recently increased its stake to become Telecom Italia’s second-biggest shareholder, will vote.
Sources with direct knowledge of Telefonica’s thinking told Reuters that management saw Vivo as “absolutely strategic” and had no intention to scale it down as an alternative to a TIM sale.
Telefonica earned 24 percent of its total operating profit in Brazil last year and 22 percent of its revenue. ($1 = 0.7271 euros)
(Additional reporting by Sophie Sassard in London, Brad Haynes in Sao Paulo and Danilo Masoni in Milan- Editing by Leila Abboud and Tom Pfeiffer)
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