'What about US operators stepping in?'
Ned Taleb ‏@NedTaleb

by Christiana Sciaudone
and Anna Edgerton
7:54 AM BRST
February 5, 2015

(Bloomberg) -- Brazil’s government, once a critic of consolidation in the telecommunications industry, is now willing to consider phone-company combinations, according to three officials with knowledge of the matter.

The telecommunications regulatory agency, known as Anatel, and the ministry of communications are open to mergers and acquisitions provided the deals mean continued investment and better service, said the officials, who asked not to be identified because the details are private.

Brazil is signaling the shift amid efforts by phone companies to find partners and the installation of Communications Minister Ricardo Berzoini on Jan. 2 in President Dilma Rousseff’s second term. His predecessor, Paulo Bernardo, said last year that combinations weren’t good for customers, who are better served when there are more companies competing.

One consolidation effort, with two possible outcomes, is being floated now. Telecom Italia SpA wants to combine its Brazil unit, Tim Participacoes SA, with Oi SA, which owns the biggest domestic landline network, people familiar with the matter have said. Rio de Janeiro-based Oi in turn is studying a purchase and breakup of Tim, the third-largest mobile provider, the people have said.

Text and e-mail messages left for comment with Anatel and the communications ministry went unreturned.

Stocks Rise

Oi rose 5.4 percent to 5.71 reais at the close in Sao Paulo, while Tim gained 0.1 percent to 12.19 reais, the stock’s fourth straight advance.

Government resistance to phone-company combinations hasn’t been the only hurdle to deals in the Brazilian industry, whose companies are trying to boost profit and add investment capacity as they vie for a dwindling number of new users.

Oi’s efforts to take part in consolidation have been hampered because lawmakers haven’t acted on an extension of the company’s landline concession, people familiar with that matter have said. Without clarity on whether Oi can keep rights to its fixed-line business beyond the 2025 expiration date, the company can’t be valued for a sale, the people said.

Consolidation isn’t the only option for Oi, the most-indebted in the Brazilian industry, because the company is selling assets in Portugal and Africa that could help improve its balance sheet, one of the officials said.

Oi’s net debt was 47.8 billion reais ($17.4 billion) as of the end of the third quarter, more than five times as much as Telefonica Brasil SA, according to regulatory filings and data compiled by Bloomberg. The company declined to comment on its strategy.

To contact the reporters on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net; Anna Edgerton in Brasilia at aedgerton@bloomberg.net

To contact the editors responsible for this story: Edward Dufner at edufner@bloomberg.net Molly Schuetz