BY LATIN AMERICA ADVISOR
Special to the Chronicle
Brazil's Anatel [recently] approved the acquisition by Spain's Telefonica and its Italian partners of an indirect controlling stake in Telecom Italia, but on the condition that they keep their operations in Brazil separate. Will the deal as approved preserve competition in Brazil's mobile market? Will Vivo and TIM Brasil hold onto their more than 50 percent combined market share, or will Claro, Oi, and Brasil Telecom continue to make inroads?
George Foote, Partner at Bracewell & Giuliani: Telefonica now controls 60 percent of the Brazilian wireless market through ownership of TIM Brasil and Vivo. America Movil, the largest other player, remains a serious and well-financed competitor in the newly developing duopoly, but only time will tell whether consumers will suffer from the reduced number of true competitors. Wireless operators are in constant need of investment capital, and if the 28 Anatel conditions for the deal can limit the subsidy of Telecom Italia and TIM Brasil by Telefonica, Vivo and TIM Brasil may operate for a while as competitors. However, it will be very difficult to seal off all the ways that the financial power of Telefonica might support the operations of both companies. Given the scope of other Telefonica holdings in Latin America, even without formal control over Telecom Italia, Telefonica has numerous opportunities to achieve enterprise-wide economies of scale in operations, roaming, and technical cooperation. This cooperation can amount to effective unified control over the Telefonica holdings in Brazil. The newly focused and bulked-up Telefonica is first a threat to America Movil, but in time the two telecom giants may find mutual comfort in matching each other's prices and service rather than competing. The best hope for consumer protection may not be Anatel, but the emergence of new competitors deploying less expensive telecommunications technologies.
Luis Minoru Shibata, Managing Director for Latin America at The Yankee Group: Brasil Telecom and Oi will try to offer fixed-mobile convergence, and despite separate companies, Vivo will have to elaborate better its strategy with fixed-line operator Telefonica. The same should happen with Embratel and Claro. Uniquely, TIM is the only 'pure' mobile player in Brazil, with a license for fixed-line services that allows the Italian operator to apply fixed-line tariffs. As such, TIM can be much more aggressive with its mobile substitution strategy. With 3G, TIM is likely to extend the mobile substitution of broadband services. That means TIM will compete not only with mobile operators like Vivo, but also against fixed-line operators Telefonica, Brasil Telecom, and Oi. Given that the mobile space is already very competitive, I don't foresee many changes. The question is how will fixed-line operators avoid mobile substitution—or allow the substitution by their sister companies—and how much market TIM be will able to get from the existing fixed-line operators. However, this will only happen if Telefonica and Telecom Italia really operate as separate companies in Brazil, meaning that Telefonica's investment was purely financial.
Beatrice Rangel, Manager Director at AMLA Consulting LLC: Anatel's decision is in line with the guiding principle set by legislators when Brazil opened its telecommunications market after ratifying GATS over a decade ago. That principle is to promote competition as a means to trigger greater coverage, better services, and affordable prices. The 28 conditions established by Anatel aim at constraining any attemps to impair competition through oligopolistic practices. Thus there is no reason to believe that the current competitive landscape will not be preserved. And while current mobile operators will certainly gain market share in Brazil, given the large proportion of the population that remains underserved, all current telephony players face a growing yet not so visible threat. This threat emerges from innovation. The standardization of technologies such as mesh and WiMax facilitates their massive deployment. These technologies have a more competitive cost structure and thus are better attuned to respond to the growing demand for communications services of lower-income families and individuals, and remote and rural areas. Small WiMax- or mesh-based communications service providers are sprouting in Brazil. Eventually, they will merge or ally to enhance efficiency and coverage. At that point, they will bring competitive pressures to bear on today's players.