Anti-trust body rules TI must withdraw from Brasil Telecom

19 Mar 2004

Brazilian anti-trust authority Cade has ruled that Telecom Italia (TI) must withdraw from control of Brasil Telecom (BrT), pending a final decision on a dispute between TI and BrT. According to a report in the Financial Times, Cade’s ruling marks another stage in an escalating row between TI and Opportunity, a Rio de Janeiro investment company that acts on behalf of Citicorp Venture Capital, a private equity firm owned by Citigroup of the US. Last month TI and its parent company Pirelli severed all links with Citigroup globally because of the dispute.

TI was a member of a consortium – along with CVC (represented by Opportunity) – that bought BrT in July 1998. TI left BrT’s control group temporarily in August 2002 to set up its own wireless operation, TIM Brazil, a move which was necessary in order to comply with Brazil’s legislation governing wireline companies investing in wireless operations prior to meeting pre-ordained performance targets. Under the agreement TI was expected to be allowed to rejoin BrT by January 2004, but during its absence BrT was awarded licences to launch its own wireless operations, creating a conflict of interest. Earlier this year Anatel authorised TI to return to the controlling group, giving the parties 18 months to resolve the dispute. BrT, however, has refused to comply after claiming to have invested USD30 million in the roll out of wireless infrastructure, a figure which is expected to have risen to USD350 million by the end of 2005. In the latest ruling Cade recognised the threat to competition posed by TI’s return to BrT’s control and ruled that TI has a clear conflict of interest and cannot return to control BrT. TI, meanwhile, has countered that it will not waive its right as shareholder and will use all legal means to remedy the situation.