Telecom Italia refuses to budge over Brasil Telecom

26 Mar 2004

Italian heavyweight Telecom Italia (TI) has said that it will not sell its stake in Brazilian telco Brasil Telecom (BrT), a move which looks likely to escalate its already heated dispute with fellow investor Opportunity, a Rio de Janeiro investment company that acts on behalf of US-led private equity firm Citicorp Venture Capital. Speaking at a news conference yesterday, TI chairman Marco Tronchetti Provera stated defiantly that his company’s mobile unit Telecom Italia Mobile (TIM) would not be ‘pushed out of Brazil by someone who has behaved very incorrectly’, a direct reference to Opportunity which TI believes is doing everything within its power to prevent the Italian company from retaking control of BrT. The dispute between the two hinges on an agreement made by TI with other shareholders in August 2002 to reduce its stake in BrT’s holding company, Solpart, to below 20%, in order that TIM could then expand services beyond the regions where BrT operates.

TIM now wants to increase its stake in Solpart to 38%, arguing that the terms of the 2002 agreement allow it to regain its original voting stake. But Opportunity has challenged this and taken the case to arbitration in London. Last week Brazil’s anti-trust authority Cade ruled that TI must withdraw from control of BrT, pending a final decision on the dispute between the two shareholders, but TI looks set to defy this. TI was expected to be allowed to rejoin BrT in January this year, but during its absence BrT was awarded licences to launch its own wireless operations, creating a conflict of interest. Although Anatel subsequently authorised TI to return to the controlling group – giving all parties 18 months to resolve the dispute – BrT has refused to comply after claiming to have invested USD30 million in the rollout of wireless infrastructure, a figure which is expected to rise to USD350 million by the end of 2005. The latest ruling by Cade recognises the threat to competition posed by TI’s possible return to BrT’s management board. TI, meanwhile, will not waive its right as shareholder and says it will use all legal means to remedy the situation.

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. TIM’s local wireless units – Tele Nordeste Celular, Tele Celular Sul and Maxitel – won an E-band and two D-band PCS licences in the March 2001 round of the auction and launched GSM services over the TIM brand name in October 2002. A fourth TI operation, start-up TIM Celular, launched GSM services in October 2002 and by the end of 2003 the four units had a combined subscriber base of 7.86 million users.

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