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Thursday, 25 January, 2001, 18:02 GMT
Iberian telecoms firms in Brazil tie-up
Rio de Janeiro's Copacabana beach
Telefonica-PT will be South America's biggest mobile operator
Portugal Telecom and Spain's Telefonica are joining forces in Brazil's mobile phone market in what many analysts see as a forerunner of a global alliance.

The $10bn (6.9bn) joint venture will dominate the Brazilian market, having 9.3 million mobile phone subscribers - more than double the number of its nearest competitor.

News of the deal emerged as a deadline passed for submitting bids for new Brazilian mobile phone licences.

Brazilian authorities hope to raise at least $3.4bn from the auction, which had been due to start on 30 January with the opening of bids for the first three of nine licences.

But industry sources say the auction is now likely to be delayed after a federal court on Wednesday issued an injunction suspending the process.

No decision before Monday

The court had said the process was illegal because Anatel - the authority supervising the auction - wanted to review the bids in private first rather than open them publicly.

A second injunction has also been granted on the basis that the bidding rules failed to protect some minority shareholders.

Anatel is appealing against both court actions but any decision to restart the auction process is not expected before Monday.

"There's not a very clear picture coming through," a source at one operator told BBC News Online.

Natural partners

The tie-up between the two Iberian operators will - subject to regulatory approval - bring together stakes in five Brazilian wireless firms: Telesp, Global Telecom, CRT, Tele Sudeste and Tele Leste.

The combined group will be the largest mobile operator in South America.

The Telefonica-PT deal
Brazil mobile operations combined in 50:50 joint venture
PT appoints the chief executive, Telefonica the chairman
Telefonica to lift stake in PT to 10% from 4.75%
PT considering raising stake in Telefonica to 1.5% from 1%
Telefonica considering buying stake in PT mobile arm

Analysts said the deal might presage a merger of Telefonica and Portugal Telecom's worldwide wireless assets.

The two would be natural partners, both having substantial presences in South American markets and non-competition agreements in their domestic markets.

In Brazil, the two have co-operated, with Telefonica focusing on the fixed-line market and Portugal Telecom on mobiles.

Vodafone speculation

Consolidation in the Brazilian telecoms industry has been made possible by recent deregulation, one of the aims of which was to attract new foreign investors.

Speculation has centred on the possibility that the UK's Vodafone - the world's largest wireless operator - will follow its recent high-profile entry to the Mexican market by setting up in Brazil.

It has declined to comment.

Telecom Italia - an incumbent operator - was also understood to be a likely bidder for a new licence.

Some industry sources tipped North American incumbents BellSouth and Telecom Americas - a consortium of SBC, Bell Canada and Telefonos de Mexico - as possible future merger partners.

Brazil had about 15 million mobile phone users in 2000, a number that is expected to grow to about 58 million by 2005.

The new licences are intended to allow operators to offer improved roaming and faster internet access from mobile phones.

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