Saudi Investment Group Buys 49% in Brazil's Unicel

Although no financial details of the deal have been revealed as yet, speculation in local media suggests it is worth some US$62 million. Unicel will request endorsement from telecoms regulator Anatel for the sale within the next few days, and Hits will retain the option to increase its stake in Unicel, thus assuming control of the company.

Outlook and Implications

• Shareholder Structure: Unicel was set up by José Roberto Melo, who remains the firm's main shareholder with a 51% stake, in collaboration with U.S. businessman Edward Jordan and Brazilian associate Gedilva Targino.

• Bid for a Licence: Unicel do Brasil Telecomunicações was the only company that made an offer for a licence in São Paulo in an auction organised by Anatel in February 2006 (see Brazil: 22 February 2006: Anatel Starts New Mobile Licensing in São Paulo and North-East Region After Delays). However, the operator failed to deposit 10% of its offer price of 93.8 million Brazilian reais and the procedure was subsequently halted without conclusion (see Brazil: 8 March 2006: Brazilian Regulator Ends Mobile Licensing Process with No Winners). A year later, Anatel organised a new tender, with Unicel submitting a new 93.8 million reais offer and a judicial order allowing it to deposit just 1% of the fee, which finally granted it the right to deploy mobile telephony services on Band E and in service area 1, covering São Paulo and 63 neighbouring municipalities. Under the terms of the concession, the company is required to deploy services within 12 months from authorisation, which was June 2007 (see Brazil: 27 June 2007: Anatel Authorises Unicel to Offer Mobile Telephony Services in Greater São Paulo). Rumours that Unicel had launched services by end-2007 did not prove true. In the meantime, the company unsuccessfully bid for two lots in the São Paulo state that were excluded from its current concession in a September 2007 auction and were finally awarded to Oi. The first lot covers São Paulo state, excluding Greater São Paulo and municipalities in the northern parts of the state, while the second lot corresponds to CTBC Telecom's service area and includes the municipalities of Batatais, Ituverava, Franca, and São Joaquim da Barra, among others.

• In Need of Cash: São Paulo is Brazil's most populous city and business hub, while the state that bears the same name is accountable for almost one-third of the country's GDP. This sets the appropriate conditions for a successful deployment of mobile services for a new entrant like Unicel. However, the local market already has fierce competition from Brazil's three largest players—Vivo, TIM and Claro. Local press reports that Unicel's long delay to begin services has been due to a lack of funds, which has pushed it to search for a suitable investor to back the venture. Last year's rumours that Unicel was to be sold to the Constantino family, which controls low-cost Brazilian air-carrier Gol, have not been fulfilled. The entry of Oi as the region's fourth mobile player is set to cause concern for Unicel—despite fourth position in the national rankings, its name appears in the news every day due to the long-expected acquisition of rival company Brasil Telecom. With a national penetration rate of 67% (considerably higher in the city of São Paulo) and the winning bidders from December 2007 3G tender launching high-speed services across the country iminently, Unicel is far from being considered a precious asset for its future investors. In comparison, Hits has shown an aggressive expansion strategy with assets across Middle East and Africa, and the Unicel minority stake acquisition may have been the only open door in a highly consolidated market that is currently dominated by Telefónica's local unit, Movistar, and Mexican giant América Móvil.