Global Insight Perspective | |
Significance | Regulatory wrangling in Argentina and Brazil is threatening to derail a high-profile, EU politically-laden takeover deal between Telefónica and Telecom Italia. |
Implications | Although Telefónica may not actively seek to become a de-facto monopoly in Argentina and Brazil, any potential collaboration between its Latin American operations and that of Telecom Italia will dilute the rivalry between the two, striking at the very heart of competition in the markets. |
Outlook | Given the political ramifications of the fallout of a failure to get the required regulatory nod, high-level political machinations from both sides of the Atlantic may help facilitate an amicable consensus in the near term. |
Brazil's telecoms regulator, Anatel, has temporarily delayed its examination of Telefónica's purchase of a key stake in Telecom Italia, dealing a blow to the conclusion of the takeover deal of Telecom Italia by the Telefónica-led consortium. Anatel was supposed to deliberate on the impact of the deal on the mobile market in Brazil at its meeting on 30 August 2007, but Dow Jones reports that the issue was taken off the agenda at the request of Anatel commission members who wanted to deepen analysis of the implications of the deal. Anatel got involved because a deal would mean that Telefónica owns a significant stake in the two leading Brazilian mobile operators—Vivo Participações and TIM Participações—and any potential amalgamation of control could see Telefónica controlling almost 50% of the Brazilian mobile market, with its attendant consequence on competition. The report notes that the delay may not be unconnected to the fact that América Móvil, the owner of the third-largest operator Claro, was granted an injunction to access more documents related to the Telefónica-Telecom Italia deal (see Italy: 30 April 2007: Telefónica Buys Into Telecom Italia in US$6.2-bil. Olympia Deal).
Meanwhile, there are further rumblings in Argentina as concerns mount over whether a Telefónica-Telecom Italia deal would enable Telefónica to exercise control over Telecom Argentina. Telefónica owns the largest Argentine fixed-line telco—Telefónica de Argentina—while Telecom Italia holds an indirect, but significant, stake in Argentina's second-largest fixed-line operator, Telecom Argentina. While the board of Telecom Argentina insists that Telefónica would have no say, local investment group Grupo Werthein, a co-shareholder in Telecom Argentina, warned that the Spanish giant would eventually have an impact if the takeover deal goes through.
Outlook and Implications
- Muddled Waters: Although Telefónica's effort to take over control of Telecom Italia was largely dictated by the value of the Italian giant's home market, unexpected hitches far away from the shores of Europe are proving to be the major stumbling blocks. At the centre of the entire saga is the reluctance of regulators in both Argentina and Brazil to allow Telefónica to become a de-facto monopoly through the back door, a situation that would undo all efforts aimed at broadening competition in both markets. The situation could have been even worse had Telecom Italia not recently disposed of some of its assets in Peru and Venezuela—both countries where Telefónica operates—as part of cost-cutting efforts. While Telefónica can maintain that the relationship between its Latin American subsidiaries and that of Telecom Italia will only be in deriving synergies, any potential collaboration will dilute the rivalry between the operations, striking at the very heart of competition in the markets (see Venezuela: 20 January 2006: Telecom Italia Sells Venezuelan Subsidiary for US$425 mil. and Peru: 11 August 2005: America Móvil Agrees to Acquire TIM Peru).
- Delay But Not Denial: Although doubts will remain over how effective any agreed adjustments will be, it is inconceivable that concerns in Argentina and Brazil will derail such a high-profile, EU politically-laden deal. The final deal struck by the Telefónica-led consortium, Telco, to buy Pirelli's controlling stake in Telecom Italia was the culmination of a long, drawn-out process that tested the limits of protectionism in Europe. The Italian government vehemently objected to foreign control of Telecom Italia, but when it became clear that any sole Italian investor in Telecom Italia would have to set aside rational business principles to accede to an Italian nationalistic clarion call, the government caved in and settled for a consortium comprised of Italian investors and an EU player, Telefónica. The ongoing wrangling in Argentina and Brazil would inevitably lead to some bespoke apparatus to transparently isolate the operations of Telefónica and Telecom Italia's operations in both countries. Given the political ramifications of the fallout of a failure to get the required regulatory nod, high-level political machinations may help facilitate an amicable consensus in the near term (see World: 17 April 2007: AT&T Pulls Out as Telecom Italia's Ownership Battles Rumble on).