Portugal Telecom Plans a Bid for Brazil's Telemar

Tele Norte Leste is the holding company for regional incumbent Telemar, which offers services in 16 Brazilian states in the north, north-east, and south-east regions under the brand name Oi. Telemar presents the highest number of installed telephone lines in the country, and according to the announcement its market capitalisation is about 7 billion euro. Portugal Telecom will try to reach a deal for the acquisition of approximately 50% of the holding company's capital, which would require an investment of 3.5 billion euro, which is considered by certain members of Portugal Telecom's executive commission to be overpriced.

Outlook and Implications

• Telemar, a successful purchase?: Telemar offers fixed and mobile telephony service in its concession area and long-distance national and international services in the whole country. Through its free ISP Oi Internet, it offers free dial-up internet access, whereas high-speed internet access services are commercialised under the brand name Oi Velox. Through acquisition of pay-TV operator Way Brasil for 132 million reais (US$60 million) in July 2006, Telemar entered the pay-TV market, while a partnership deal with VoIP provider Net2Phone in March 2006 allowed Telemar to enter that respective market (see Brazil: 13 March 2006: Telemar Launches VoIP Services for Residential Customers). As demonstrated by Telemar's strategic initiatives in the last year, its main focus is the segmentation of services under the same platform, which can provide considerable discounts to the end-user and more effective management of its ventures. It also substituted its brand name with that of its mobile unit Oi in an attempt to simplify the structure of its product portfolio by unifying the services under one brand name and come a step closer to real convergence (see Brazil: 1 March 2007: Oi Becomes Unique Brand and Substitutes for Telemar).

• Consolidation rumours: Following an article in Brazilian newspaper Folha de São Paulo in November 2006 citing the president of Telemar as saying that a merger with Brasil Telecom would occur as part of a natural consolidation process, there has been great speculation regarding Telemar's future position in the local telecoms market. The Brazilian legal framework for telecommunications prohibits the merge of regional incumbents, but the intensification of competition from alternative carriers and cable TV operators will likely lead to a change in policy, the same article reported.

• When wishes come true…: Portugal Telecom is active in the Brazilian mobile market through ownership of a 50% stake in the southern cone's largest mobile services provider Vivo. The remaining 50% is owned by Spanish giant Telefónica, which also is present through regional fixed-line incumbent Telesp in the São Paulo area. Following unsuccessful talks between the two companies in April 2007, which could possibly have led to a sell-out deal of the 50% stake of one of the two shareholders in the joint venture, this recent bid may be Portugal Telecom's alternative to the 50:50 joint venture with Telefónica, particularly after the failed Sonaecom takeover bid for the Portuguese incumbent (see World: 5 March 2007: Sonaecom's Takeover Bid for Portugal Telecom Collapses). According to that, Portuguese company Sonae had announced that it would sell Portugal Telecom's 50% stake in Vivo to Telefónica, in case Sonae was successful in its bid for Portugal Telecom (World: 2 June 2006: Sonae to Sell Vivo's Stake to Telefónica Móviles if It Acquires Portugal Telecom).