One of the year’s most significant LTE spectrum auctions is set to start next week, in Brazil, with four bidders lined up for high value 700MHz licences. However, no external bidders will take part, and one of the four main cellcos, Oi, has withdrawn, so the windfall to the treasury is likely to be disappointing.
The candidates for six 2x10MHz slots will be three of the country’s major cellcos – Telefonica’s Vivo, TIM Brasil and America Movil’s Claro – plus Algar Telecom. Two other mobile carriers, Oi and Nextel, will not participate, though Nextel may bid later for regional frequencies if they go unsold, or for 1.8GHz blocks in the Sao Paolo metro area, due to be sold next year after the bankruptcy of Unicel.
The government will be offering three slots with national coverage. The other three are regional. One roughly covers the Londrina area, which is currently a concession for regional operator Sercomtel; one covers the municipalities in the states of Sao Paulo, Goias and Minas Gerais, currently served by Algar Telecom; and the final one covers all the rest of the country, apart from the Sercomtel and Algar locations.
The Brazilian government hopes to receive at least BRL 7.7bn from the auction though the decision by Oi to stay out may lower the price, and the authorities will be disappointed that, contrary to expectations, no foreign bidder emerged to add up the stake and inject new competition into the market.
The highest value will, of course, attach to the national licences, and it can be expected that the three remaining national bidders will secure those. Oi, beset by financial difficulties, said it will launch LTE and meet its 2017 coverage obligations using its 2.5GHz spectrum instead, and will possibly add 1.8GHz in future.
Nextel, meanwhile, said it might be interested if there are frequencies which go unallocated, which regulator Anatel would then sell in a new auction next year.
Oi’s decision also intensified speculation that it would become a takeover target, in a country where there consolidation is already on the cards with the possibility of America Movil acquiring TIM Brasil from Telecom Italia. The Mexican giant already owns Claro, Brazil’s third largest cellco, while TIM is the second. Reuters said last week that Movil was in talks with both Oi and Vivo about mounting a joint offer worth about BRL30bn ($13bn), though the stakes would have to be structured to satisfy regulatory concerns.
Vivo is owned by Telefonica, which is in the process of acquiring Brazilian fixed line carrier GVT from Vivendi. In the process it will offload its interests in Telecom Italia, which had also wanted to purchase GVT to boost its TIM Brasil unit. That failure may spur it to sell that subsidiary, hence the interest of the other cellcos.
Telecom Italia has previously insisted that TIM Brasil is a strategic asset which is not for sale, but is understood to have softened its position after the GVT setback and amid its ongoing debt problems at home. However, it could also look for other options to strengthen its own hand in Brazil and stay in one of the world’s biggest mobile growth markets, and the most likely route would be to make a play for Oi.
A bid could also pre-empt a possible offer for TIM, from Oi – which hired Banco BTG Pactual last month to help it acquire a stake in the Italian-owned player – or from the three-way alliance led by Claro.
The head of competition at Anatel, Carlos Baigorri, has said previously that Oi could be acquired or broken up if it fails to secure 700MHz spectrum, in addition to its debt issues. “What will happen with market consolidation will depend on the 700MHz auction – it will define the future of telecom in Brazil,’ he said in a recent interview with local journalists. “The company that doesn’t win in the auction, the market will very probably want to break up.”
Across the continent, Argentina is also gearing up for a 700MHz LTE auction next month. The government will offer 90MHz of spectrum in the band in total, as well as another 90MHz in AWS (1.7GHz/2.1GHz), and additional 3G frequencies. The bidders will be the three main operators – America Movil’s Claro, Telecom Argentina’s Personal, and Telefonica’s Movistar, plus media company Grupo Uno.