Portugal's government had vetoed an earlier lower offer. The Portuguese incumbent immediately countered Telefonica’s announcement with news that it was spending half of its windfall on a 22% stake in Brazilian integrated operator Oi, which holds fourth place in the country's cellular market but dominates its fixed-line market following a merger with Brasil Telecom last year. Oi is the only mobile operator in the country that is majority-controlled by Brazilian interests. The country’s second biggest mobile player Claro is run by Mexico’s America Movil. Third place is taken by Telecom Italia's TIM, in which Telefonica also has a minority stake.
Telefonica’s move gives it an important stake in Brazil’s fast-growing telecoms market, much coveted by investors. With Vivo, it now has the opportunity to capitalise on low but rapidly accelerating demand for mobile internet services, and in due course prepare an offer for mobile TV subscribers. One of its first moves is expected to be the integration of Vivo with its Brazilian fixed-line business Telesp.
Once ratified by regulators, Telefonica’s Vivo deal will give it 70 million customers in Brazil, 25% of its total global customer base and more than it has in its home market of Spain.
“Telefonica’s purchase of Portugal Telecom’s stake in Vivo gives them the important stake in Brazilian telecoms they have clearly craved,” said Wally Swain, senior vice president at analyst firm Yankee Group. “It allows them to jump-start to a national fixed network. Today their fixed operator Telesp has a national licence, but its network is concentrated in São Paulo state. By taking control of Vivo Telefonica can leverage the mobile backhaul network that Vivo has developed to expand its fixed network footprint.”
Swain does not believe Portugal Telecom should be seen as hugely disadvantaged by the deal, even though its management fought hard to resist the sale: “They end up with 20% of Oi, Brazil’s largest fixed operator and most rapidly growing mobile operator,” he said. “At the end of the day, their shareholders were telling them to take the money from the Vivo stake, which they did.”
