A telecom industry deal is brewing that would create a new top carrier for Brazil. Oi SA is reportedly in talks with the entity that controls TIM Participações, Brazil’s second largest wireless carrier. According to Reuters, unnamed sources with direct knowledge of the talks told the news agency that a deal hinges on corporate governance issues, as well as possible changes to Brazilian telecommunications rules that could ease longstanding regulatory requirements.
It’s not the first time that Oi and TIM have been linked in telecom M&A rumors. In 2014, Oi was reportedly part of a group that would join together to bid for TIM. At the time, it was reported that TIM’s majority owner, Italy-based Telecom Italia, saw Brazil as a strategic market but would consider selling its stake in TIM for the right deal. Now, a new deal appears to be in the works.
For Oi, a driver for the merger is one common in many industries – the desire to boost market share. Oi’s 18 percent of wireless subscribers lags behind its major rivals. Joining forces with TIM would make the combined company Brazil’s No. 1 wireless carrier. Combined, the companies would hold 44 percent of Brazilian mobile lines.
Executives for Oi and Telecom Italia have said that telecom industry consolidation would depend on the ability of carriers to secure more flexible regulation. That flexibility could be forthcoming. The National Telecommunications Agency (Anatel), Brazil’s telecom regulator, is considering easing some legacy rules that strictly regulate fixed-line investments – a segment where revenue is falling as users opt for only wireless service, Reuters explains. Those rules include requirements that telecom operators make certain investments in their fixed-line assets, and apparently Oi’s spending on these mandatory investments has limited the company’s ability to compete in mobile and data offerings.
Sources tell Reuters that the companies have not yet discussed the monetary value of a potential merger, but Oi has other reasons to reach a deal. Of all of Brazil’s phone carriers, Oi carries the most debt. A merger with TIM would allow Oi to make budget cuts as the two companies integrate operations. If that happens, the combined company should be better able reallocate its resources away from expensive, mandatory spending in regulated, legacy services that bring in less revenue, and instead invest in the mobile and data offerings that now drive telecom industry growth.
