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Telefonica and TIM circling bankrupt Oi for Brazil expansion

With the troubles of Brazilian telco Oi plain for everyone to see, Telecom Italia and Telefonica are sniffing out an opportunity for growth in market with significant potential.

Telecom Italia (TIM) has confirmed in a letter to shareholders that it and Telefonica have approached Bank of America Merrill Lynch, Oi’s financial advisor, to jointly purchase the telco’s mobile operations. This should not be taken as a sign of any merged business operations, but more corporate opportunism in a market which has potential for riches as the digital society beds-in.

What is worth noting is this acquisition would only be for the mobile business unit. The broadband and fixed line units would continue as an independent operation. As the country’s largest broadband business, the collapse of the wider group would certainly be a much larger problem.

Telco Subscriptions Market share
Telefonica – Vivo 77,793,156 34.5%
TIM Brazil 55,044,418 24.4%
Oi 35,844,975 15.8%

Statistics curtesy of Omdia World Information Series (WIS)

What is slightly unusual is the level of competition which will be left in the market. Outside of these three service providers, only Claro offers a competitive threat, meaning the market will shrink from four to three. Many regulators would get twitchy at such a thought, though it seems this is not a worry for Telefonica or TIM.

Although the extinction of the Oi brand is not something Brazilian authorities would have wanted to see, it is an entirely predictable outcome. Oi has been searching to offload the mobile business unit, and the financials have not been painting a pretty picture.

Period Total revenue Net income
Q3 2019 5,001 -5,747
Q2 2019 5,091 -1,559
Q1 2019 5,130 568
Q4 2018 5,365 -3,359
Q3 2018 5,481 -1,336
Q2 2018 5 545 -1,258
Q1 2018 5,668 30,543

Figures in Brazilian real (millions)

The incredibly large net income figure during Q1 2018 is down to a cash injection from various different distressed asset funds. Roughly $1 billion was injected into the business as part of the restructuring process following the telcos decision to file for bankruptcy in 2016. In the years following this saga, financial reform was introduced in Brazil thanks to this saga, though the capital raised could not entirely save the business.

Oi’s misery is a gain for the European duo, both of whom have big plans for the Brazilian market moving forward. There are of course many questions which still remain, for example, how will the assets be split between the pair, but it is still early days in the acquisition process.


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