Telefonica’s move on Vivo to change Brazilian market

Spanish and Latin American carrier Telefonica’s acquisition of Vivo will have a significant impact on the Brazilian market, most notably giving the company the platform it needs to launch convergent services.

On Wednesday, Telefónica said that it has finally reached an agreement with Portugal Telecom over the acquisition of Brazilian operator Vivo, by buying up Portugal Telecom’s stake in Brasilcel, which in turn controls Vivo. Official figures haven’t been disclosed but the deal is expected to total around €7.5bn, yet another increase on the original offer of €5.7bn, underscoring the importance of the stake to Telefónica.

According to Julio Puschel, head of mobile operator strategy at Informa Telecoms & Media, Telefónica will now be in a stronger position to keep its leadership position in the Sao Paulo market by offering convergent services and will also be able to strengthen its presence outside region III.

“The Spanish operator has convergent services in almost all of its markets apart from Brazil, the most important one, where it was unable to fully offer fixed and mobile services,” Puschel said.

“I believe that the acquisition will accelerate Telefónica’s strategy to launch fixed services outside Sao Paulo state,” he said. “As Vivo has national coverage, it makes sense for Telefónica to bring fixed service to these markets as well. WiMAX could be an option to last mile networks in this case and the small and medium business market should be a primary target. It is very likely that competition in regions I and II will increase after the acquisition.”

Portugal Telecom is reported to be already moving on, with its eye on a stake in Vivo’s local competitor Telemar PCS, otherwise known as Oi. Oi is the smallest of the leading players, with 42.3 million users at end June, according to Informa’s WCIS. TIM had 43.7 million users while Claro had 46.9 million and Vivo had 55.8 million.

According to Puschel: “Portugal Telecom will need to find an alternative to keep operations in Brazil, as the country has a very significant share of the group’s total revenue. That opens possibilities of new acquisitions in the country such as shares at Oi or even Tim Brasil. If that really happens, the Brazilian mobile market will become even more competitive with groups making significant investment to gain market share.”