Brazil to lose MNO as Oi selects rivals for acquisition

Brazilian telco Oi has selected its trio of rivals as the acquirers of its mobile business unit, signalling competition in the market is about to shrink.

With Oi facing financial difficulties for a number of years, the mobile business unit was selected for divestment. Oi is traditionally a broadband company after all, and it will now concentrate on its digital DNA, admitting the convergence expansion venture has failed.

Some might suggest this is a worrying sign for the Brazilian telecoms market, with a population of roughly 209 million it should perhaps be able to support more than three MNOs, however low-ARPU and the vast expense of network maintenance and upgrade has dealt a fatal blow the fourth largest MNO in the country.

Oi has now entered into exclusive discussion with Telecom Italia, Telefonica and America Movil, the trio of rivals who jointly bid to purchase the mobile assets from Oi. It is not known how the presumed acquisition would be managed. Perhaps the assets would be carved up between the three, or maybe a joint venture infrastructure company will be created, similar to MBNL or CITL in the UK.

There had been somewhat of a bidder skirmish in the weeks leading up the to exclusive talks, though this clearly emerged to very little. US private equity firm Colony Capital had tabled a bid, while it has also been suggested a Middle East sovereign fund was interested in making an investment. Foreign funds to spur competition would have been an eyebrow raiser for some, but it does appear competition is resigned to shrink.

While this does sound like a negative for such a vast and potentially lucrative market, it might not be.

Scale is critical in the telecoms world, especially in markets where low-ARPU make it difficult to realise ROI for network deployment. Although a smaller number of telcos is not ideal, it is a better situation to have a market which can organically sustain three rivals, as opposed to four which are financially strained. Regulators will have to keep an eye open for abuse, but it could lead to more favourable climate for investment.