Departing CEO says TIM eyeing Cemig Telecom, but price is an issue

Brazilian telecom operator TIM claims to be an active buyer rather than an asset to be bought in the country's apparently unescapable path towards the consolidation of its telecoms market.

The problem relies on the price tags, says CEO Stefano de Angelis, who is stepping down effective Monday after the expiration of his two-year expatriate agreement. (TIM Brasil has appointed Sami Foguel as new CEO.)

Speaking to analysts on his last call as CEO on Friday, De Angelis said consolidation in Brazil's telecom market is inevitable and will take place in the next two years – if not sooner. He stressed that TIM is reviewing the M&A options on the table but that "some assets are still too high."

"We've always said that there are opportunities for market consolidation. To participate in this process, though, we needed to have a strong and solid balance sheet. We did the homework. We are ready. We think we can be a significant player in the consolidation," he said.

One such asset is Cemig Telecom, the telecom arm of Brazil power distributor Cemig, whose sale auction is slated for August 5 with TIM as one of the pre-registered participants.

The auction was initially scheduled for July 25 but Cemig said in a note to the market that a postponement was necessary to give bidders more time to review bidding documents and prepare "more appropriate and competitive economic proposals."

The auction is divided in two lots, each grouping a certain number of states where Cemig Telecom operates. The minimum price for lot No. 1 was set at 335mn reais (US$88.1mn) and for lot No. 2 at 32mn reais.

Cemig appeals to TIM because of its fiber optics grid, which would line up with TIM's expansion plans for its TIM Live FTTH services outside of the São Paulo and Rio de Janeiro markets. The company just announced the arrival of the service to Salvador, the Bahia state capital.

The company's base of FTTH clients grew 22% year-on-year in Q2, while TIM Live revenues expanded 47%, reaching 38% of all Services revenues..

INFRA SHARING

The executives also commented on the recent nod from regulator Anatel to the expansion of a network sharing agreement with Oi.

According to CTO Leonardo Capdeville, the agreement includes mobile and fixed services and involves sharing 20MHz between the companies. TIM is also mulling the prospect of sharing with other telcos and ISPs while it tests sharing bands in the 800MHz spectrum, pending approval from Anatel and antitrust body Cade.

"For a year and a half we had active discussions with Oi, and earlier this year we finalized a strong agreement with them," said De Angelis, "to improve the sharing of infrastructure. We continue to see this as a strategic goal – sharing optimizes capex and is important to the industry."

TIM remains in the lead of 4G coverage, with 3,138 municipalities covered, including 1,131 using the 700 MHz frequency in addition to 2.5Ghz.

According to regulatory affairs director Mario Girasole, the company is awaiting the greenlight from Anatel this month to use 700MHz in São Paulo, where it claims to have 700MHz base stations already installed.

The company says it has 17,000 4G LTE sites across the country and 5mn Voice over LTE (VoLTE) users in 1,500 localities. 4G users hit 31.3mn in Q2, and smartphones account for 84% of the handset base.

NEW TELECOM FRAMEWORK

Another topic of certain concern for TIM is PLC 79, the bill changing core aspects of Brazil's telecom framework, which has been pending a vote in congress for nearly two years. The bill mainly benefits fixed-telephony concession holders.

"It is basically impossible to imagine Brazil without it or something similar not passed by congress or the government in the next years," De Angelis said.

Although not a concessionaire itself, TIM has interest in the legislation because of an expected positive indirect market impact and also because of the bill's provision for "automatic renewal" of spectrum licenses.

Girasole defends the conversion of the spectrum renewal fee into an investment commitment, as approved in Anatel's latest general competition goals plan (PGMC).

RESULTS

TIM's net profits grew 53.3% to 335mn reais and net revenue was up 5.8%. to 4.17bn reais in Q2.

Capex reached 1bn reais, driven by fiber and mobile network investments, for a 25.8% increase. E-billing increased 15%.

Full results can be seen here.

De Angelis is leaving with positive results, helping the company cut its debt and operating expenses over the last two years. On the other hand, it has lost market share in the Brazilian mobile segment, where it now trails market leader Claro.

"I'd underscore the resilience of TIM Brasil in the face of the unbalanced and inconsistent recovery of the Brazilian economy," said the departing CEO.