Why determining Oi’s fate matters for Brazil's spectrum auction

The chances of a massive spectrum auction in Brazil in November or December - and now even in early 2021 - are diminishing.

Operators resist an auction, citing the uncertain investment scenario or unresolved issues related to the compensation of satellite broadcasters for the 3.5GHz spectrum clean-up, among others. But another topic also plays a key role: the sale of the mobile operations of Oi.

The sale is expected to impact the auction dynamics, among other things, because it entails having the frequencies owned by Oi changing hands, which, ultimately, could lead the buyers to hit the 4G and 5G spectrum caps set by regulator Anatel. 

Big companies like Telefónica or TIM have the financial muscle for the operation. Both are working on a joint bid and started due diligence. Claro also signaled interest in Oi’s mobile base, but must do the math on the scale of spectrum changes and caps as an acquisition could impact Claro’s ability to take part in the 5G auction.

According to Brazilian paper Valor Econômico, Oi expects to receive binding proposals by late July. The price is still in a broad range, from 14-19bn reais (US$2.5-3.4bn).

Like TIM and Claro, Oi also favors delaying of the auction to 2021, while Telefónica has adopted a more neutral tone. But even prior to the pandemic, most carriers didn’t want the auction to take place this year.

AUTOMATIC RENEWALS

Another unresolved issue involving spectrum relates to the successive renewal of the use of spectrum by operators.

Brazil’s former telecommunications law established that, after one license renewal, operators must return the spectrum to Anatel for a new bidding process. Last year’s reform of the law, however, allowed the automatic renewal of licenses, without new tenders.

But the automatic renewal is interpreted as being valid only for new spectrum permits and not for current licenses, hence the legal impasse.

The government considers the topic might have to be resolved with a new and more specific law, while industry players said this approach would create even more legal uncertainty.

“It is impressive, at this point, after several years of discussion of the new law, that this question gets posed. The renewal of licenses has already been defined, it's automatic. Revisiting this theme is what brings great legal uncertainty,” Ari Lopes, principal analyst at Omdia, told BNamericas.

The problem is that the first spectrum licenses offered in Brazil will expire over the coming months. 

The owners of these frequencies - Claro, Vivo, Oi and TIM - claim that if they must return these frequencies and buy them back, they will not have the resources to buy the new 5G frequencies.