Brazil
Analysis

Why is a Winity-Telefónica deal sparking controversy in Brazil?

Bnamericas Published: Friday, January 13, 2023

Market players in Brazil are concerned about an infrastructure sharing deal between the local Telefónica subsidiary and newcomer Winity Telecom, a company backed by Pátria Investimentos.

Announced in August, the deal is being assessed by antitrust watchdog Cade. A host of carriers and telcos associations have been submitting comments, most opposing the alliance.

Winity inked a wholesale contract with Telefônica Brasil, under which the latter will use the former's passive infrastructure to expand mobile coverage.

Telefônica is entitled to lease up to 3,500 of Winity’s cellular sites through 2030. Winity also leased to Telefônica, for up to 20 years, a 5MHz+5MHz portion of its 700MHz spectrum band, representing coverage of 1,100 localities.

Finally, Winity and Telefônica signed a roaming agreement, which may evolve into a radio access network sharing agreement, depending on the traffic processed.

In addition to operators, companies in the telecom infrastructure sector are also concerned. Requesting anonymity, a top executive at a tower company with operations in Brazil told BNamericas that the agreement has "a series of problems" and generates “distortions in the market.”

Winity Telecom was created by Pátria to participate in the November 2021 5G auction and to operate as a wholesale telco, providing infrastructure and access to other telcos.

Winity bought spectrum, paying 1.4bn reais (US$266mn), or 806% above the minimum established price, for a national block in the 700MHz band.

“We have a license, and we are a wholesale operator. We will offer capacity and coverage. Our goal is to reduce the [total cost of ownership] of companies in the sector,” Winity CEO and Patria partner Sergio Bekeirman said at the Futurecom event in October.

However, other companies claim the deal gives Telefônica exclusive access to substantial spectrum blocks, squeezing out regional players.

Telecoms regulator Anatel is also skeptical of the deal, finding it unlikely to be approved. Anatel viewed Winity as enabler of a national wholesale 4G network, allowing small, regional providers to access areas not yet covered by the technology.

CLOSING THE MARKET?

In its comments to Cade, association NEO, representing 200 internet providers, MVNOs and a tower company, said the three sharing contracts between Telefônica and Winity are detrimental to competition.

NEO reasons that Telefônica’s Vivo is already a market leader and does not need more spectrum and that Winity would not need this agreement to maintain its operations, as there would be demand from other mobile companies that participated in the spectrum auction.

NEO said a player that intends to carry out a neutral wholesale operation cannot exclusively assign spectrum to a dominant provider, such as Telefônica, and "reduce its ability to build a wholesale network with sufficient capacity to serve other interested providers."

The association also highlighted that leading providers Telefônica, Claro and TIM held their respective 10MHz+10MHz blocks in the 700MHz band, which is why Anatel prohibited them from bidding in the first round of the 2021 auction.

In the association's understanding, the companies' agreement also creates exclusive market reserve in favor of Telefônica regarding towers, causing distortions in the segment as well.

In December, another ISP association, Telcomp, with 700 members, criticized the deal with similar arguments.

Through law firm Caminati Bueno Advogados, Telcomp told Cade that “it is necessary to guarantee access to such a network in a competitive and non-discriminatory manner, allowing for effective competition and minimum conditions of rivalry in relation to [mobile personal service] oligopolists in Brazil.”

Telcomp called the deal a resale, as Winity is assigning spectrum to Telefônica, which would “use this spectrum as its own.” In addition, argued Telcomp, Winity will be hired by Telefônica to build towers and passive infrastructure and further expand Telefônica's presence in the country's largest cities, increasing market concentration.

In addition to NEO and Telcomp, Unifique also criticized the agreement.

Meanwhile, Claro and TIM, as well as neutral networks V.tal, I-Systems and FiBrasil (which has Telefônica as partner) wrote in the public version of the comments that they did not have enough information to evaluate the deal.

In an interview with BNamericas after the auction, and prior to the deal with Telefónica, Bekeirman touted Winity’s wholesale pledge.

“We come with a view of sharing the infrastructure as much as possible. Winity is now in a very privileged position as the first wholesale operator [in Brazil] to build infrastructure and bring efficiency to our clients' investments.”

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