Telefónica worried about facing China Telecom in Brazil

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Wednesday, October 25, 2017

Telefónica is concerned about the possible entrance of China Telecom in the Brazilian market through an investment in bankruptcy-fighting telco Oi.

According to Eduardo Navarro, head of Telefónica Brasil (Vivo), the concerns are related to the presence of a foreign state-run player in the local market or others which are not used to pay dividends to shareholders.

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"We are very much in favor of competition. It is good for everybody to have healthy players in the Brazilian market. The only concern is to state companies or others that are not committed to shareholder remuneration," Navarro said in response to an analyst during Telefónica Brasil's Q3 earnings call.

State-run telco China Telecom is reportedly considering buying shares and injecting money into the bankruptcy-threatened Rio de Janeiro-based carrier Oi in exchange for a stake in the company.

Oi confirmed that "preliminary talks" were underway but said no concrete proposal has yet been presented.

Still referring to the Brazilian telco, Navarro said that telecom regulator Anatel's refusal to ink a fines-for-investments accord with Oi does not represent a blow to this instrument. Rather, it was motivated by an assessment of the financial capabilities of the company.

Telefonica had a fines-for-investments deal with Anatel greenlighted, with caveats, by the federal audit court TCU.

TELECOM LEGISLATION

Speaking about changes to the telecom framework, Navarro said that he is optimistic for the approval in Senate of a bill allowing fixed-telephony concession holders to migrate their permits to authorizations, with a focus on broadband expansion.

The bill is stalled in congress and benefits companies like Oi, Vivo, Sercomtel and Algar Telecom. Navarro said that the bill is highly positive to society, though not essential to Telefónica, which is in better financial and economic situation than its peers.

700 MHz

Targeting competition, Telefónica Brasil vows to outpace rivals in 4G mobile service coverage and double the number of cities in which it already uses the 700 MHz band by the end of November to 400 localities.

Overall, the telco aims to reach 75% of the Brazilian population covered with 4G this year.

COO Christian Gebara said Telefónica has an advantage over rivals because its 3G is present in 4,000 municipalities, whereas the nearest competitor is present in about 3,000. When 4G is overwhelmed, traffic is offloaded through 3G networks, hence Vivo's "advantage".

Gebara also praised the company's strong Q3 growth in data revenues, postpaid users and prepaid migration to the hydrid 'control' plans.

FTTH

Regarding pay TV, Telefónica Brasil is terminating its strategy focused on satellite DTH and will rather focus now on IPTV, via fiber to the home connections (FTTH), according to Gebara.

"We are not stepping out of pay TV. What we decided to do is to focus on IPTV rather than DTH. We did that in many cities where we have FTTH this last quarter and we will do that in all of them by the end of the first semester next year."

The company reported a net profit of 1.2bn reais (US$370mn) in Q3, up 28.3% y-o-y. Telefónica Brasil invested 2.2bn reais in the period, prioritizing 4G coverage, which reached 1,919 cities, and fiber expansion with FTTH, which was launched in 12 new cities in 2017.

Telefonica aims to end 2017 with four new cities "fibered".