UK company and Qualcomm signs phone deal in Brazil to compete with WCOM:
NATIONAL GRID: Power group signs telephony deal
Financial Times
Jan 16, 1999
By John Barham in São Paulo
Britain's National Grid and Qualcomm of San Diego yesterday paid the Brazil government R$115m (£46m) for the right to set up and operate two parallel or "mirror" telephone networks to compete with two companies privatised last July.
National Grid, which operates Britain's electricity transmission system, holds 50 per cent of a consortium that includes Sprint of the US and France Telecom with 25 per cent each. It will set up a long-distance system to compete with the existing network bought last year by MCI of the US. National Grid and its allies entered the only bid and agreed to pay R$55m, or 38 per cent above the government's reference price for the concession.
Qualcomm led a group comprising Bell Canada International and local investors, which will set up a new network to serve Rio de Janeiro, Brazil's second city, and the north and east of the country. The consortium also entered the only bid for this territory and paid the minimum reference price of R$60m.
The government had hoped to attract many more bidders to the auction, but the deteriorating business and economic environment in Brazil meant no companies entered bids for the mirror company covering the prosperous south and west of the country or São Paulo, the business capital. In July, the government attracted heavy bidding from international groups for its Telebràs monopoly, which it sold for R$22.1bn, a 63 per cent premium over the minimum price.
Wob Gerretsen, National Grid's business development manager, said recent turbulence in financial markets would have a limited impact on the new venture: "We have to run this through our financial model but it will not have a material impact as far as we can assess at this stage. Our business plan is for 20 years and it allows for fluctuations."
Analysts say companies should profit strongly from rising traffic as they begin to meet repressed demand. Brazil had just 15.4m fixed lines in 1997 for a population of 160m, a lower ration than in many other Latin American countries. The number of lines is expected to double by 2005. The mirror companies will enjoy a three-year period of protection before the local and long-distance markets are opened to full competition.
Officials have said they expect the two new companies will invest $1bn a year for three years to meet the regulators' performance targets, though executives say this figure is overstated.
Also, a Bloomberg article on the deal:
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