MCI a Long-Distance Winner in Brazil --
$2.3 Billion Bid Snares Embratel, Nation's Only Long-Haul Carrier
By Mike Mills
Washington Post Staff Writer
Thursday, July 30, 1998; Page E01
At Brazilian restaurants in Rio de Janeiro and Washington last night, MCI Communications Corp. executives celebrated a World Cup-size telecommunications victory: their $2.3 billion winning bid for Embratel, Brazil's only long-distance carrier, which will give MCI total control over long-haul voice and data communications in Latin America's biggest market.
The acquisition will also help it better serve U.S. multinational corporations that do business in Brazil, which generates most telecommunications traffic from South America to the United States.
"It enables a General Motors or a Coca-Cola to have better one-stop shopping for basic telephony, Internet and data services," said Jorge Fuenzalida, a Latin America telecom analyst for Deloitte & Touche Consulting in Atlanta. "As the long-distance market in Brazil continues to grow, and for the time being it's a de facto monopoly, . . . MCI has a great market opportunity."
Winning Embratel is an important new step in efforts by MCI and its soon-to-be merger partner, WorldCom Inc., to assemble a global communications system. WorldCom has been buying and building networks in many foreign countries, notably Europe and Japan.
The sale of Embratel was part of a broader auction to sell off parts of Telebras, Brazil's government-controlled telephone company. Embratel handles domestic and international long-distance calling for Brazil's 17 million telephone customers, as well as data, satellite and Internet services.
The sale hands MCI the Brazilian government's 20 percent equity stake in Embratel, as well as 51.8 percent of the voting shares of the company. MCI will be Embratel's biggest single shareholder, with the remaining shares held by financial institutions and private investors.
MCI's winning bid was 47 percent higher than the minimum allowable bid of $1.6 billion.
"I think the price was just right," said Michael Rowny, executive vice president and acting chief financial officer of MCI. "We're really excited and pleased, having won the crown jewel of telecom privatizations."
"We valued it at a level we thought appropriate, and someone else bid higher," said Larry McDonnell, a spokesman for Sprint Corp., which bid unsuccessfully as part of a consortium of Brazilian investment and pension funds.
Rowny watched the bidding from his office in Washington via a live televised satellite feed. He used a cellular phone to instruct MCI's bidder on the floor of the Brazilian stock exchange in Rio. Sealed bids by MCI and Sprint initially were so close that auctioneers moved to a traditional "open outcry" auction, with each bidder besting the other in $8.5 million increments. Within minutes, Sprint caved and the gavel came down for MCI.
MCI's first task will be to improve the long-distance portion of a national phone network that is notoriously unreliable. Today only 10 of every 100 people in Brazil have a phone. MCI's goal is to expand Embratel's network so that it can handle long-distance growth that will result if local phone companies meet a target of increasing phone use to 20 out of 100 Brazilians in the next four years.
It also must trim Embratel's 10,000-person payroll without running afoul of Brazil's labor unions. Telebras operates only about half the number of lines per employee as the U.S. Bell companies do, according to Fuenzalida, meaning that there is much room for gains in productivity.
MCI will face competition, but slowly. Brazil is allowing one other competitor to Embratel to begin operations at the end of the year. The country will allow full competition by 2002.
Next year Embratel will be allowed to carry short-haul toll calls in Brazil. And in 2002, it will be able to enter the whole local calling market.
MCI also owns a stake in Mexican long-distance carrier Avantel, in a joint venture with Mexico's largest bank, Banamex. The company has a 12 percent share of the Mexican long-distance market after being in business two years. |
