Brazil's Wireless Auction Attracts Little Investor Interest
--From AOL. Eric, I don't know the players well enough in Brazil. Is there any indication the incumbent carriers are taking the Sprint PCS take on spectrum, "Maybe some other time"? -- Cooters
Sao Paulo, Jan. 26 (Bloomberg) -- Brazil's $3.4 billion wireless auction, delayed until next month, has already been dubbed a failure by investors and analysts who were expecting greater interest in one of the world's fastest-growing cellular phone markets.
The high minimum prices set by the government and scarce financing has damped interest from global phone companies such as Vodafone Group Plc, which were expected to bid aggressively to enter the Brazilian market.
What's more, companies such as Portugal Telecom that already have wireless businesses in Brazil are opting to buy existing operators or merge with competitors rather than bid for new licenses and build networks from scratch.
``The Brazilian PCS auction can only be described as a failure with just five bidders, which already have operations in Brazil,'' said Patrick Grenham, a telecommunications analyst with Salomon Smith Barney in New York, in a report yesterday.
Tepid interest from bidders could slash the government's take from the auction, while limiting competition from new operators as the country prepares for a wide-open telecommunications market in 2003.
Brazil's government expected to raise 6.73 billion reais ($3.4 billion) from the nine new licenses to be sold in three separate auctions. The first auction was set for Tuesday but was back until Feb. 5 at the earliest by a court injunction blocking the sale.
Telecommunications regulator Anatel may lower minimum prices to draw in more bidders, Valor Economico newspaper reported today. The government was betting the potential of Brazil's wireless market, expected to almost triple to about 58 million users by 2005, was enough to charge a high entry price and still entice new companies.
Telecommunications Spending
Brazil is paying the price of a global easeoff in telecommunications spending and investor skepticism about profitability in the industry.
Swedish phone equipment maker Ericsson AB said today it cut its forecast for sales and profits in 2001, as a slowdown in the U.S. and other countries will trim demand for new handsets and other products. Lucent Technologies Inc., the biggest maker of phone equipment, said this week it would cut 16,000 jobs in a bid to trim costs and return to profitability.
European operators agreed to pay $90 billion last year for new wireless licenses to offer high speed Internet services to mobile phone users and borrowed $330 billion to build the new networks. Shares of Telecom Italia SpA, Vodafone, Spain's Telefonica SA and other phone companies plummeted last year on concern about their rising debt.
France Telecom SA also had to slash the offering price for its Orange SA mobile phone business by about half to draw investors.
In Brazil, companies are expected to spend between $2.5 billion and $3 billion to build wireless networks, on top of the money paid for the license, according to estimates by Merrill Lynch & Co.
`Licenses Expensive'
``The licenses are expensive and the risk for newcomers is very high,'' said Luiz Mann, a telecommunications analyst at UBS Warburg in Rio de Janeiro. ``That pretty much shuts the door for new entrants.''
As a result, phone companies such as Telefonica SA, which have already spent billions to expand in Brazil, are looking at cross-town rivals for growth.
Telefonica and Portugal Telecom SGPS SA this week announced they plan to merge their Brazilian wireless assets, creating a $10 billion company with 41 percent of Brazil's wireless market of 23 million users. About a week earlier, Portugal Telecom agreed to pay $1.21 billion in cash and assumed debt for Global Telecom SA, a wireless operator in Brazil's south.
More mergers and acquisitions may be on the way. Analysts said Telecom Americas Ltd., the $4 billion venture between Bell Canada International Inc., Telefonos de Mexico SA and SBC Communications Inc., may merge with BellSouth Corp.'s wireless business in Brazil. SBC and BellSouth already have a joint venture in the U.S., Cingular Wireless, raising speculation the companies may also merge their business in Brazil.
Fixed-Line Operators
Still, companies such as Tele Norte Leste Participacoes SA, Brazil's biggest phone company, are expected to bid in the second and third rounds of license sales, when fixed-line operators are allowed to present offers.
Telemar, which serves 16 states in Brazil's north and northeastern regions, and Brasil Telecom Participacoes SA, the operator in nine states in the country's south and midwest, have already said they intend to buy licenses in the regions where they already offer services, adding wireless to their fixed-line businesses.
Brasil Telecom and Telemar also decided to make a joint bid for a license in Sao Paulo, Brazil's most populous state and the country's financial hub.
``We have a lot of appetite for the licenses,'' said Luis Octavio da Motta Veiga, chairman of Brasil Telecom, in an interview. ``The financing for the bidding and for the build out of the network has already been prepared.''
Telecom Italia is also expected to bid for licenses covering Sao Paulo state and Rio de Janeiro, where the company isn't present yet.
Analysts expect competition for the license in Sao Paulo may drive prices higher than the 710 million reais originally set.
Jan/26/2001 10:16 ET |
