Brazil Wireless Auction Fizzles As Only One License Is Sold
March 14, 2001
A WSJ.com News Roundup
Brazil failed to sell two more wireless licenses in its third round
of bidding Tuesday, putting into doubt its plan to raise $3.4
billion from auctioning off nine licenses and possibly
consolidating the fragmented telecom market. So far, five
licenses remain unsold.
A Telecom Italia SpA unit paid 990 million reals ($479.2
million) for a license that covers Brazil's northeast region.
Telecom Italia Mobile 's bid was 5.3% above the government's
minimum asking price for the license of 940 million reals.
The Brazilian government's sale of two other licenses -- one for
the country's center-south region and one for the country's
wealthiest state of Sao Paulo -- flopped as the licenses received
no bids. Analysts had expected these two licenses to go unsold.
When the auction plan was announced in November, federal
telecommunications regulator Anatel said it hoped to raise at
least $3.4 billion from the wireless sale, but low bidder interest
has forced the cancellation and a change in terms of the auction
in hopes of attracting more bidders.
Brazil has 19 wireless operating companies that were created
after the 1998 break up of state-owned telephone giant
Telebras, which added $19 billion to Brazil's coffers. Three of
the existing wireless operators are controlled by Telecom Italia
Mobile.
Anatel set minimum bid prices of 540 million reals to 1.01
billion reals for the nine licenses, which were to be auctioned off
in three rounds, with three licenses sold in each round. The
licenses were divided into three geographic regions, known
locally as Bands C, D and E. The new licenses, and the looser
regulations that accompany them, let companies establish
nationwide coverage.
The licenses run in the 1,900 megahertz frequency using global
system for mobile communications, or GSM, technology,
instead of the dominant code-division multiple access, or
CDMA, technology. The GSM standard is popular in Europe,
while CDMA is more common in the U.S.
Setting the Rules
In Brazil's northeast region, Anatel set the minimum price for the
Band C license at 1.01 billion reals, and put the price for the D
and E band licenses at 940 million reals each.
In the country's center-south region, the minimum price for the
Band C license was 580 million reals, while the minimum price
for each of the Band D and Band E licenses was 540 million
reals.
In the third region, which includes Brazil's wealthiest state of
Sao Paulo, the minimum price was 760 million reals for the
Band C license. Bidders had to pay at least 710 million reals for
each of the D and E licenses in Sao Paulo state.
The Band C licenses, which were supposed to go up for
auction Jan. 30, are more expensive because operators who
win Band C concessions are allowed to offer services about six
months earlier than companies with Band D and E licenses.
Existing fixed-line companies won't be allowed to bid for Band
C licenses in the same region where they already operate.
Let the Bidding Begin
The auctions were problematic from the start. Before the Jan.
30 scheduled auction, a Sao Paulo court blocked the auction on
the grounds that the bidding process was illegal because Anatel
planned to review the bids prior to their public unveiling. The
injunction was lifted Jan. 30 and the auction was rescheduled
for Feb. 6.
The Feb. 6 auction was rescheduled after only one group
entered a bid for the first round. Anatel had to determine if the
single bidder, a consortium called Serranby Participacoes, was
eligible to bid. Auction rules prohibit fixed-line firms from
competing in the first round of the auctions.
Most big names were absent from the bidding process.
Companies with existing wireless operations in Brazil, including
Telecom Italia, Telefonica and Portugal Telecom didn't
participate. Analysts believed U.S.-based BellSouth Corp. and
Britain's Vodafone were also going to join in the first round.
Portugal Telecom and Telefonica opted to form a $10 billion
wireless joint venture in late January instead of competing in the
auctions, and had said they didn't think participating in the
auctions would be a good strategic move for their businesses.
The second auction brought significantly better results -- raising
$1.9 billion, 19% above the government's target. The success
stems from the presence of a foreign investor with a strategic
regional interest.
Telecom Italia Mobil won two of the three mobile-phone
licenses in that auction, bidding a combined $778 million for
licenses in Sao Paulo and a grouping of central and southern
states comprising nearly a quarter of the country's population.
TIM lost the northern and eastern region to Brazilian fixed-line
telephone company Tele Norte Leste Participacoes SA.
Several other foreign and Brazilian companies, citing high
minimum prices, conflicting technological standards and
previous investment plans, opted out of the bidding.
TIM said it will now invest $1.5 billion over five years in its new
Brazilian networks. The company added that it will fashion a
pan-American mobile network from existing operations in Chile,
Peru and Venezuela, and from future operations in Bolivia and
Argentina, according to TIM Chief Executive Marco De
Benedetti.
TIM's new licenses add to its three existing companies in Brazil:
Tele Celular Sul Participacoes SA in the southern states of
Parana and Santa Catarina; Maxitel in Minas Gerais, Bahia and
Sergipe states; and Tele Nordeste Celular Participacoes in six
northeastern states. The center-south license acquired on
Tuesday includes the coverage area of Tele Celular Sul.
The five remaining licenses are slated to be sold later this year,
but analysts doubt the government will be able to sell them.
Companies in Brazil, such as Spain's Telefonica SA and
Telecom Americas Ltd., which is a joint venture of SBC
Communications Inc., Bell Canada International Inc. and
Mexico's America Movile SA, have avoided the auctions.
Instead, these companies are pursuing acquisitions or
partnerships to gain nationwide mobile coverage in Brazil.
Anatel will republish the bidding rules for the three licenses from
the postponed January sale in mid-April. The sale date for these
three licenses -- which excluded companies with fixed-line
assets -- had been scheduled for January but was postponed
because of a lack of bidder interest. Anatel has said it may
consider lowering minimum prices and cutting certain
restrictions for the licenses. A sale date for these licenses hasn't
been set, Anatel said.
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