(UPDATE) Despite Financial Turbulence, Brazil Awards 2 More Telecom Licenses
Dow Jones Online News, Friday, January 15, 1999 at 14:28
NEW YORK -(Dow Jones)- Although Brazil faces daunting financial
challenges after allowing its currency to float, the government Friday
completed an auction of two telecommunications licenses.
The licenses, aimed at establishing competitors for units of the
former Telecomunicacoes Brasileiras SA, or Telebras, were awarded to
separate consortiums led by Canadian company BCE Inc.'s Bell Canada
International Inc. unit and Britain's National Grid PLC.
The response was underwhelming for the "mirror" concessions. The
low-key bidding stands in sharp contrast to the wildly successful, $19
billion auction of Telebras's assets last summer.
Brazil granted the National Grid group, which also includes Sprint
Corp. and France Telecom SA, a concession to operate a long-distance
service provider. It will go up against Embratel Participacoes SA (EMT),
owned by MCI Worldcom Inc. (WCOM).
The government awarded a license to the BCE group, which also
includes Qualcomm Inc. (QCOM) and local firms, to provide local service
to 16 Brazilian states. This new company, named Canbra, will compete
with the Tele Norte Leste Participacoes SA (TNL), which was bought last
summer by a group headed by Brazilian construction company Andrade
Gutierrez.
Only three groups submitted proposals to participate in the auction
by the Dec. 11 deadline. Officials had expected at least six bidders. No
proposals were submitted to compete against Telesp Participacoes SA, the
wireline unit purchased by Spain's Telefonica SA. The concession should
have been attractive to bidders, as the company serves Sao Paulo,
Brazil's most populous and wealthiest state.
There were also no bidders for the mirror concession to compete
against Tele Centro Sul Participacoes SA (TCS), which serves the
prosperous southern states of the country and was acquired in July by
Telecom Italia SpA.
While the slim turnout is a letdown, analysts said local markets are
looking for any positive piece of news after a week of turmoil in
financial markets. The nation set no minimum prices for the mirror
companies, saying this would "guarantee a wider coverage and a better
quality of the services."
Bell Canda said its winning bid was valued at about 62 million
Canadian dollars (US$40.6 million). Bell Canada owns a 34.4% interest in
the consortium and is joined by WLL International Inc. with 34.4%,
Qualcomm (QCOM) with 16.2%, the Liberman Group of Argentina with 12.5%,
and the Vicunha Group of Brazil with 2.5%. The consortium plans to
invest $1 billion in developing the lines.
The National Grid-led consortium agreed to pay 55 million reals
(US$36.7 million) for its concession.
Investors world-wide have been fleeing emerging markets, and Brazil
has been caught in the crosscurrents. Brazil's current account deficit
hovers at nearly 4% of gross domestic product. The country's failure to
cut government operating expenses, particularly civil service costs, has
put the country in a difficult position.
Still, many phone companies covet the Brazilian market. BellSouth
Corp. (BLS), the Atlanta-based Baby Bell phone company, leads a group of
companies that bid more than $3 billion in 1997 to win coveted licenses
to operate cellular-phone networks in Sao Paulo and a six-state region
in northeast Brazil.
Brazil offers a large population that is highly concentrated in urban
areas, making it an ideal operating field for cellular and other types
of telephone services. Many telecom firms view wireless communications
as a way for underdeveloped countries to leapfrog past the need to build
costly wired systems.
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