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Bell Canada International Eyes Taking on Telefonica in Brazil
Bell Canada International Eyes Taking on Telefonica in Brazil
Sao Paulo, April 22 (Bloomberg) -- For Bell Canada International Inc., a unit of Canada's biggest
telecommunications company, Brazil's economic slump has yielded an irresistible bargain to
expand in Latin America's biggest country.
The Montreal-based company and its partners Qualcomm Inc. and closely held WLL International
Inc. are the leading bidders in tomorrow's government auction of a license to provide fixed- line
telephone service in Sao Paulo, Brazil's richest and most populous state.
The asking price of 70 million reais ($41 million) compares to $4.9 billion paid last year by
Telefonica SA for the existing monopoly, which will expire in 2001. While the new license requires
the construction of a system from scratch. Bell Canada International would be paying as little as
$1.17 per potential customer compared to the $6,800 Telefonica paid per installed customer.
''These could be extraordinary opportunities over time,'' said Bell Canada International spokesman
Peter Burn.
If Bell Canada International beats rival bidders -- Uruguay's state-controlled telephone company
Antel and Argentia's Macri family -- its Brazilian market would have 120 million people, giving it
access to 75 percent of Brazil's population folowing a pair of transactions within four months.
Steps
The push into Brazil is part of an effort to reduce reliance on its Colombian cellular phone
concession, which provides much of the company's revenue. The company also owns a 27
percent stake in Axtel, a Mexican phone start-up.
Even before it paid 60 million reais in January for the right to compete with Tele Norte Leste
Participacoes SA, Brazil's biggest fixed-line phone company spanning from the beaches of Rio de
Janeiro to the Amazon rain forest, Bell Canada International had pioneered building telephone
companies in Brazil.
The company was an investor in mobile phone businesses competing with monopolies in Brasilia,
the nation's capital, and its southernmost state of Rio Grande do Sul. ''This is probably the initial
step to create a much larger telecom entity after the markets deregulate at the end of 2001,'' said
SBC Warburg analyst Zain Manekia.
Bell Canada is betting on a boom in phone use. Brazil has 9.6 phone lines per 100 people,
compared with Colombia's 11.8 and Korea's 43. Canada has 60.2 phone lines per 100 people.
Costs
The initial investment would come cheaply, compared to initial forecasts. Before recession and
devaluation, the government projected the fixed-line auctions could raise $10 billion. In 1997
BellSouth Corp. paid $2.5 billion for a license to provide cellular service in the city of Sao Paulo.
BellSouth and many other of the world's biggest telecommunications companies have stayed
away from the fixed-line licenses, though, as concern about Brazil's creditworthiness made some
lenders reluctant to commit funds to the country.
What's more, companies suffered millions of dollars in losses after Brazil devalued its currency this
year. The nation's economic growth, which averaged 3.2 percent between 1991 and 1996,
compared with 7.5 percent for Korea.
In addition, building a telephone system isn't cheap. ''It's a tremendous coverage area but it's also
a tremendous investment,'' said Jason Dyett, an analyst with Pyramid Research in Sao Paulo.
Telefonica, for example, is projecting investments of 3.5 billion reais in its Brazilian operations this
year. And those are companies that already have established phone networks.
Bell Canada International and its partners are projecting investments of more than $1 billion
through late 2001 to build a phone network to compete with Tele Norte Leste, where they expect
to start service by the end of the year. Buying the Sao Paulo concession would likely at least
double that investment.
Market
Still, there is a waiting list of more than 4 million customers for phone service in Sao Paulo. Spain's
Telefonica SA's Telesp Participacoes SA is unlikely to get service to all those people until late
next year. The company had sales of 4.4 billion reais last year, offering a hint of the potential
market in the state.
Telefonica has also suffered a public relations nightmare as the company has been inundated
with complaints, fines and a lawsuit nine months after taking over phone service in the state. That
could create an opportunity. ''If this bad publicity for Telesp continues for another six months, that
could really change things,'' Manekia said. ''Then it will not only really hurt the company's image
but also hurt the numbers.'' |
