Sprint among phone firms eyeing Brazil By Bloomberg News
Special to CNET NEWS.COM
December 11, 1998, 4:30 p.m. ET
Sprint and Canada's BCE were among five international phone
companies that bid on licenses to operate fixed-line and long
distance telephone service in Brazil, as the country tries to open its
phone market to competition.
The demand for the licenses fell short of expectations, as phone companies presented
bids on just two of the four concession areas being offered in Latin America's largest
phone market. Brazil expects to raise almost $1 billion from the sales next month,
down from estimates in August of as much as $6 billion.
The large investment needed to start fixed-line and long distance phone service from
scratch and the high cost of financing Brazilian investments may have dissuaded
investors, analysts said.
"The build-out cost is extremely high," said Jason Dyett, an analyst with Pyramid
Research in Sao Paulo. "The difficulties of securing financing for this size build-out is
clearly a factor."
Brazil said it received two bids to provide fixed-line service in an area stretching from
Rio de Janeiro to the Amazon, and one to provide long distance service. Two areas,
including Sao Paulo, Brazil's most populous state, attracted no bids. This leaves Spain's
Telefonica SA with a monopoly on fixed-line service in Sao Paulo.
'Best value'
Brazil raised about 6 billion reais ($5 billion) selling licenses to compete with existing
cellular phone companies starting in 1997. The mobile phone companies created in the
process have meant an increasingly competitive cellular market, which the government
had hoped to bring to fixed-line and long distance services as well.
Sprint, the No. 3 U.S. long distance carrier, joined with
France Telecom SA and National Grid Plc in one group,
which bid on a license to compete with Brazil's national
long distance company Embratel, owned by MCI
WorldCom. Since the group was the sole bidder for the
area, it will likely pay close to the government's suggested
price of 400 million reais for the license. MCI beat out
Sprint for Embratel in July, paying 2.65 billion reais.
A second bidding group, led by BCE, Bell Canada International's parent company,
and Qualcomm of the United States, bid for a license to compete with Telenorte Leste
Participacoes SA, Brazil's largest phone company. The government is suggesting a 600
million reais price for the area.
"We believe that the Telenorte Leste area offers the best value and the opportunity to
offer service to a very large, underserviced population," said James D. Edson, regional
vice president of Latin America for Qualcomm.
Revised expectations
Splice do Brasil SA, a Brazilian telecommunications company that controls Brazil's
sixth-largest cellular phone company and also owns a license to provide mobile phone
service in the Amazon region, also made a bid for the Telenorte Leste concession.
The nation's phone market until this year was controlled by Telecomunicacoes
Brasileiras SA. Brazil had hoped to raise as much as $6 billion selling the licenses, but
has since revised those expectations downward due to weak demand.
Brazil split up Telebras into 12 companies and sold them in July for a
higher-than-expected $19 billion, raising expectations that losing bidders from that
auction would be eager to return to bid for the competing licenses. Details of the
companies' proposals weren't disclosed. Bid winners for the areas will be selected
January 15. Winners will be selected on the basis of price as well as targets for
expanding service.
Anatel, the government's telecommunications regulator, said it hopes to reissue and
possibly revise the license offers for two regions that didn't attract bids in February.
"The international crisis didn't affect the attractiveness of the Brazilian
telecommunications system, but affected the conditions to raise money and the
formation of bidding groups,'' said Luiz Francisco Perrone, a counselor at Anatel.
BellSouth
It was unclear how soon the former Telebras units would start to face competition from
the new license holders, though Splice said it could start offering service as soon as
June. Aside from the Sao Paulo region, there were also no bids for the area served by
Telecentro Sul Participacoes SA, in Brazil's southern states, including the area
bordering on Argentina, along with Brasilia. Telecentrio is controlled by a group led by
Telecom Italia.
BellSouth, which provides mobile phone service in Sao Paulo, the world's third-largest
city, was thought to be a candidate to buy one or more concessions, but in the end
bowed out.
Riskier?
"It certainly is the case that we looked long and hard at making a run at those mirror
licenses," said BellSouth spokesman Kevin Doyle. "We think our shareholders would
be better served for the time being by concentrating our resources elsewhere."
He said a perception that Brazil has become a riskier place to invest didn't play a role
in the company's decision.
Still, BellSouth wasn't the only big telephone operator to stay away. Other international
phone giants such as AT&T, British Telecom Plc, and Deutsche Telekom AG also
passed on the auction. That indicates that the outflow of more than $30 billion in capital
from Brazil since July and the country's need for an aid package from the International
Monetary Fund to support its currency may have dissuaded some investors.
"When you see the strategic investor changing their plans, then of course that is much
more negative for Brazil," said Carlos Constantini, an analyst with Paribas in Sao
Paulo. "Either the risk perception has increased significantly or the scenario is much
worse than it was a few months ago."
Telenorte Leste Participacoes SA, which provides service to an area running from Rio
de Janeiro, up Brazil's coast to the Amazon region bordering on Venezuela, attracted
only one bid during the Telebras auction, and was sold to a Brazilian group for the
government's minimum price.
Bell Canada, which joined with Qualcomm to bid for the region, already is part of
groups that own mobile phone licenses in Brazil's southernmost state, Rio Grande do
Sul, and Brasilia, the nation's capital. Qualcomm's main experience as a phone
operator is in Chile and Mexico, where it operates mobile phone services.
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