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Telefonica must divest TIM or Vivo holding in Brazil

The Brazilian trustbuster Cade has taken aim at what it perceives as Telefonica’s market dominance, ruling that the Spanish operator must divest its holding in Telecom Italia’s TIM Brasil or take on a new partner for its own subsidiary Vivo .

Despite agreeing in 2010 not to raise its holding in Telecom Italia, Telefonica recently increased its stake in TI’s part owner Telco which essentially gave it control over the Italian operator – and therefore TIM Brasil.

Coupling its direct and indirect holdings in TIM Brasil with its full ownership of market leader Vivo, Telefonica has a mobile market share of over 50% in Brazil. In response, Cade has fined the operator BRL15 million ($6.3 million), and has also hit TIM Brasil with a BRL1 million fine. The severity of Cade’s reaction to the stake hike is likely because Telefonica neglected to notify regulators that it would be increasing its holding in Telco.

Cade President Vinicius Marques de Carvalho stated: “Either Telecom Italia sells TIM in Brazil, or Telefonica must leave its stake in Telecom Italia.” However, after significant speculation Telecom Italia recently confirmed that it had no intention of selling TIM Brasil, stressing that it was an important strategic property.

It is therefore more likely that Telefonica will be obliged to reduce its holding in Vivo to at least 50%, which would necessitate finding a partner – however, Cade has specified that this cannot be a firm that currently holds a stake in any Brazilian mobile operator, ruling out fourth-placed Oi which has expressed interest in a merger.

 

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