Executives of the two Brazilian telecoms firms, Telefonica Brasil SA (Telefonica Brasil) and TIM Participacoes SA (TIM Brasil), declared on Wednesday, May 6, 2020, that they have set off a joint venture to a potential bid for a rival company, Oi SA’s (Oi) mobile unit despite the challenges of the COVID-19 outbreak. Meanwhile, it was reported that the two companies have not decided on the timeline to proceed for the deal and expressed that they would announce their stance in the coming months.
Biding for Oi’s Mobile Unit
With due diligence, the two carriers have decided to proceed on a plan, which was announced in March, to acquire Oi’s assets together. Meanwhile, they both are currently focusing on expanding their fiber-to-the-home (FTTH) network as well as fourth-generation (4G) mobile coverage, while a long-awaited auction for next-generation spectrum has remained uncertain.
Citing market uncertainty due to the coronavirus pandemic, Telefonica Brasil Chief Executive Christian Gebara told investors on a call, “We’re confident that our strategy is the right one,” noting that it was still early to assess the full extent of the global pandemic. Meanwhile, TIM Brasil’s Chief Executive, Pietro Labriola said on a separate call, “The level of uncertainty is much higher, but we’re not willing to cut costs or capital expenditure that will help us grow and compete in the long term.”
The executives have not yet disclosed detail of how long they would take to proceed with the deal talk. Meanwhile, they said that TIM Brasil and Telefonica Brasil have been also working together on an infrastructure sharing agreement, pending regulatory approval, as well as exploring other partnerships to accelerate FTTH deployment in Brazil.
Sales Drops in the First-Quarter
The two companies reported their sales in the first quarter were weaker-than-expected results since the revenues earning mostly in pre-paid plans and handset sales had been badly affected by the pandemic that overshadowed efficiency gains from digitalization efforts and other cost-cutting initiatives. Until Wednesday, TIM Brasil’s shares fell nearly 2% in afternoon trading and Telefonica Brasil slipped around 1%.
UBS analysts explained Telefonica Brasil, which operates under the brand Vivo, was less affected by economic and mobility challenges in the country given its premium brand and subscriber mix. A UBS analyst, Vinicius Ribeiro wrote in a report, “FTTH momentum and apparent competitive landscape stability provide evidence of Vivo’s resiliency, which should remain even as the pandemic and its effects further hinder economic activity.”
Labriola explained that TIM Brasil, the local subsidiary of Telecom Italia, witnessed pre-paid recharges drop as much as 25% in the last two weeks of March, adding that numbers were slowly improving as social distancing measures got relaxed. Meanwhile, Vivo reported a slight recovery in handset sales and mobile data usage in April compared with the second half of March, due to the rise of demand for home internet prompted by work from home during lockdowns.
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