Brazil’s Public Ministry recommends rejection of the purchase of Oi by Claro, Tim and Vivo

RIO DE JANEIRO, BRAZIL – Brazil’s Federal Public Ministry (MPF) has recommended to the Administrative Council for Economic Defense (CADE) to reject the purchase of Oi by TIM, Vivo (Telefonica), and Claro due to “competition violations”.

The Prosecutor General considers that the operation harms the market and that the telecommunications companies violated the law by forming a consortium to buy the competitor.

Federal Prosecutor Waldir Alves, the representative of the Prosecutor General’s Office, also decided in his opinion to open two administrative proceedings against the three telecommunications companies to investigate irregularities.

One proceeding is to investigate concerted behavior between the companies and “possible exclusionary practices.” Another proceeding is to investigate whether the operators informed Cade of the operation within the time limit required by law.

In the statement, the prosecutor’s office assumes that purchasing the fourth-largest mobile operator by the first three will prevent new competitors from entering the market.

“Due to the high concentration of frequency bands over which the operators’ data traffic is carried, which are (virtually entirely) available to Tim, Telefónica, Claro and Oi, the three mobile giants will be able to close the market if the operation is approved,” the prosecutor said.

The purchase of Oi by the three telecom companies will be judged next Wednesday, September 9. The MPF’s opinion is not binding, which means that the lawyers are not obliged to follow the prosecutor’s opinion.

As reported last week by Broadcast, Grupo Estado’s real-time news system, members of the antitrust body want the telecoms to sell some of the assets acquired from Oi to give the operation the green light.

According to sources, part of the court that will analyze the process believes that the authority could reject the transaction without selling infrastructure.

The R$16.5 (US$3) billion purchase of Oi Mobile by the consortium of the country’s main telecommunications companies was completed in December 2020 after a long judicial recovery process.

However, in CADE, some council members believe that the deal in its current form would create a “triopoly,” meaning that the market would be divided equally among three major companies. This would reduce the incentives for these companies to compete with each other and would harm the market.

OI DISAGREES WITH STATEMENT

Oi, in a statement, contradicted the opinion of the Prosecutor General’s Office, which had recommended that CADE reject the purchase of the company by Claro, Tim, and Vivo, saying that the transaction would increase competition among operators.

In the text, Oi said that the MPF representative did not take into account the importance of the operation for the economic recovery of the Oi Group and the pro-competitive aspect of the deal, which, according to the company, will allow the creation of one of the largest neutral network companies in the country, which “will offer capacity to all operators, contributing to the expansion of competitiveness in the market.”

“As for the remedies, Oi expects that the measures imposed by the prior consent of Anatel, the intensive regulation of the sector, and the measures contemplated by CADE will be sufficient to address any competition concerns,” the company added.

Phone company Vivo also rejected criticism from the Federal Ministry of Public Affairs over its purchase of Oi Mobile. Vivo responded through its press office that all legal procedures were followed in the bid for Oi’s mobile assets, unanimously approved by the National Telecommunications Authority (Anatel) on the 31st of last month.

“The purchase offer was made in a public auction as part of the operator’s judicial reorganization and was therefore supervised by Rio de Janeiro’s Ministry of Public Affairs and the judiciary,” he said.

Contrary to the allegations of the Prosecutor’s Office, the offer was made jointly by the three companies, but not in the form of a consortium, and will result in three absolutely independent acquisitions by the buyers, which continue to exist and will continue.

Vivo added that the purchase offer served to preserve and promote competition in the mobile market.

In its letter, the MPF “asks for the non-approval of the present merger between Tim, Telefônica, Claro, and Oi due to the competition violations.

The federal prosecutor also asks that the CADE analyze a possible practice of “gun-jumping” by the companies, with the application of the penalty of cancellation of the operation (the purchase of Oi) and that the antitrust agency investigates the “occurrence of concerted behavior between competitors and possible exclusionary practices.”

“Gun jumping” refers to the execution of a transaction without prior approval from CADE. This practice has already led the authority to annul a distribution contract signed between the Blue Cycle joint venture and Shimano.

At the time, CADE’s advisors stated that it was a serious practice and that they would be strict in their decisions to avoid a repetition of this type of behavior. TIM and Claro had not responded by the time this report was published.

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