Rabu, 23 Juli 2008

Brazils regulators are set to shake up its fast-growing wireless phone market, in part giving a local player a boost.

Anatel, Brazils regulatory agency, is expected to make some moves that will toughen the competitive landscape.

The biggest move by Anatel will smooth the way for a merger between Brazil-based Telemar Participacoes (NYSE:TCN - News), also known as Oi, and Brasil Telecom (NYSE:BTM - News). This will create a fourth strong rival to take on the three foreign-based service providers that lead in Brazils wireless services field.

"The market is getting more competitive," said Christopher King, an analyst at Stifel Nicolaus.

By year-end, Anatel also might make wireless firms provide "number portability," which lets mobile users keep their phone number when they switch carriers. More cell phone users are likely to switch providers when the rule takes effect, analysts say.

"Number portability will shake the market after its implementation," said Julio Puschel, an analyst at research firm Yankee Group, though he expects the impact to diminish after an initial burst of churn.

In 2009, Anatel is expected to lower the fees that mobile operators and fixed-line companies charge each other to connect calls between their networks. Lower fees would be good for landline companies but would cut mobile service revenue.

Brazils wireless firms added 2.6 million new users in June and 2.8 million in May. The country has 133.1 million wireless users, up 25% from June 2007. And almost seven in 10 Brazilians use mobile phones; less than half the population was wireless at the end of 2005.

With Brazils wireless penetration going up, mobile phone companies have been spending more to acquire new customers.

Amid a tougher market, America Movils (NYSE:AMX - News) Claro unit, No. 3 in the market, has gained share vs. two larger rivals: No. 1 Vivo (NYSE:VIV - News), which is controlled by Spains Telefonica (NYSE:TEF - News) and Portugal Telecom (NYSE:PT - News), and No. 2 TIM Participacoes (NYSE:TSU - News), a unit of Telecom Italia Mobile.

The rise in competition is partly "a byproduct of penetration levels continuing to increase," King said. But, he said, "There are some other competitive forces coming into play. We are starting to see the emergence of more national carriers."

Telemar buying Oi will create a larger carrier. In April, Telemar agreed to pay $3.5 billion for control of Brasil Telecom.

Brazils government backs the deal. President Luiz Inacio Lula da Silva wants a local champion to take on foreign companies Telefonica, Telecom Italia (NYSE:TI - News) and America Movil.

Regulators have said theyll let Brasil Telecoms fixed-line business operate in multiple regions of the country, enabling the deal to go through.

Once combined, Telemar-Brasil Telecom will have nearly 23 million mobile customers, or 19% of the wireless market. The new company will likely keep the Oi brand name, analysts say.

The new Oi will face challenges despite the governments implicit backing, says Puschel. He says Oi must, for one, do better in the business market.

The new Oi will have network coverage in most of the country. Telemar recently expanded into Sao Paulo, Brazils business capital.

Other wireless firms have also been expanding into more markets. Theyve taken advantage of the governments policy of auctioning off radio spectrum in more regions of the country.

"We are seeing changes in Brazils market," said James Moorman, an analyst at Standard & Poors. "More service providers are filling in their coverage. While subscriber growth is still good in Brazil, competition will intensify as there are more national providers."

Vivo holds 30.4% of Brazils wireless market. In late March, Vivo bought Telemig Cellular, which has 4 million subscribers in Brazils wealthy Minas Gerais. TIM has a 25.4% share. America Movils Claro unit is right behind with 24.9%.

To attract subscribers, Claro has been offering consumers discounts on new phones, analysts say.

"It will be difficult for TIM to improve its performance because of the increased competition anticipated in the second half of 2008," Vera Rossi, a Morgan Stanley analyst, wrote in a recent note to clients.

America Movil distributes Apples (NasdaqGS:AAPL - News) iPhone in Mexico. Its awaiting Anatels approval to sell the iPhone in Brazil.

Puschel says if Claro offers big discounts, the iPhone could help it pick up market share.


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