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Foreign firms sink teeth into Brazil mobile market

Foreign firms sink teeth into Brazil mobile market

Multi-billion-dollar deals by Spain’s Telefonica and Portugal Telecom in Brazil’s booming cellphone market this week underline the growth potential of Latin America’s biggest economy, analysts say.

They also point the way to perhaps further consolidation in a country where 185 million people out of a population of 193 million have mobile telephones.

Wednesday’s announcement that Telefonica was taking control of Brazil’s biggest cell network operator Vivo by buying out Portugal Telecom’s stake in the investment vehicle they shared for 9.7 billion dollars started the ball rolling.

PT immediately announced it was using around half that bonanza to buy a 22 percent stake in Oi, the fourth-rated operator and the only one controlled by Brazilian interests.

The moves gave Telefonica — which also has a stake in third-ranked Tim, controlled by Telecom Italia — boosted access to Brazil’s flourishing market, PT a continued Brazilian revenue stream, and Oi badly needed capital to write down debt.

The second-biggest network, Claro, is run by Mexico’s America Movil.

“The big change sweeping through Brazil’s telecommunications sector with Telefonica’s aggressive offer has much to do with the future of seeing the Internet and television on cellular telephones,” said Manfred Back, a business administration professor at University of Industrial Engineering.

“This fight between big companies is affecting the market, it’s a battle not over selling mobile telephones but over selling Internet packets for telephones and, in the future, television. The market is huge.”

Underlining that point was the fact that there were just 65 million Internet users in Brazil — a market that is set to explode when access is made easier through web-ready cellphone handsets.

Brazil is keen to keep a piece of the action. President Luiz Inacio Lula da Silva said he would do his best to ensure Oi remained a Brazilian-controlled company despite PT’s big stake.

“One thing I guarantee as long as I am president is that this company will continue to be a national company. That’s what it was created for,” said Lula, who steps down at the end of this year after serving the maximum allowed two terms.

Camila Saito, an economic analyst at consulting firm Tenedencia, said the moves by Telefonica and PT were “a crucial step” toward consolidating Brazil’s telecoms sector, including fixed-line and cellular outfits.

While that was giving cheer to corporate investors, Brazilian cellphone users may yet rue the narrowing competition.

Cellphone service quality is often poor in the country, and comes at hefty subscription charges.

Call costs per minute are the second-highest in the world after South Africa, according to the European consulting firm Bernstein Research.

Likewise, Internet access is extraordinarily pricey for speeds just a fraction of those seen in Europe or Asia.

Analysts fear that a concentration of operators could make the situation worse for consumers.

“All of us who use telecommunication services — Internet, cellphones — know that the services are lousy, that they are not getting any better and that they are really expensive,” an editorialist in the Globo newspaper, Miriam Leitao, said.

Back agreed, saying: “This titanic fight is for market position, but I have doubts that the consumer will benefit.”

Source

Related posts:

  1. PT commits to buy Oi stake to replace Vivo-paper
  2. Portugal Telecom Said to Be in Talks for Stake in Oi
  3. Redecard, Cielo sink on possible measures, underscoring jittery market
  4. Telefonica, Portugal Telecom Agree on Vivo Stake; Oi Deal Seen
  5. Portugal Telecom Is Right to Reject Vivo Bid, Visabeira Says

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This entry was posted on Friday, July 30th, 2010 at 12:45 pm and is filed under Stock & Bond Market News. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

Bradesco Asset Management Growing Workforce 35% in Global Move

Bradesco Asset Management, Brazil’s third largest money manager, is increasing its workforce by 35 percent to lure more overseas funds and take advantage of the nation’s “best market conditions possible,” said Superintendent-Director Denise Pavarina.

BRAM, as Banco Bradesco SA’s asset management unit is known, will hire 40 people and place one-third of them outside the country to sell Brazilian-asset funds in Europe, Latin America, the U.S. and Japan, Pavarina said. The company now has 114 employees.

“We’re going to do whatever it takes to be international,” Pavarina, 47, who oversees 179.3 billion reais ($102.1 billion) in assets, said in an interview yesterday at her office in Sao Paulo. “We need to take some steps to be ready and be considered an international house.”

Brazilian assets have outperformed since the aftermath of Lehman Brothers Holdings Inc.’s collapse in September 2008 as the economy recovered from the recession faster than most nations. In the past 12 months, the Bovespa stock index has jumped 54 percent, the currency rose 24 percent and international bonds returned an average 14.7 percent, according to JPMorgan & Chase Co.

Brazilian assets will continue to climb as the government keeps inflation under control, unemployment falls and foreign inflows increase, Pavarina said.

No ‘Vulnerability’

“You have very controlled inflation, low and lowering unemployment rate, good expectations for the future, investments coming in, no vulnerability in terms of external debt and predictability, which is something we never had,” she said. “If you put it all together, we have the best market conditions possible. I’ve never seen that before.”

So far this year, Brazilian assets are trailing regional peers, with the Bovespa up 3.2 percent compared with 5.3 percent for Mexico’s benchmark stock index and 6.6 percent for Chile’s. Brazil’s real is down 0.3 percent against the dollar this year after rallying 33 percent last year while the Mexican peso is the best-performing major currency in 2010 with a gain of 7.5 percent.

BRAM lags behind Brasilia-based Banco do Brasil SA and Sao Paulo-based Itau Unibanco Holding SA units in Brazil in assets under management, according to the local capital markets and investment banking association known as Anbima.

Broader Coverage

Bradesco already markets to investors in Japan and Chile and may sell the new funds directly or through partnerships such as with Banco de Chile in Santiago and Mitsubishi UFJ Financial Group, located in Tokyo, Pavarina said. She also has plans to cover companies outside Brazil to position the bank as a Latin American asset manager and cater to international clients seeking to invest across the region, Pavarina said.

Morgan Stanley’s EM Latin America Index has climbed 69 percent over the past 12 months, while Mexico’s Bolsa gained 55 percent and Argentina’s Merval soared 101 percent.

The October presidential elections won’t affect the outlook because whoever wins will continue President Luiz Inacio Lula da Silva’s main policies, Pavarina said. The winner “will try to add value to what Lula built,” she said.

Brazil’s gross domestic product has tripled in dollar terms since the president took office in 2003. Annual inflation, which was 12.5 percent at the end of 2002, has fallen by more than half to 5.2 percent.

Former Sao Paulo Governor Jose Serra is ahead of Dilma Rousseff, Lula’s former cabinet chief and chosen successor, in all nationwide polls. Rousseff has cut Serra’s 14-point lead in a December poll by Datafolha to nine points last month.

Higher Rates

Pavarina became head of BRAM in December after more than two decades in various positions at Banco Bradesco. She aims to raise about 26 billion reais in funds this year and expects a total return on investments of around 11 percent, which is the company’s forecast for the country’s benchmark interest rate by the end of 2010.

Interest-rate futures contracts indicate the central bank will lift the benchmark Selic rate from a record low of 8.75 percent by at least half a percentage point on April 28 to avoid overheating in an economy forecast to grow at least 5 percent this year and to bring inflation back to its target of 4.5 percent.

About three-quarters of BRAM’s holdings are allocated for fixed income. Rising inflation led the company to shift more funds from fixed-rate to inflation-linked bonds, according to Pavarina. “That’s where we are getting more value,” she said.

More than 500 of the 535 BRAM-managed funds tracked by Bloomberg have positive returns this year, led by fixed income fund FBT06, with a 20.6 percent return, compared with 2.3 percent for its peers, according data compiled by Bloomberg.

Global investors betting on Brazil’s growth won’t be disappointed years from now, Pavarina said.

“All the information we have makes us believe things will go well unless we have a hecatomb, which would get everybody not only Brazil,” she said.

To contact the reporters on this story: Camila Fontana in Sao Paulo at cfontana@bloomberg.net; Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net