Friday, 19 December 2008

Brazil Government, Courts at Odds Over Creation of Super-Tele

Yesterday the telecommunications regulatory agency Anatel approved Oi's purchase of Brasil Telecom, a transaction that counted with the blessing of President Lula. The new company will act practically in every state in Brazil except Sao Paulo, will have 22 million fixed- phone lines and service more than 20 million mobiles phones. Two days ago, a councillor at the federal Comptroller-General Council (TCU) ordered Anatel to delay any ruling on the approval until both companies presented relevant documentation regarding their merger. The TCU says the merger would lead to a wasteful use of taxpayers' money. 

Certainly the process has been obscure and hostage to the political interests of President Lula and his ruling party. When Lula promised to change telecom laws to create a Brazilian carrier capable of competing with Spain's Telefonica and Mexico's Telmex for control of the local market, it was foreseeable that the government would vie for a stake big enough to have a say in the new company's decisions and plans. Under the terms of the transaction, the government (represented by the development bank BNDES and state pension funds) will have about 49 percent of the company. The rest will be held by private investors who will have to pay onerous borrowing costs to the government during the next five years. 

TCU's concerns range from difficulties in understanding the real scope of the concession to the companies' reluctance to pass through on to customers the smaller costs that will stem from gains in scale. The government and Anatel proceeded to vote favourably for the merger in spite of the TCU's warnings. It is possible that new legal loopholes arise in coming weeks and that the process is marred by further lawsuits and legal bickering.    

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