Telecom Italia Touts Independence From Telefonica in Brazil

Jul 24, 2014 3:59 am ET

(Updates with today’s trading in seventh paragraph.)

July 24 (Bloomberg) -- Telecom Italia SpA is independent from its shareholder Telefonica SA, Chief Executive Officer Marco Patuano said on a visit to Brazil, where antitrust regulators have scrutinized the relationship of the nation’s two biggest mobile-phone companies.

“I think the issue for Telecom Italia is to have a strategy that’s independent from any shareholders,” Patuano told reporters yesterday in Brasilia. “This is our main interest and so far this has always been the case in Telecom Italia’s relationship with Telefonica.”

Telefonica, the Madrid-based carrier that’s Brazil’s largest wireless provider, is grappling with how to comply with December antitrust rulings that called into question its role as Telecom Italia’s largest shareholder. Brazilian agency Cade said Telefonica had to reduce its stake in the Milan-based company and, a day later, said the Spanish carrier must completely exit Telecom Italia if it wants to remain in control of its own Vivo unit in Brazil. The two rulings derived from different cases involving Telefonica.

Cade set a deadline of May to comply with the ruling, which Telefonica is challenging in Brazilian court. Earlier this month, Telefonica sold 750 million euros ($1 billion) in bonds that can be converted into Telecom Italia shares, which would reduce its stake in Patuano’s company.

Telefonica’s move appeared to be designed to address Cade’s requirements, Paulo Bernardo, Brazil’s communications minister, said yesterday. Cade’s press office confirmed yesterday that Telefonica notified the agency this week about the bond sale. Cade is studying the information, which was provided in the context of the 2010 agreement that created Telecom Italia shareholder group Telco SpA, the agency said.

Compliance Attempt

“I’ve been following this issue in the newspapers,” Bernardo said. “I think the best way to respond to this would be Cade, but of course they’re trying to comply with the decision. But I don’t have any information.”

Telecom Italia shares rose 0.2 percent to 88 cents at 9:55 a.m. in Milan, while Telefonica fell 0.3 percent to 12.12 euros in Madrid.

While Telefonica has pressured Telecom Italia to sell its Brazilian unit, Tim Participacoes SA, Patuano favors keeping and expanding it through an eventual merger with Vivendi SA’s GVT division, people familiar with the matter said in May, asking not to be named because the deliberations are private.

Telefonica and Oi SA -- the country’s No. 4 wireless carrier -- explored a plan earlier this year to break up Tim, the people said.

‘Obvious Fact’

It’s difficult for Tim to avoid speculation about merging with GVT because the services offered by the two companies are complementary, Patuano said yesterday. Such a deal is not a focus of the company right now, though the possibility remains open, he said. Tim has a market value of 29.6 billion reais ($13.3 billion).

“We’re a company that I think has had good success in mobile and they’re a company with a great level of quality in fixed line, so the fact of having these synergies is an obvious fact,” Patuano said.

An external GVT press officer, who can’t be named under corporate policy, declined to comment.

Patuano visited Brazil President Dilma Rousseff yesterday, pledging to invest more in the nation’s telecommunications infrastructure, especially in mobile broadband Internet access. He said Tim is on track to invest 4 billion to 4.5 billion reais in Brazil this year. Participating and winning 4G wireless spectrum in next month’s government auction of frequencies will increase those investment plans by 10 percent to 15 percent, he said.

“Tim wants to be transparent, innovative and invest in Infrastructure,” Patuano said.

--With assistance from Christiana Sciaudone in Sao Paulo, Rodrigo Orihuela in Madrid and Daniele Lepido in Milan.