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CADE imposes restrictions to transaction involving Telefónica Group


Among the obligations, the companies will have to carry out divestments
published: Mar 26, 2015 09:00 AM last modified: Apr 28, 2016 12:47 PM

The Administrative Council for Economic Defense – CADE approved, on 25 March 2015, two mergers involving the Spanish telecommunications group Telefónica S/A. The transactions were approved conditioned to the signature of Merger Control Agreements – ACC for its acronym in Portuguese, which were proposed by the parties. 

Telefónica controls Vivo do Brasil and operates in the markets for fixed and mobile telephony, broadband internet, and pay TV.

The first transaction regards to the acquisition by Telefônica Brasil of GVT Participações S/A (Merger file no. 08700.009732/2014-93), which also operates in the markets for fixed and mobile telephony, broadband internet and pay TV. As part of the payment for GVT, the Telefónica Group offered to Vivendi Group, currently owner of GVT, 8,3% of the capital with voting rights of Telecom Italia. The company would also transfer shares from Telefônica Brasil to Vivendi Group.

The second transaction consists in the division of Telco S.p.A., holding company with interest in Telecom Italia (controller of Tim), of which Telefónica and the Italian companies Assecuriazioni Generali S.p.A., Intesa Sanpaolo S.p.A., and Mediobanca S.p.A. are shareholders (Merger file no. 08700.009731/2014-49). With the transaction, Telefónica, which holds minority stake of the capital carrying voting rights through Telco, would have direct shareholding in the company.

In GVT’s case, it was identified that the transaction results in relevant concentrations in some municipalities of the state of São Paulo, although Telefónica and GVT’s activities are complementary in most of Brazil. However, after studies and consultations to the market and to the National Telecommunications Agency - ANATEL, it was found that a risk of price increase driven by the acquisition was considered unlikely. Nevertheless, Telefônica Brasil and GVT agreed, upon the signature of the ACC, to adopt measures to effectively ensure the supply, quality and competitive prices on fixed telephony markets, broadband internet and pay TV.

Reporting Commissioner Márcio de Oliveira Júnior stated that the companies also committed to adopt remedies to eliminate competition concerns in the market of mobile telephony. The concerns resulted from the fact that the transactions, as they were proposed, would imply in a direct participation of Telefónica (Vivo’s controller) in the capital of Telecom Italia’s (TIM’s controlling company), as well as a Vivendi’s simultaneous participation in the shares of both companies.

The agreements were proposed by the companies and negotiated within the General Superintendence and CADE’s Tribunal. 

Agreements – In regards to the acquisition of GVT by Telefônica, the ACC foresees the maintenance of offers and services currently provided by the companies. Thus, it determines, among other obligations, that GVT and Telefônica Group will not reduce from the current geographical coverage, by at least three years, the provision of Fixed Switched Telephone Services (fixed telephony), Multimedia Communication Service (broadband internet) and Conditional Access Service (pay TV). They will also refrain from stopping the offer of the services or replacing them for inaccessible plans to the already served customers.

Also in this sense, companies also undertake, for example, to keep the monthly national average broadband access speed contracted by current GVT’s customers in at least 15.1 Mbps. In the state of São Paulo, the monthly average should reach at least 18.25 Mbps. In both cases, the determination is valid for three years, at least.

Aiming to reduce the competition problems arising from the simultaneous participation of Vivendi in Telefônica Brasil and Telecom Italia, the ACC signed with Vivendi states that the company will sell the shares it owns from Telefônica Brasil. The disinvestment will be gradual. Until Vivendi dispose of its stake in Telefônica Brasil, their political rights in the company will be suspended.

Similarly, in order to mitigate the competition concerns arising from the spin-off of Telco, the agreement with Telefónica states that it must divest the 6.5% of the voting shares the company will still hold in Telecom Italia after the transaction. The deadline for the divestment is confidential, and while Telefónica does not divest its direct stake in Telecom Italia, their political rights in the company will be suspended.

Under the agreements, Telefónica and Vivendi (the minority shareholder of Telefônica Brasil) may not access or share, directly or indirectly, confidential, strategic and competitively sensitive information between any companies or between those responsible for management and representation of the companies of Telefónica Group, Vivendi and Telecom Italia related to the participation of these groups in the telecommunications segment.

These and other remedies are available in the agreements signed with TelefónicaTelefônica Brasil e GVT and Vivendi(Portuguese version only).