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General Superintendence renders opinion on transactions involving Telefónica Group

Mergers

he first transaction consists in the division of Telco S.p.A., holding company with interest in Telecom Italia, the second regards the acquisition of GVT
published: Feb 18, 2015 09:30 AM last modified: Apr 11, 2016 04:43 PM

In an opinion published in the Official Gazette in 18 February 2015, the General Superintendence of the Administrative Council for Economic defense – CADE challenged before the Tribunal two mergers involving the Spanish telecommunications’ group Telefónica S/A. The Superintendence recommended the approval conditioned to the signature of Merger Control Agreements – ACC for its acronym in Portuguese, 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 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.

The second 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 Telefónica Brazil to Vivendi Group.

In the analysis of both mergers, the General Superintendence raised some competition concerns derived from the transactions and negotiated specific agreements with the companies in each case.

In regards to the acquisition of GVT, the Superintendence identified some pro-competitive aspects of the transaction. These include the possibility for Telefônica's clients of using GVT’s more modern network, composed of optical fiber. and the extension of regulatory obligations imposed by the National Telecommunications Agency (Anatel for its acronym in Portuguese) to GVT, which has the potential to increase the supply of services for the parties’ new customers.

However, after studies and consultations to the market and to Anatel, it was found that Telefônica and GVT’s activities are complementary in most of Brazil. The transaction would, then, result in relevant concentrations in some municipalities of the state of São Paulo. After competition analysis identified regulatory barriers and competition from major rivals, and studies carried by CADE’s Department of Economic Studies, a risk of price increases driven by the acquisition was considered unlikely. Nevertheless, the companies agreed, upon the signature of an ACC, to adopt measures to effectively ensure the supply, quality and competitive prices on fixed telephony markets, broadband internet and pay-TV.

Furthermore, 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 terms of the agreements remain confidential until the final decision of the proceedings, which are to be judged by CADE’s Tribunal, responsible for a final decision. The case was assigned to Reporting Commissioner Márcio de Oliveira Júnior.

The mergers were filed in 17 November 2014 and the legal deadline for a CADE’s final decision is 240 days, extendable for another 90.