B-band cellular licenses don’t appear to be a wireless Mardi Gras for the Brazilian government any longer.
Though raking in billions so far from four of the 10 licenses it already has awarded, the Brazilian Ministry of Communications most likely won’t see bids rivaling the BellSouth Corp. consortium’s July bid for Sao Paulo. The consortium paid $2.5 billion for the license-341 percent more than the minimum bid price set by the government.
Legal battles, the upcoming privatization of the country’s A-band cellular market and economic problems in Asia are dissuading both Brazilian and foreign companies from investing in the once highly coveted B-band cellular licenses, say analysts.
The concession process, which began in June, has been fraught with legal delays since late summer, and two consortia have dropped out of the running altogether. The Avantel consortium, led by AirTouch Communications Inc., opted in late January not to renew bids for four regions, saying its decision was based on basic business considerations and the respective priorities of each partner. The Hutchinson-Cowan consortium also has dropped out of the process because of the delays and increased cost of financing, and the Telet consortium did not renew its bid for region 4.
“There will be no more astronomical bids for licenses,” said Bruce Edgerton, Latin American analyst with The Strategis Group in Washington, D.C. “With consortia dropping out, there is no danger that anyone will rival BellSouth’s per-pop bid.”
The ministry will not resume the licensing process until a Brazilian court rules on whether the Tess consortium, led by Telia of Sweden, is qualified to take possession of the license it won for Sao Paulo state in August. Tess was one of five consortia the ministry previously had disqualified from the bidding process for either failing to provide sufficient financial guarantees, prove members legally had formed a consortium or for not using an officially sanctioned Brazilian translator to prepare documents. Tess was temporarily reinstated in July after the Superior Justice Tribunal overruled the ministry. Now the STJ must make a final ruling on Tess’ eligibility, which is not expected before March 11 when the court meets again. Avantel was the second-highest bidder for Sao Paulo state.
According to the Office of Telecommunications International Trade Administration, U.S. Department of Commerce, the delay has made the remaining licenses less valuable than in June because consortium members thought they would have a full year to set up service before the A-band state-run cellular companies privatize. The Brazilian government now has slated for June 1998 the privatization of Telebras, the government-controlled system made up of 27 state-level telephone companies, said Edgerton.
The Commerce department said the government plans to divide each of the 27 companies into two companies-a cellular company and fixed-line company-and combine the cellular companies into nine regional holding companies and the fixed-line companies into three regional holding companies. By the end of June, the government plans to auction these 12 holding companies and Embratel, the state-owned long-distance telephone company, said the commerce department. This plan is becoming an attractive option to investors.
“The privatization of Telebras is a very attractive form of entry into the Brazilian market. A number of international operators have announced interest in that region,” said Edgerton. “Why start from scratch with a B-band license when you can jump into the market purchasing an operator that has an already established footprint?”
In addition, Brazil’s bidding rules call for an adjustment for inflation after April 7, which means all B-band bids will increase by 20 percent, said Edgerton. The Commerce Department said consortia members have the option of withdrawing their bids every two months, and the last possibility to withdraw before the 20-percent increase is mid-March. More consortia could drop out of the running before April.
Although the government has proposed opening up all bids simultaneously to expedite the process before April, all the consortia must agree to do so. This again could cause more delays since winners will be required to provide an initial payment at the time contracts are signed. If a winner is unable to arrange financing for the first payment, then the losing bidders will have an opening to contest the license, noted one published article.
Economic crises in Asia also have had a negative affect on the B-band auction as foreign investors are shifting their focus toward protecting their investments there, said the Commerce department.
