Brazil shakes up telecom market with rule change

A rule change allowing fixed-line telecoms to operate in more than one region of Brazil will spark competition by creating a major new continental player, officials said Friday.

Ronaldo Sardenberg, president of Brazilian regulator Anatel, said the rule change Thursday would allow telecom Tele Norte Leste Participacoes SA _ or, Oi _ to buy Brasil Telecom, Brazil's No. 3 fixed-line carrier.

The new company would then compete against foreign players that dominate the market: Spain's Telefonica SA and Mexico's America Movil, which is owned by billionaire Carlos Slim.

Oi said in April it would pay 5.9 billion reals ($3.5 billion) for control of Brasil Telecom in a government-backed deal that could create a huge fixed-line operator spanning much of Latin America's most populous country. The merger would give the combined company about 17 percent of Brazil's fast-growing cell phone market.

As part of the change, however, Anatel also said Oi must split its broadband Internet services into a separate company.

The Anatel decision now goes before the Communications Ministry which will allow for 30 days of public consultations on the proposed changes before being presented to President Luiz Inacio Lula da Silva for approval.

Oi's chief executive Luis Eduardo Falco _ who would lead the combined company _ has said the company plans to become a regional telecom powerhouse by adding 30 million clients outside Brazil within five years.

Oi is controlled by a group of Brazilian investment funds, and Brasil Telecom is controlled by Brazilian investment funds and Citigroup Inc.

Eduadro Roche, a telecom analyst at Modal Asset Management in Rio de Janeiro, said the Anatel changes were important as they could allow for more mergers and more competition in the market.

But the Anatel demand that Oi separate its broadband Internet operation "is negative as it takes away some of synergies and will add costs" for Oi.

Neither Oi nor Brasil Telecom had immediate reactions to the Anatel decision.