Summary
The decline of Telecom Italia (TI) as a regional telecom leader in South America began a few years ago as TI began selling most of its in-country wireless operations. The TI Group remained in only two major markets where it had participation in both wireline and wireless segments: Brazil and Argentina. In spite of the board and management declarations from Italy that the group will not sell off in any assets in these two core markets, the moment of truth has arrived when TI had to admit (maybe not verbally / officially) that these two operations are declining as a result of competition and other market forces.
Analysis
Telecom Italia came to Latin America in the late 90's and through aggressive acquisitions and wireless spectrum bidding, and became one of the strongest foreign telecom groups in the South American region. At the turn of the century, it was one of the top 3 telecom groups in the region together with the Spanish Telefonica and the North American Bell South (Long before the arrival of the Mexican Telmex /America Movil).
Telecom Italia got into financial trouble when it decided in 2001 to buy back the control over TIM (Telecom Italia Mobile) which was spun off the main Telecom Italia operation in 1995. The transaction was in line with what Telefonica and other major EU telecom carrier have done at the same time frame. The debt created in TI balance sheet as a result of the transaction was too high and TI had begun selling most of its Latin American operations in the following years:
The wireless carrier TIM Peru was sold to America Movil in August 2004 for EUR 497M.
The wireline long distance ILEC Entel Chile and its wireless subsidiary Entel PCS was sold to a local Chilean investment group called Almendral for US$934M.
The Venezuelan wireless carrier Digitel was sold to Televenco S.A. (a company under control of the Venezuelan businessman Oswaldo Cisneros) in January 2006 for US$425M.
In April of 2007, the government of Bolivia nationalized Entel Bolivia which was previously controlled by Telecom Italia. TI has tried to sell the Bolivian local and Long distance wireline carrier Entel Bolivia before, but could not find any buyers.
At the same year (2007), there was a major change of control at Telecom Italia: Pirelli was the major share holder until April 2007 when Olimpia group was sold to a consortium called Telco (for EUR 4.1B) which included the following groups: Telefonica (42.3%), Generali (28.2%), Mediobanca (10.7%), Intesa (10.7%) and Benetton family (8.2%). The Telco group controlled 23.6% of Telecom Italia. The Telco group raised its participation in TI to 24.5% in March 2008 after Mediobanca announced that it acquired 121.5M shares of TI for the price of EUR149.5M.
The new board and management declared that Telecom Italia group will not sell its operations in Brazil and Argentina and continue to invest aggressively in both markets.
Since Telefonica (which has its own telecom operations in both Brazil in Argentina) became a majority share holder of the new controlling group of Telecon Italia, the telecom regulators Anatel and CNC of Brazil and Argentina respectively had to approve the continuous operations of both groups in condition that both operations remain independent.
In spite of the positive declarations from Italy, Telecom Italia operations in both countries has weakened in recent years: Telecom Italia was completely removed from its participation in the incumbant wireline carrier Brasil Telecom before it was sold to another major Brazilian incumbant telecom group Telemar / Oi. TIM Brasil which was the second largest wireless carrier in Brazil for a few years and very well positioned to take over the market leader Vivo, recently lost its second place to America Movil's local subsidiary Claro Brazil.
In Argentina, the accelerated wireless subscriber growth of 2004-2006 has diminished as Argentina's economy declined again after a few years of mini-boom that followed the economical and political collapse of December 2001.
In light of all of the above, it is not surprising that TI is putting its stake in the controlling group of Telecom Argentina for sale. The timing for the sale is not so good as the world is trying to recover from the worst financial crisis in recent history. It is very unlikely that any foreign group will make a bid for TI stake so the Clarin led consortium is likely to have an easy win without too much competition. The Argentinian media group Clarin has already some investment in Cable TV and broadband Internet in Argentina so a major stake in one of the two incumbant telecom groups in the country will allow it to offer attractive Triple play, Quad Play bundling packages.
It is also likely that Telecom Italia will eventually try to sell its successful wireless operation in Brazil - the last one it owns in South America!!!
