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Brazil regulator orders Telefonica to lessen influence in country's telecom business

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(Credit: Reuters) A man talks on his cell phone outside Telefonica headquarters in Madrid July 29, 2010.
Telefonica Sa
December 4
10:34 PM 2013

The Brazilian antitrust regulator known as Cade said Telefonica must reduce its influence in the telecommunications business in the country. The telecom company can do this either by reducing its holdings or persuading Telecom Italia to divest its local business.

According to a report by Bloomberg, the regulator wants to lessen Telefonica's position in the market to the level of its holdings before 2010. Back then, Telefonica only owned half of Vivo, a wireless carrier and a minority holding in Telco, the controlling firm of Telecom Italia. In 2010, Telefonica became the full owner of Vivo and three months ago, Telefonica agreed to a takeover of Telco.

The report said that Cade wants to contain the influence of the Madrid-based firm because Telecom Italia's Tim Participacoes and Vivo already hold control of over half of the wireless market in Brazil. The regulator said that if Telecom Italia will not be able to reverse its deals, then it would still be able to address Cade's issues by exiting Tim.

A sale could be the chosen route for Telefonica, the report said, since it already wants to break up or sel Tim Participacoes, citing unnamed sources who have knowledge of the transaction.

The antitrust regulator also accepted a recommendation given by the attorney general to impose a BRL 15 million or USD 6.3 million fine to Telefonica for violation of the agreement it had inked in 2010 which stated that it would preserve competition in the telecommunications market in Brazil. Tim was also fined BRL 1 million by Cade.

The regulator added that Telefonica should replace Portugal Telecom, its former partner in Vivo unless it can convince Telecom Italia to divest Tim. In a similar vein, Cade said Telefonica should lessen the stake it holds in Telco unless the sale of Tim is carried out.

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