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Italy Group Wins Ruling in Brazil

Posted on: Friday, 2 July 2004, 06:00 CDT

The antitrust agency of Brazil has ruled that Telecom Italia can regain a controlling stake in Brasil Telecom Participacoes, the country's third-largest fixed-line telephone company, but imposed some restrictions on the scope of the Italian group's voting power on the board.

The ruling on Wednesday by the Administrative Council of Economic Defense reversed a decision in March that blocked Telecom Italia's return to the Brazilian carrier's board on competitive grounds.

In its latest ruling, the council said the Italians could regain a voting stake in the Brasilia-based phone company but would have to abstain from decisions involving wireless and long-distance services areas where the two companies would compete.

"We are very pleased with this," Pedro Dutra, one of Telecom Italia's lawyers, said by phone from Brasilia. "This decision allows Telecom Italia to defend its investment in Brasil Telecom."

The decision applies only until the agency makes a definitive ruling on the dispute. In January, the Brazil regulator, Anatel, gave the two companies 18 months to settle their differences.

Wednesday's ruling is the latest twist in a long-running battle between Telecom Italia and the Brazilian private equity fund Opportunity, which manages some of Citigroup's investments in Brazil and has effectively controlled Brasil Telecom for nearly two years.

The dispute centers on a deal between Telecom Italia and Opportunity in August 2002, when the Italians sold an 18 percent stake in the holding company that controls Brasil Telecom to sidestep a regulatory obstacle to starting its mobile service, TIM Brasil. Under the terms of the deal, Telecom Italia retained the right to regain its stake in Brasil Telecom in January 2004.

But shortly after Telecom Italia lowered its stake, Brasil Telecom bought its own mobile license. That allowed the company's management and its controlling shareholder, Opportunity, to block the return of Telecom Italia on regulatory grounds. Brazilian law prohibits two companies from being partners and competitors in the same phone service in the same region.

Brasil Telecom has opposed Telecom Italia's return to the board, arguing that such a move would flout regulatory laws and give the Italians access to confidential plans and data.

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