Brazilian Telecoms Face Antitrust Allegations

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By Ed Taylor

Telefonica Brasil S.A., ClaroTelecom Participacoes S.A., and Telemar Norte Leste S.A. are under pressure to respond to government antitrust accusations that could result in fines of up to 20 percent of their 2014 revenue.

Brazil’s antitrust agency Aug. 28 announced it was initiating administrative action against the country’s three biggest telecommunications companies for allegedly conspiring to eliminate competition from other companies for data transmission contracts with the federal government. The companies now have 30 days to present their defenses to the agency, known as Cade for its initials in Portuguese.

BT Brasil, the Brazilian unit of British Telecom, filed a complaint against the three companies in 2015. According to Cade, BT Brasil claimed that it had been prevented from competing for a data transmission contract with Brazil’s postal authority because the three other companies formed a consortium blocking BT Brasil from renting their countrywide infrastructure. BT Brasil also charged that the three companies used the consortium to squeeze out competition for five other federal government contracts in 2013 and 2014, according to Cade.

Two-Year Investigation

After a two-year investigation of BT’s charges, Cade stated that its findings “indicated the presence of robust anti-competitive practices realized” by the three companies. The agency charged that the companies were “making use of the legal instrument of a consortium to coordinate their interests, driving away eventual competitors.” The three companies control most of Brazil’s telecommunications infrastructure, making it virtually impossible for other companies to compete without infrastructure access, Cade said.

Cade also alleged the three companies contracted services between themselves at advantageous prices, which also hampered competition. As part of its complaint, BT questioned the necessity for the three companies to form a consortium to bid for government contracts instead of making individual bids.

According to Cade, its investigation included interviews with leading companies and banks in Brazil, and most of them said they would not negotiate with a consortium for telecommunications services but would deal with individual companies.

Telemar Norte Leste, known as Oi, said in a statement that its operations adhere to telecom regulations, and it does not comment on ongoing cases. Claro issued a statement saying the company respects its clients and will respond to Cade’s allegations within the required 30-day period. Telefonica defended the formation of the consortium in a statement, saying restricting the model would “diminish the efficiency and increase the costs of the contracted companies.”

Cade will now wait for the three companies to respond, after which it will examine the responses and determine whether to drop the charges or present them to its administrative court. The court could set fines ranging from 0.1 percent to 20 percent of the revenues of the companies for 2014, the year prior to BT’s initial complaint.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at correspondents@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

For More Information

The text of Cade’s findings and conclusions is available, in Portuguese at: http://src.bna.com/r5Q

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