Striving to grow its fixed broadband service, TIM Brasil has undergone changes in its market profile in the last two years. No longer a company up for grabs among competitors, it is now a potential buyer of assets, and playing a bigger role in the earnings of controller Telecom Italia, says Stefano De Angelis, chief executive of the Brazilian unit. As he sees it, the recent pick of Amos Genish as the Italian group’s chief executive should put all eyes on TIM Brasil, due to the new CEO’s understanding of the Brazilian market.
Mr. De Angelis says that the company is prepared to invest in operations and that it has the capacity to take on debt, and therefore the acquisition of assets that will allow it to make strides in infrastructure are on the table. When asked about the company’s interest in Cemig Telecom, Copel Telecom and Sercomtel, the executive says several companies are on TIM’s radar.
“TIM Brasil has debt of less than €1 billion, while the European majors in the industry, like Telefonica, are more indebted. Our leverage [as measured by net debt in relation to Ebitda] is just 0.8 times, while European competitors are leveraged 2 or 3 times. We have the capacity to take on billions of reais of debt,” he says.
The fact that Cemig officially put up its telecom subsidiary for sale could facilitate talks, but Mr. De Angelis preferred not to comment on whether they will make a binding offer. The telecom arm of the Minas Gerais utility in August reached 1,000 clients in about 100 cities in Minas Gerais, Goiás, Bahia, Ceará, Pernambuco, Rio de Janeiro, and São Paulo states. The company has an equity value of R$193 million.
In 2011, TIM bought Atimus, whose main shareholders were AES and BNDESPar, for R$1.6 billion. The main business of Atimus, which operates in São Paulo and Rio de Janeiro, was the rental of infrastructure to operators. Fixed-line telephony is the route of growth for TIM Live, a broadband service provided by the company that seeks to reach 400,000 subscribers by the end of the year, after ending the second quarter with 350,000 clients.
“Today, residential broadband penetration is the weak link in the country’s digitalization process. When we look at connection speeds, almost one third are below 2Mbps – that is, they can’t use high-quality video services. If we look at Brazil, there are cities with huge demand and poor supply. In light of this, tomorrow we may provide a package with ultrabroadband fixed and mobile services,” says Mr. De Angelis.
As for the possibility of buying Oi, he said this is “something completely off the table,” justifying his comment by saying that TIM’s rival is in such a complex situation that TIM wouldn’t even know how to analyze a possible transaction. “The company has a huge fixed-line operation, but it didn’t invest in the expansion of 4G coverage in recent years, and this was a weak point. Meanwhile, we have good 4G performance, in mobile telephony, and in fixed-line advances.”
Mr. De Angelis says that one of the biggest efforts will be in improving company numbers, which currently represent about 20% of Telecom Italia earnings. The trend is for Mr. Genish’s arrival to help the subsidiary gain prominence in operations, considering how Europe has yet to present exciting earnings. “Brazil represents an important part of the group’s business, like Vivo does for Telefonica, and we want to increase that.”
While 1% growth in Europe is celebrated, Brazilian revenue is growing about 5%, with Ebitda up 15% in the second quarter. For the executive, having someone in Italy who knows the Brazilian market well will help a great deal – after all, Mr. Genish was here for 18 years and presided over Telefonica Brasil and was responsible for the sale of GVT to the Spanish multinational.
The positive earnings outlook is confirmed by Credit Suisse, which issued a report indicating that TIM’s third quarter revenue could rise 5% from 2016, to R$4.1 billion. EBITDA could rise 13% to R$1.5 billion.
The TIM executive promises that the company won’t stand still as it deals with strides made by over the top (OTT) service providers. The company is looking at partnerships with content suppliers such as Globo, Netflix, and other domestic and foreign operators to offer services to clients, with the possibility of even offering products similar to Apple TV or Google Chromecast. They have ruled out investments in cable TV. The company already has a partnership with Sky.
Source: Valor Econômico