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TIM Brasil snatched the largest slice of Oi Móvel in the alliance it made with Telefonica and Claro to buy the asset from the telecom in judicial recovery. In the acquisition, completed on April 20, TIM got about half of the spectrum and sites, and 40% of Oi’s customers. With the additional revenue, savings in capital investments and expenses, cost cutting, elimination of duplicate equipment and expansion, TIM estimates R$16 billion in synergy gains over the long term.
TIM CEO Alberto Griselli explains that the synergies are made of several components. The technical synergies, related to investment optimization, with cost savings, are equivalent to R$12 billion of the total estimated for the company. The value is attributed mainly to frequencies, the spectrum that the company receives with the purchase of Oi Móvel.
Frequencies are like paths in the air through which telecommunications data travel. TIM brings to its network almost 50 megahertz of spectrum from Oi. Among competitors, it had the least spectrum, a valuable asset for the companies. In addition, it receives contracts for the use of 7,500 sites – places equipped with antennas or base transceiver stations (ERBs) and electronic equipment for communication.
With this, TIM will be able to reduce network sharing costs, launch more services, expand infrastructure, improve signal coverage and service quality for its customers and those coming from Oi. Currently, it is the telecom with the largest 4G coverage, present in almost 4,800 municipalities (96.5%) and plans to reach the whole country this year. In 3G, its rate is a little over 91%, with Vivo in the lead (97%).
“We will continue to invest a lot, but less than it would be if we didn’t have Oi’s frequencies,” says Mr. Griselli. The company’s industrial plan foresees investments of R$14.5 billion over the next three years.
According to the calculations of telecoms regulator Anatel, the total synergies with the sale of Oi Móvel would be at least R$13 billion from 2021 to 2030. Tim is supposed to have the biggest gain (R$8 billion), followed by Telefônica, owner of Vivo (R$ 4.9 billion), and finally Claro (from R$270 million). These gains are based on the combined operations of each telecom company with Oi’s assets, involving issues such as duplication of base stations, operation contracts, revenue from migrated clients, among others.
Mr. Griselli explains that TIM’s calculations, compared to Anatel’s, are broader and consider several other factors. “We did the cash flow of the synergy, both revenue and cost, translated to present value, which reaches R$16 billion,” says the executive. This value includes calculations related to the technical and commercial parts, and fiscal goodwill (about R$700 million) linked to the purchase, which must be amortized by 2042.
Net present value is the formula that determines the present value of future payments discounted at an estimated interest rate, minus the initial investment cost.
The executive predicts that 50% of the synergies will be achieved by 2030, with the other half becoming a constant part of the earnings resulting from the acquisition.
Even in the long term, the gains are considerable for the Italian subsidiary, which paid R$6.98 billion for its participation in the acquisition. The total price for the asset was R$15.92 billion. In this account, Telefônica assumed R$5.37 billion, and Claro, R$3.57 billion
Another part of the gains will come from commercial synergies. The company bought the revenue that comes with the customer and receives an EBITDA margin of 60% to 70%. against TIM’s EBITDA margin of 48.4% in 2021.
TIM adds around R$1.8 billion to its revenue in the period from May to December this year. If the value is projected for 12 months, it reaches R$2.7 billion, says Mr. Griselli. In 2021, the net revenue of Telecom Italia’s subsidiary was just above R$18 billion.
This does not mean that this indicator will rise for the operator, because there are several factors involved. TIM separated its fiber network and sold its control to IHS (which created I-System) to operate with neutrality. But it will pay rent to use the network and deliver broadband. In addition, it has the investments it is making in 5G. “When we add it all up, the margin stays as it is, at 50%. It goes up a little bit and goes back to 48%,” said Mr. Griselli.
After years of being indicated by the market as a potential buyer of Oi, even before the company filed for judicial recovery in 2016, TIM Brasil finally justified part of the market’s expectations. It did not buy the company in a closed package, but in the case of Oi’s mobile assets, TIM took the largest share of customers and infrastructure in the alliance it formed with Telefônica Brasil and Claro Participações.
“When we add it all up, the margin stays as it is, at 50%. It goes up a little and goes back to 48%,” says Mr. Griselli. In addition, there are the investments in 5G that, according to Anatel’s schedule, is expected to make it debut in all capital cities and in Brasília by July.
Oi’s clients became TIM automatically on the 20th, but the number migration will be gradual, over a year. The same happens with the clients who switched to Vivo, a Telefonica’s brand, and Claro. Each telecom has signed a contract with Oi to continue serving those customers during the transition. Those who want to, can do number portability and take their cell phone to the new operator. Those who prefer another provider, are released by regulation.
“Oi’s client will realize the improvement in technical quality, Oi has less 4G coverage. With TIM, they will have 4G everywhere,” says the executive, confident in the permanence of users. By regulatory force, Oi’s plans will be maintained for all who are migrating. But TIM intends to analyze the profile of this public and offer higher value packages. With more bandwidth capacity per client, Mr. Griselli says that TIM’s clients will also perceive more quality.
With this larger mass of users, TIM will need to increase the number of agents in its own call center, with 1,500 people working remotely today. The vast majority of the service is done through outsourced companies.
To explain the effects of the transaction on its business, TIM will hold a conference call with market analysts on Monday at 10am.
With Oi’s exit from the mobile market and the distribution of its around 41.4 million clients among the trio of telecom companies, TIM continues as third in the ranking, going from 52 million clients to 68 million. At the top, Vivo, a Telefonica’s brand, increased from 84.6 million to a little over 97 million, followed by Claro, which went from 71.2 million to 84 million.
Source: Valor International