The merger of Vivo and Telefonica
The convergence in the offer of triple or quadruple play, offering packages with fixed telephony, mobile telephony, broadband and Pay TV besides networks convergence in the offer of fixed and mobile broadband, is accelerating the separation of fixed and mobile operators inside the big telecom groups.
Verizon and AT&T (in the United States) and Telefonica and Telecom Italia (in Europe) are examples of this process. In January 2010, Carlos Slim started the merger process of his fixed and mobile operators, with América Móvil becoming the controller of Telmex and Telmex International.
In Brazil, Oi is the only big convergent operators. The merger of Claro with Embratel and Net can form the next convergent company. In front of this scenario, Telefonica, which had already consolidated its fixed and mobile operators in most countries it operates, will have to solve the issue of having shared control of Vivo with Portugal Telecom and step into this process.
One option for Telefonica would be the consolidation of Vivo and Telefonica in one single company, continuing to have or not Portugal Telecom as partner. Other alternative would be leave Vivo and acquire Tim's control.
The company, result of the merger of Vivo and Telefonica, would have billing of R$ 46 billion and a market cap of R$ 43 billion.
Vivo and Telefonica have similar size, with very close market cap, revenue, EBITDA and investments.
R$ billions 2009 | Vivo |
Telefonica |
Total |
Market Cap | 21.8 |
21.1 |
42.9 |
Gross Revenue | 22.9 |
23.2 |
46.0 |
Net Revenue | 16.4 |
15.8 |
32.2 |
EBITDA | 5.2 |
5.9 |
11.1 |
EBITDA Margin | 31.9% |
37.2% |
34.5% |
Profit | 0.9 |
2.2 |
3.0 |
Investments | 2.4 |
2.2 |
4.6 |
Net Debt | 3.8 |
1.3 |
5.1 |
In 2009, Telefonica's profitability was higher than Vivo's with EBITDA margin of 37.2% and R$ 2.2 billion profit, against 31.9% and R$ 0.9 billion of Vivo.
In 2009, Vivo presented a good operational performance leading mobile growth in Brazil with net adds of 6.8 million and 15.1% growth. Telefonica saw its fixed telephony base shrink in 404 thousand accesses (-3.5%).
Vivo and Telefonica in 2009 |
||||
Thousands | Market Share |
Accesses |
Net adds |
Growth |
Mobile Telephony | 29.75% |
51,744 |
6,799 |
15.10% |
Fixed Telephony | 27.0% |
11,258 |
(404) |
-3.50% |
Fixed Broadband | 22.9% |
2,636 |
81 |
3.2% |
Pay TV | 6.5% |
487 |
14 |
3.0% |
The problems faced by Telefonica with its broadband service (Speedy) were the reason why Telefonica was surpassed by Net in 2009 in the number of broadband accesses.
Vivo's gross revenue is growing faster than Telefonica's. In 2009, these companies grew 3% and 0.6% respectively. Is this trend doesn't reverse, Vivo will be bigger than Telefonica in revenue and later, in EBITDA.
The voice revenue at Telefonica presented 3.9% fall in 2009 while data and pay TV revenues increased 16.8% and represented 22.8% of Telefonica's total.
At Vivo, voice net revenue increased 2.3% in 2009, but the trend points out to the drop of this growth. Vivo's net revenue of data and Valued Added Services (VAS) increased 42.5% in 2009 and represented 13.6% of the services net revenue.
The growth of Vivo and Telefonica's revenue will depend each time more on the broadband showing that the integration of its fixed and mobile operations in Brazil is essential for Telefonica.
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