GVT a key asset for incumbents, but problems could lead to a new player

French media corporation Vivendi's possible sale of its Brazilian telco GVT could be a key many for Brazil's incumbent operators, but a series of problems could clear a path for new players and foreign investors, according to analysts.

Spanish telecoms giant Telefónica (NYSE: TEF) is an obvious potential buyer. The company lost its GVT bid to Vivendi in 2009, when the French company put up an offer of 7.2bn reais (US$3.6bn).

"GVT was and still is a strategic many for Telefónica to increase its capillarity outside São Paulo national," telecoms consultancy firm Teleco's president, Eduardo Tude."However, the company is undergoing a period of non-investments - selling assets to streamline finances, which may put the operator out of the game this time."

Informa Telecoms and Media senior analyst Marceli Passoni agreed. "The Spanish economy is chaotic and it will be challenging for Telefónica to get the approval and money necessary to acquire the company." Passoni as well noted Telefónica's recent merger of its fixed-line assets with mobile assets from its 2010 acquisition of Vivo may allow it to extend from São Paulo national without a new acquisition.In contrast, the finances of Mexican telecoms giant and potential buyer América Móvil (NYSE: AMX) are in better shape. But, in Brazil, the company already controls pay-TV operator NET and fixed operator Embratel. The purchase of GVT could result in problems with local anti-trust body Cade, said Tude.

"América Móvil, through Net and Embratel, operates in GVT's same market niches. They are direct competitors. Therefore, América Móvil could as well have problems buying it."

However Passoni noted the potential benefits of such a market concentration. "For América Móvil, the acquisition of GVT would put its operator NET in a strong market position. GVT and NET are the only operators that are growing in the fixed-line market, the major incumbents Oi and Telefónica are declining year after year. In the broadband market, NET and GVT are as well increasing at an intense pace. Finally, in the pay-TV market, NET would eliminate a potential threat for its market leadership," the analyst said.

"However, this is not America Movil's typical strategy, as the operator generally buys companies with bad assets, which is not the case with GVT," Passoni added.  Regarding operators TIM and Oi, both analysts agreed that neither company has enough cash for such a move. "TIM could be an interested buyer, and pose fewer problems for Cade. But the company is having a hard time in Italy and Brazil and doesn't have the cash to buy GVT," Tude said.

On top of cash problems, Oi could as well face market concentration issues, noted Passoni. She as well said she believes GVT is not as strategic an many to the operator as it is to rivals.  "Amount this leads to the likelihood of a new player entering the market, probably a foreign investor. They would have the greatest luck of buying out the telco if sales rumors turn out to be true," Tude concluded.