On 9 March 2022, the Administrative Council for Economic Defence's (CADE's) administrative tribunal concluded its assessment of the acquisition of Oi's mobile assets by Tim, Vivo and Claro, following its decision regarding the internal appeals submitted by interested third parties (Algar Telecom and TelComp). The proposed merger was first cleared by the CADE's General Superintendence on 2 November 2021, on the condition that behavioural remedies are implemented that aim to ensure the supply of radio access network sharing and roaming agreements, as well as radiofrequency spectra for small players. On 9 February 2022, the administrative tribunal cleared the transaction on the condition that such remedies are implemented.
The case involved significant concentration ratios among the applicants (in some cases, up to 95% of the affected relevant markets) and several interested third parties strongly and actively opposed it. There were also claims that the formation of a consortium by the applicants for disputing Oi's mobile assets was an infraction – the CADE is currently investigating that claim.
During the first judgment session on 9 February 2022, Public Prosecutor's Office Representative Waldir Alves argued that the merger should be rejected due to its anticompetitive nature and that the CADE should initiate an investigation, aiming to assess the applicants' potential collusive practices during the bid for Oi's mobile assets.
Reporting Commissioner Luis Braido stressed that the proposed merger would imply high concentration levels that the CADE does not usually accept – especially regarding the distribution of radiofrequency spectra (an essential infrastructure for the operation of mobile companies). In this sense, and considering the high entry thresholds and low rivalry in the affected relevant markets, he stated that it would not be possible, in such a highly concentrated scenario, for a potential fourth player to compete with the incumbent firms.
On that basis, he concluded that none of the efficiencies were effective or linked to the transaction itself. Further, he found Oi's failing firm allegations to be flawed, as Oi's market shares were stable and its financial situation was progressively improving. Finally, he understood that the proposed remedies were incapable of solving the competition concerns of the operation, which demanded important divestments regarding the customer portfolio and the radiofrequency spectra. Thus, he rejected the transaction.
Commissioners Paula de Azevedo and Sérgio Ravagnani followed Braido's stand on the case.
Commissioner Lenisa Prado, stressing her concerns with the political pressure that Braido suffered during the assessment of the case, disagreed with him. She concluded that there was a high degree of rivalry in the affected relevant markets and also understood for the sufficiency of the proposed remedies – combined with the Brazilian National Telecommunications Agency's regulatory enforcement. Further, Prado stated that Oi's claims of business failure were sound, as Oi's imminent bankruptcy would harm consumers.
Commissioner Luiz Hoffmann and the CADE President Alexandre Cordeiro also diverged from Braido. Based on Cordeiro's casting vote, the administrative tribunal cleared the merger on the condition that the proposed remedies are implemented. Regarding the allegations of potential collusive arrangements during Oi's mobiles assets bid, the majority of the administrative tribunal decided to proceed with the internal procedures for a potential new investigation over these alleged anticompetitive practices.
During the second judgment session on 9 March 2022, the administrative tribunal analysed the internal appeals that Algar Telecom and TelComp had submitted regarding the merger remedies. The Brazilian authority decided to adjust the eligibility criteria for monitoring trustees and the need for compliance with the merger remedies before closing the transaction.
An intense debate took place over the decision between Braido and Ravagnani, on one side, and Cordeiro and Prado, on the other. The first group of commissioners strongly criticised the administrative tribunal's clearance decision.
The CADE will now monitor the undertaking of the proposed remedies, which consisted of several commitments to ensure the access to essential infrastructure held by the applicants (especially mobile virtual network operators), and the alienation of several assets, including radio stations, towers and antennae.
Reverberations from this case will likely continue for some time. For example, on 11 February 2022, Braido gave an interview in which he strongly criticised the CADE's decision taken. Cordeiro and the CADE's chief economist, Guilherme Resende, published an article defending the clearance decision.
For further information on this topic please contact Marcela Mattiuzzo or Arthur Sadami at VMCA by telephone (+55 11 3939 0708) or email ([email protected] or [email protected]). The VMCA website can be accessed at http://www.vmca.adv.br.