beyondbrics

What next for Portugal Telecom? A long-running saga over Vivo, its Brazilian joint venture with Telefónica of Spain, must be close to an end.

This week, the Spaniards hired US law firm Dewey & Leboeuf to reinforce the Dutch lawyers already working on winding up Brasilcel, the Netherlands-based holding company for Vivo.

This is probably sabre-rattling – it would be hard for Telefónica to argue in court that doing away with Brasilcel was in the joint-venture’s best interests – and PT is, anyway, keen to reach a deal. What it needs now is a new development that would reverse the Portuguese government’s veto of the sale of PT’s half of Vivo and secure its future in Brazil, one of the few growth markets around and PT’s biggest source of revenue.

The main focus of speculation is Oi, Brazil’s one true nationwide service provider. It was created last year after the Brazilian government changed the law to allow two companies to merge to form a “national champion” capable of facing up to the likes of Telefónica and companies owned by Carlos Slim, the Mexican billionaire entrepreneur.

It is hard to see how an Oi deal would work. After its experience in Vivo, PT would be unlikely to settle for anything less than control. And selling control of the national champion is not likely to go down well in Brasília. But there is one way the deal could be made more palatable.

This involves TIM, the mobile operator owned by Telecom Italia, whose biggest shareholder is Telefónica. PT could, at a pinch, use the proceeds from the Vivo sale to buy control of TIM’s Brazilian operation. Then, the idea goes, PT would use TIM as a bargaining chip to gain entry to Oi, possibly through a merger of the two companies.

This is all the purest speculation – but these ideas are being knocked around in Brasília. The problem is timing. Putting something like this together would take months. PT, if it sells its stake in Vivo, needs an alternative investment soon afterwards to avoid distributing the proceeds to shareholders. But Brasília, too, may be keen to move quickly, not least because of the approach of general elections in October, and because of Oi’s need to pay down at least part of its heavy debt.