Operator Series: Oi troubles far from over

Oi's bankruptcy protection process is marking its first anniversary with no clear outcome in sight.

The Rio de Janeiro-based telco filed on June 20 last year for Brazil's largest ever bankruptcy process, after failing to negotiate restructuring 65.4bn reais (currently US$19bn) in debt with creditors, bondholders and regulators.

The fate of the telco could be decided in September, when a meeting of its creditors to vote on the proposed restructuring plan is expected to take place. Depending on the outcome, Oi could urgently need a boost in cash and further capitalization.

If the latest version of the plan does not get passed creditors, as rumors suggest, then it is most likely that the group, which is a public concessionaire of fixed telephony, will face an undesired intervention by telecom watchdog Anatel.

Oi also offers pay TV, broadband and mobile telephony services. It is the largest concessionaire in Brazil.

A major obstacle in the negotiations with creditors is whether debt in the form of fines and other liabilities the company has with Anatel and other entities, estimated at some 20bn reais, is to be considered.

That obstacle could be largely bypassed by a controversial medida provisória (provisionary decree) that the government announced in April but has not yet issued. The text was due to be published but was put on hold amidst the country's political upheaval.

The measure would allow the renegotiation and collection of fines levied on telcos, releasing carriers to swap fines for investments or to pay in installments.

Currently, Anatel already has a legal instrument called TAC to sign such fines-for-investment deals with carriers, but only with fines that are not subject to legal proceedings. The decree, however, opens the door to deals involving any fines.

On a positive note for the telco, the federal attorney general's office on June 14 formally challenged the inclusion of Anatel among Oi's debt holders in the bankruptcy process.

That means Oi's fines with the regulator, worth around 11bn reais, could be written off during the negotiations with creditors.

BUSINESS AS USUAL?

While the legal side is complicated for the company, in operational terms they are, surprisingly enough, better than expected.

The impact of bankruptcy in the mindset of clients seems to have been limited.

Although Oi has been losing many mobile telephony clients, it has been outperforming many of its direct competitors when it comes to fixed services, which the carrier attributes to the success of its bundled offering, Oi Total.

Anatel's just released pay-TV figures show that Oi saw the highest growth in number of users, among all major carriers, from March to April and in the 12 months to April: up 1.63% and 15.8%, respectively.

Meanwhile, rivals Claro and Vivo saw their subscriptions decline in both periods. Oi's growth comes as Brazil's overall pay-TV base consistently declines.

In fixed broadband, Oi ended April with 6.42mn subscribers, up 8,700 from March and 60,000 from April 2016.

Oi's financial reports show that the company was able to increase its cash by over 1.5bn reais in the 12 months ending March to 7.7bn reais. Oi generated 510mn reais of cash in Q1 alone.

Ebitda from Brazilian operations grew 0.4% year-over-year to nearly 1.7bn in the first quarter, while the Ebitda margin rose 2.1 percentage points to 27.9%. In the same comparison, opex of Brazilian operations fell 9.9%.

The company's shares have risen some 300% since going into bankruptcy protection.

IOT AND BACKBONE

Oi is working to show it is business-as-usual despite its precarious situation.

The company announced recently it is working on an internet of things (IoT) project with Brazilian think tank FGV.

Oi will join an executive council formed by CIOs of major Brazilian firms as well as other executives, professionals and scholars, it said.

The telco has been betting on IoT since the end of 2016. It was the first local operator to launch an automation services platform based on the IoT concept for retail customers and SMEs.

The company also maintains an IoT laboratory in Rio de Janeiro in partnership with Nokia for the development of solutions.

On the infrastructure side, Oi reported in recent days that it expanded its optical transport network to central Brazil. The company's backbone started being rolled out in 2015 and now extends 48,000km nationwide, the largest in the country.