Brazilian watchdog could withdraw Oi's operating permits

Brazilian telecom regulator Anatel has started a process that could end up with the withdrawal of troubled telco Oi's permits and making it impossible for the operator to continue providing telecom services in the country.

If this happens, the permits would be transferred to other players to ensure that services can continue being provided.

The ruling, announced by the watchdog in a long statement on Thursday evening, is so far the most incisive move by telecom authorities with respect to the struggling Rio de Janeiro-based telco, which has been under judicial protection since June 2016 and is facing tough negotiations with its creditors.

In its statement, Anatel said that Oi "disappointed" the agency by not presenting a revised version of its reorganization plan as requested.

Also, 14 months after filing for judicial protection "there has been no concrete perspectives to overcome the company's problems, given the lack of a plan to guarantee the sustainability of operations in the medium and long term," the regulator stated.

Oi has called a general shareholders meeting for October 9 to vote on its proposed plan.

The agency said that it now considered that an unfavorable outcome of the judicial recovery process was now more likely, adding that this outlook requires "immediate action in face of the negative consequences it may have for Brazilian society and the Brazilian economy."

Anatel explains it has a legal obligation to ensure the provision of fixed line services, which are provided by Oi and other telecom operators in Brazil under the public concession regime.

However, although the federal government has no legal mandate to take over the other services provided by Oi under the private regime ("authorization"), the regulator understands that "the importance of these services, especially cellular telephony and fixed Internet access, is widely recognized and all efforts must be made to avoid interruption or loss of quality."

The complication in Oi's situation is that outages or disruptions in its network operations could affect other companies that use it. In addition, Oi is the sole provider of fixed and mobile telephony in hundreds of Brazilian municipalities.

"In view of this situation, as a precautionary measure, Anatel board member Igor de Freitas proposed to the board of directors the opening of processes for the termination of Oi's concession and withdrawal of Oi's authorization permits... Once the proposal is approved, there will be procedures in which the company will have the opportunity to demonstrate the feasibility of its recovery plan, as well as to present its defense in relation to the other issues addressed."

Anatel's full statement, in Portuguese, can be read here.

OI

In response, Oi said that it has been regularly keeping the regulator informed on its operational and financial indicators, which the company says have been evolving positively throughout its judicial recovery process.

The carrier also argued that all indicators are duly recorded in the economic-financial monitoring process through which Anatel is informed about the company's situation.

Oi replied that all of the steps in the judicial process have been followed by Anatel and that it is unaware of the arguments supporting the measure announced by the watchdog because it has not been notified.

"As soon as Oi has access to the process, it will provide all the information and clarification," the note read.

Speaking at a satellite event in Rio de Janeiro on Friday morning, Anatel president Juarez Quadros (pictured, center) stressed that Oi did not present a revised plan as required, but rather a document justifying its existing plan, news outlet Teletime reported.

According to Quadros, Oi's recovery plan is based on variables that are not certain to materialize, such as Anatel's policy to allow telcos to exchange applied fines for investments, which has been suspended by Brazil's audit court TCU.

Quadros also said that Oi's plans relies on the approval of a new telecom framework, which would allow concession-holders to migrate their permits to the authorization regime under certain conditions, therefore getting rid of burdensome obligations such as having to maintain public pay phones, among others.

The reform bill, however, is stalled in congress without any perspective of approval.