Oi: Brazil economy pushing mobile market towards consolidation

Brazil's mobile telephony market is heading towards consolidation with the continuous disconnection of prepaid lines, partially caused by the country's deep recession in 2015 and 2016.

That's the opinion of Bernardo Winik, retail director at Oi, the Brazilian telecom operator struggling with bankruptcy issues. Winik and other executives spoke to analysts in an earnings call on Thursday.

The mobile market Latin America's largest economy is dominated by four major telecom groups Oi, Vivo, Claro and TIM. A fifth player, Nextel, comes in at more distance place, with other regional carriers and MVNOs also fighting for clients.

In 2016, Oi's mobile telephony customer base shrunk by 13.1%, recording a 15.5% decrease in prepaid clients alone.

Oi posted losses of 7.1bn reais (US$2.26bn) last year, 27.8% more than in 2015. The company attributed the poor performance mainly to a tax credits write-off of 2.8bn reais. As a result, the net debt amounted to 40.3bn reais, up from 38.1bn reais in 2015 - although down 2% from the previous quarter.

The company saw its number of total clients fall 9.3% last year, and 8.4% quarter-on-quarter, to 63.5mn. The pay-tv segment, however, saw subscribers grow 11.6% in the year and 3.5% in the quarter. Fixed broadband also increased, albeit at a slower pace.

Despite a 5% increase in average revenue per user (ARPU) on the residential segment, Oi's net 2016 revenues fell 5% to 25.9bn reais. Available cash flow at the year-end reached 7.8bn reais, down 53.3%.

The heavy losses did not stop Oi from significantly increasing its investments as these were up 17.6% in the year and 26.6% in the quarter.

JUDICIAL RECOVERY

CEO Marco Schroeder (pictured) told analysts and investors that Oi expects to conclude its judicial recovery process this year. The company filed last year for Brazil's biggest ever bankruptcy protection.

Schroeder also dismissed an eventual take-over by telecom regulator Anatel of the troubled company, arguing Oi's services and quality indicators are at normal levels.

The executive told the call that Oi is open to discuss any plan that might be presented either by investors or shareholders, but said that terms must balance the interest of both creditors and bondholders to that of shareholders.

Oi's board approved and offered Wednesday night a new plan with changes to its original judicial reorganization plan, allegedly with improved conditions for creditors and bondholders. This move effectively shuts the door on the alternative plans presented, specially the one by Moelis and Co and the Orascom group of international bondholders.

This same group filed on Tuesday, with the Rio de Janeiro court in charge of Oi's case, a request for meditation with Oi claiming the company is not responding to their requests.