Lawyers say Brasil Telecom deal is vulnerable to litigation

Lawyers consulted by TELETIME News say the deal between Telecom Italia and Opportunity reducing the former?s stake in Brasil Telecom (BrT) and paving the way for TIM to start operating is legally fragile. The incumbent mobile carriers will easily be able to challenge it in the courts, they believe. An telecoms lawyer says the clause enabling Telecom Italia to reclaim at any time the 20% stake it has transferred to Opportunity, thereby rejoining the controlling group, can be construed under the General Telecoms Act as characterizing the retention of control in an incumbent fixed-line telco. If so, Telecom Italia is barred from controlling other operators until BrT fulfills its regulatory targets. ?The restrictions written into the Act wouldn?t apply to anyone if Telecom Italia were given a waiver in this case,? says this lawyer. A corporate lawyer holds the opposite opinion, albeit equally adverse to Telecom Italia. The deal does indeed reconfigure control of BrT?s equity structure, he says, and that too is against the law. ?Anatel?s rules prohibit changes of ownership until the middle of next year. Telecom Italia was a member of the controlling group of shareholders. Now it isn?t as a result of the deal. In my view this can be construed as a change of control, which the law doesn?t allow at this time,? he says. ?If I worked for one of TIM?s competitors, I would certainly be looking at the possibility of seeking a court order to prevent them from operating on the basis of that argument.?

Value

The same lawyer notes that the value of the equity stakes in BrT held by Opportunity and pension funds has increased as a result of the deal. ?The new shareholder agreement for Solpart, the holding company that controls Brasil Telecom, drastically limits Telecom Italia?s powers,? he says. ?Hence the boost to the value of the shares held by Opportunity and the funds.? There are no signs at present that either Opportunity or the funds are interested in selling. In any case, as already mentioned the law bars changes in control before July 2003.

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