Schymura says Anatel would not allow ILEC takeover of Embratel

Luiz Guilherme Schymura, director-general of Anatel, said Tuesday, December 10, that a proposal from Brazil?s three incumbent local exchange carriers to take over Embratel wouldn?t be approved if submitted to the regulator today. Competition isn?t considered sufficient to allow the ILECs to control the incumbent long-distance carrier, he explained, adding that the law prohibits all changes in equity ownership of the incumbents until June 2003. Mr Schymura dismissed reports of Embratel?s financial difficulties as speculation. ?Anatel?s information is that Embratel is investing in operations. Its financial situation is complicated because it needs credit,? he said. Asked about the possibility of a closet deal, he said ?only agreements and contracts approved by Anatel? are legally valid. None of Embratel?s creditors has approached Anatel to discuss the carrier?s financial situation. ?We?ve been consulted by several banks with queries about the legislation but no one has come here to talk specifically about Embratel?s situation,? he said.

Antitrust

The strategy used by the controlling shareholders of Telemar, Telefonica and Brasil Telecom could backfire in other ways. Although publicity about a possible deal has driven up the price of Embratel stock, speculation about its future would almost certainly hinder refinancing of debts due in 2003. Banks would prefer to wait until negotiations could move forward with new owners. Any attempt at a telco takeover would also run up against probable opposition from the competition tribunal, CADE, and antitrust agencies in the Justice and Finance Ministries. Anatel isn?t in the habit of submitting telecoms issues to CADE, note sources in these agencies, but if it did so the criteria for approval or otherwise would certainly be stricter than asking whether a takeover was legal under the General Telecoms Act, the General Licensing Plan or Resolution 101. These instruments form the legal framework for Anatel?s decisions.

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