The acquisition of control of the provider Desktop by the operator Claro marks a significant consolidation in the Brazilian fixed broadband market, especially in the interior of the state of São Paulo and in the fiber optic segment.
As announced to the market on March 22, Claro closed a 2.4 billion (bn) reais deal to acquire 73.01% of the São Paulo-based provider, valuing the company at around 4 billion (bn) reais. The sale price refers to Desktop’s valuation minus its indebtedness.
The transaction still depends on approval from regulatory bodies, such as Cade and Anatel. The transaction had Bank of America as Desktop’s financial advisor, while Desktop’s legal counsel was provided by Pinheiro Neto Advogados. Claro was legally advised by Veirano Advogados and did not use external financial advisors
Desktop, whose acquisition was even evaluated by Telefônica Brasil (Vivo), is one of the largest independent fiber-optic providers (ISPs) in São Paulo, with a network of more than 55,000km.
At the end of January, according to Anatel data, the provider had 1.37 million (mn) telecom contracts, of which 1.2mn referred to fixed broadband.
In the state of São Paulo, specifically, the company is the third-largest provider, with a 7.4% market share in broadband, behind only Vivo (30.6%) and Claro itself (28%).
Company
Share in São Paulo (January data)
VIVO
30.6%
CLARO
28.0%
DESKTOP
7.4%
GIGA MAIS FIBRA (Alloha)
2.3%
ALARES
2.3%
KORE BRAZIL
2.2%
VERO
2.1%
ALGAR (CTBC TELECOM)
1.3%
SURF TELECOM
1.2%
TIM
1.1%
OTHERS
21.6%
With the acquisition, therefore, Claro takes the lead in the country’s most populous state and absorbs a robust infrastructure, gaining capillarity to accelerate its expansion in medium-sized cities, as well as in areas with high growth potential.
The union with Desktop could give Claro more than 50% market share in 66 cities, which, according to analysts, could reduce local competition and impact prices, but raise the level of service.
From a corporate standpoint, the proposal should result in Desktop’s exit from the B3 stock exchange, with a public tender offer (OPA) for minority shareholders.
After the announcement of the transaction, Desktop’s shares gained more than 20% in value during the March 23 B3 session, trading above 17.75 reais at their peaks. Claro is not listed on the Brazilian stock exchange.
Lever for fiber
More importantly, the purchase represents a significant boost for Claro in fiber optics, where it is still lagging behind competitors.
The subsidiary of América Móvil is the leader in the fixed broadband segment in Brazil, with a 19.6% market share. However, a large part of these connections still occurs via legacy copper networks.
Of Claro’s total base of 10.7mn customers in January, more than 7.8mn were served by copper networks and 2.7mn by fiber.
For comparison, of Vivo’s 8.1mn broadband contracts, 7.85mn were fiber and only 240,800 were via metallic or coaxial cable.
Valuation and consolidation of ISPs
Another relevant aspect of the business concerns the internet service provider segment itself.
The transaction, with a premium of around 45% over Desktop’s previous market value, indicates that ISPs with high-quality fiber networks remain valuable assets, potentially influencing the valuation of other companies in the sector, such as Unifique and Brisanet.
Claro’s move also reinforces the strategy of the major operators to expand their presence through regional ISPs. These, in turn, continue to consolidate.
Recently, Brasil TecPar, controlled by the Macquarie fund, bought broadband assets from Ligga for 495 million (mi) reais. Unifique, in turn, acquired iSUPER Telecomunicações for 38 million (mi) reais.
In related moves, Vivo took full control of its FiBrasil neutral network joint venture by acquiring 50% of CDPQ’s stake for 850mn reais.
The same was done by TIM, which came to hold 100% of I-Systems by acquiring the remaining 51% of IHS Brasil for 950mn reais. The transaction was approved by Cade last week.
In December, V.tal, controlled by funds of BTG Pactual, acquired Um Telecom, an operator with a strong presence in the Northeast, adding around 20,000km of optical fiber to its network.
(The original version of this content was written in Portuguese)
