Brazil Reorganizes Phone Company to Boost Competition

Brazil said Thursday that it will split its telephone monopoly Telecomunicacoes Brasileiras into 12 companies, paving the way to open the industry to competition and asset sales the government hopes will raise $30 billion.

The government divided the telephone company, known as Telebras, into nine wireless units and three fixed-line operators. Each new company will serve a geographic region.

The reorganization is to Brazil what the 1984 breakup of American Telephone & Telegraph Co. was to the United States: a change that encouraged modernization by opening up the industry to competition that previously didn’t exist. Costs for long-distance calls in the U.S. have since fallen about 60%.

American depositary receipts of Telebras fell $15.75 to close at $129.13 on the New York Stock Exchange.

The government of Brazil--where there are just nine telephones per 100 inhabitants, compared with 55 per 100 in the U.S.--recognizes that high costs and poor quality of existing telephone service is a serious impediment to economic growth.

“The inefficiency of the Telebras system is alarming,” said Dirlei Freitas, who manages telecommunications for the Brazilian unit of Unisys Corp., a U.S. computer maker.

In a recent audit, Unisys found it had been billed by a unit of Telebras for $270,000 worth of calls that were made by a Rio de Janeiro investment bank. When informed of the error, Telebras responded by giving Unisys a credit, according to Freitas.

Communications Minister Sergio Motta said the bidding rules for selling the new telephone companies could be released by April. Foreign investors will be restricted to acquiring no more than 49% of each of the companies, Motta said.

Within three to five years, the new companies will be free to compete in any area of telecommunications, Motta said. Regional boundaries also will be lifted, so companies can compete outside their current areas of operation, he said.

The new units, which were formed from 27 units that are controlled by Telebras, will be mostly divided along Brazil’s state lines.