Brazil's Vivo to battle to keep top spot

SAO PAULO (Reuters) - After watching its market share slide steadily over the last four years, Brazil's leading wireless operator, Vivo Participacoes, is now better positioned to hold its ground against hard-charging rivals, Vivo's chief executive said on Friday.

In its heyday in 2003, Vivo (VIV.N)(VIVO4.SA) commanded nearly half of Brazil's fast-growing mobile phone market. Today, following the emergence of two deep-pocketed competitors and a costly price war, Vivo's market share is 28.6 percent.

"It's worrisome," Chief Executive Roberto Lima said at the Reuters Latin American Investment Summit in Sao Paulo. "But the company is in a much better position to compete, and our competitors are now in the position where they have just as much to lose as we do."

Vivo's main rivals are Telecom Italia's (TLIT.MI) Brazilian unit, TIM Participacoes (TCSL4.SA), and Claro, owned by Mexican wireless giant America Movil (AMXL.MX).

While Vivo's market share has dwindled, the shares of TIM and Claro have consistently grown, finishing last month at 25.6 percent and 24.1 percent, respectively.

Lima said Brazil's wireless market, which has more than 100 million users, had now matured and was likely to grow at a slower pace in the coming years. That, he said, had helped to level the playing field.

"From here on out, the game is going to be fairer. No one wants to lose market share," he said, adding that a 1 percentage point drop in market share amounts to about 300 million reais ($145.6 million) in lost revenue.

"This is a battle, and we always want to be on top."

Vivo, a joint venture owned by Portugal Telecom (PTC.LS) and Spain's Telefonica Moviles (TEF.MC), has been investing heavily to fight off the onslaught from TIM and Claro.

The company recently spent more than 1 billion reais to build a nationwide GSM network, the same technology used by TIM and Claro. Previously, Vivo only offered CDMA technology, which is more efficient for data transmission but left it with some coverage gaps in parts of the country.

In just three months, 300,000 people have signed up for Vivo's GSM service, which it is marketing as complementary to its CDMA network.

Lima said Vivo has earmarked 800 million reais to build CDMA networks to plug coverage gaps in Minas Gerais state and northeastern Brazil, which would take about 18 months.

But the project depends on Vivo acquiring new frequency licenses, which Brazil's telecommunications regulator is expected to sell in an auction this year.

Vivo, which swung to profit in the fourth quarter of 2006 after six straight quarters of losses, has been moving ahead with its investment plans as speculation mounts that one of its owners may buy out the other.

Merrill Lynch said in a research report this week it was likely Telefonica would pay "a significant premium" for Portugal Telecom's 50 percent stake in Vivo, and that a deal could happen in the next few months.

Lima declined to comment on a potential change in ownership structure but said the uncertainty had not affected Vivo.

"You don't manage to approve a $500 million investment when your shareholders aren't in agreement about the future of the company," he said.

(Additional reporting by Alberto Alerigi Jr., Renata de Freitas and Cesar Bianconi)

($1 = 2.06 reais)