SAO PAULO Nov 28 Brazilian antitrust officials have proposed to fine Telefonica SA for moves it made to tighten control over Telecom Italia SpA, arguing it violated a 2010 regulatory accord meant to separate the two companies' interests in Brazil.
In a nonbinding report released this week, the technical staff of anti-monopoly watchdog Cade said Telefonica should immediately sell shares it acquired in Telco, the holding company that controls Telecom Italia.
The report also urged a prohibition on all further purchases of Telco shares planned by Telefonica. Cade's solicitor general proposed a fine of 15 million reais ($6.5 million) and threatened a more severe intervention. The agency could rule on the penalties as soon as Wednesday.
Harsh regulatory measures in Brazil could snag Telefonica's plan, set in motion in September, to gradually increase control over Telecom Italia through the holding company Telco.
Telefonica had argued that by adding only to its nonvoting stake in Telco so far it had not affected control of Telecom Italia or violated agreements with Brazilian regulators. A Telefonica official declined to comment on Thursday.
"The operation announced by Telefonica, even in its first stage, already infringes on its commitments," wrote attorney Daniela Silva Borges in the Cade report. "It increases the economic dependence between the two groups, albeit indirectly, while the mandate is for independence."
Borges said provisions to eventually take a majority voting stake in Telco "represent one of the gravest offenses that could be imagined" against the deal Telefonica struck with Cade in 2010 to guarantee competition in the Brazilian market.
A September shareholder agreement allowed for Telefonica to take control of Telco in January, but a senior executive with the Spanish company said it had no plan to exercise that option so soon, given the regulatory concerns involved.
Telefonica Brasil SA and TIM Participações SA , the market's two biggest wireless carriers, are controlled by the European telecom giants.
Telefonica wants to convince Telecom Italia to sell its 67 percent stake in TIM next year, people familiar with the matter have told Reuters.
The chief executive of Telecom Italia has said TIM is a core asset but could be sold at the right price. The company struck a deal this month to sell its controlling stake in Telecom Argentina for $960 million, bolstering its balance sheet and reducing the urgency of a sale in Brazil.
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