Brazil urges Telefónica to sell stake in rival TIM Brasil

Brazilian anti-trust watchdog Cade ruled on Wednesday that Spanish telecoms giant Telefónica must exit its direct and indirect stake in wireless carrier TIM Participações or seek a new partner for its Vivo mobile phone unit.

In a meeting that took place at the regulator's headquarters in Brasilia, directors at Cade also ruled that a new partner for Vivo, Brazil's largest cellphone operator and part of Telefónica Brasil, will not be allowed to own a stake in another rival in the country.

Wednesday’s ruling, which is definitive, gave a strong indication that the approval of Telefónica's stake increase in Telecom Italia - TIM Brasil’s parent company - faces serious challenges in Brazil. Cade’s decision addressed Telefónica’s failure to meet a so-called performance agreement signed in 2010 by which the company agreed not to participate in TIM Brasil’s management decisions or raise its stake in Telecom Italia.

In addition to ordering the Spanish company to exit its stake in TIM Brasil, Cade imposed a fine of 15 million reals ($6.3 million) on Telefónica for increasing its stake in Telco, which owns 22.4 percent of Telecom Italia.

TIM Brasil was also fined 1 million reals by Cade, after the telecom operator hired a consultancy firm owned by Telefónica.

"Telefónica and Vivo are currently analyzing the extent of Cade's decision and will make a statement when it deems opportune," both companies said in a joint statement.