SAO PAULO, Oct 27 (Reuters) - Telecom Italia SpA and Oi SA on Tuesday urged Brazil's government to revamp telecommunications industry rules before the companies would consider a merger, a sign that consolidation hinges on a more flexible regulation of carriers.
The easing of mandatory investments in fixed-line telephony and other rules would determine whether wireless carrier TIM Participações SA considers a merger in Brazil, Marco Patuano, the chief executive of controlling shareholder Telecom Italia said at a São Paulo event.
Oi CEO Bayard Gontijo said at the same event that those requirements demand too much of companies operating fixed-line licenses, and must be updated so they can invest more. Oi has for years spent heavily to cope with mandatory fixed-line expansion goals, hampering its ability to compete in the mobile and data segments.
"This model is exhausted and needs to be modernized immediately," Gontijo said.
The executives made their remarks a day after billionaire Mikhail Fridman's LetterOne Group vowed to pour $4 billion into Oi should Brazil's No. 4 mobile carrier combine with TIM . While Oi trails rivals in the mobile phone market, analysts say its nationwide fixed-line network could mitigate TIM's lack of it.
Shares in TIM and Oi fell on Tuesday, signaling regulatory fine tuning will reduce the likelihood of a merger in the short term. According to JPMorgan Securities analyst Andre Baggio, the government does not see consolidation in the telecoms industry as a priority because of political and economic turmoil.
Earlier in the day, Communications Minister André Figueiredo said Brazil would define how to avoid too much concentration in the industry, without elaborating.
Common shares of TIM fell 8.5 percent on Tuesday, wiping out Monday's gains triggered by Fridman's offer. Preferred shares of Oi dropped 8 percent.
Reuters reported this month that industry watchdog Anatel is leaning towards easing some rules imposing onerous fixed-line investments in a segment in which revenue per user is declining dramatically. (Writing and additional reporting by Guillermo Parra-Bernal and Brad Haynes; editing by Grant McCool)