Brazils License-Winners Pull Back as Economy Slides - Multichannel

Brazils License-Winners Pull Back as Economy Slides

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Be careful what you wish for: You just might get it.

That old saying couldn't be more true than in Brazil, where
pay TV franchise-winners -- long stymied by a delayed auctioning process -- are now
forfeiting their concessions as the country's economic troubles deepen.

One cable investor group, TV Cidade, recently decided to
pay a forfeit fee of 800,000 reals ($US660,640), rather than developing the three
hardwire-cable licenses that it won.

The penalty, like those of others that forfeited their
licenses, represents 10 percent of the price that TV Cidade would have paid to the
government to acquire the license. TV Cidade's licenses covered the cities of Nova
Iguaçu, Duque de Caxias and Nilopolis, all in the Rio de Janeiro metropolitan area.

"We considered withdrawing from these cities because
of the economic climate. Interest rates are very high, and it is not like these [cities]
are major A/B [wealthy or upper-middle-class] areas. After a year, these cities were no
longer good business," said Silvia Jafet, an associate director at TV Cidade.

Cable concession-winners in the first round of licensing,
which concluded in December, submitted their bids well before the onset of Brazil's
current recession, which was triggered by emerging-market turmoil.

TV Cidade had emerged as one of the most aggressive
license-bidders.

The company will keep 12 of the licenses that it won in the
first round and invest about $US350 million in them, Jafet said. Investors in the company
include a unit of American International Group Inc.; Dallas-based investment fund Hicks,
Muse, Tate & Furst Inc.; and Brazilian shareholders TV Bandeirantes and newspaper Jornal
Do Brasil
.

The list of retreating companies also includes established
Brazilian media players.

The country's two biggest pay TV companies, Globo Cabo and
TVA, initially pursued bids, only to drop some of them in order to focus on expanding
their existing businesses.

Globo Cabo won two licenses, but it decided not to sign the
bid contracts.

The company was fined 10 percent of the total bid price of
R19 million ($15.7 million), or R1.9 million.

There is speculation that more license-winners may withdraw
their bids in the future.

Many have yet to sign the contracts with government
regulator Anatel to take control of the licenses. When they do, they must pay 50 percent
of the bid money upfront, although many are lobbying for an extension that would give them
more time to come up with the cash.

The Brazilian government contemplated issuing new licenses
for the better part of a decade. But by the time it launched the process in late 1997, an
economic storm had begun gathering. Interest rates have more than doubled in the past
year, and consumer spending is expected to nosedive.

"The government picked the worst time to ... auction
licenses. First, we have the world and Brazilian [economic] crises. Besides, the large
[communications] groups in the United States and Europe are now investing in their local
operations as their markets deregulate," said Walter Longo, president of
programming-marketing company UniMark Longo.

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