EUR 850.00 For Business Accounts Only

Morningstar | TSU Updated Forecasts and Estimates from 11 Mar 2019

TIM Brasil is one of the largest wireless carriers in Brazil, after Vivo but almost neck and neck with Claro on number of customers, and is the biggest prepaid carrier in the country. Despite its size, we believe the firm is at a disadvantage to the other two because of its inability to fully participate in the convergence trend. Vivo and Claro are cross-selling wireless services and fixed-line products, especially broadband Internet, but TIM has limited fixed-line assets to support a competitive convergence offering. TIM’s leadership in prepaid is also not necessarily a blessing. Prepaid customers tend to be fickle and price-sensitive, which in turn leads to higher churn rates and lower average revenue per user. As the Brazilian market migrates to postpaid, we fear that TIM may become the net subscriber loser facing this trend with the biggest prepaid exposure. At the same time, prepaid revenue is more vulnerable to economic shocks. While management sees robust growth in data services, we believe the more attractive part of such growth is found in wealthier contract wireless customers and broadband Internet customers. These are the two areas the firm is weakest in, which we believe will hinder its growth prospects relative to its peers. In the meantime, rising data usage also pressures TIM’s network and requires heavy capital expenditures at a higher percentage of sales than peers.What’s more, the Brazilian wireless market has been plagued by intense competition for years, which is unlikely to change structurally, as current telecom regulations are anti-consolidation. TIM’s strong balance sheet may allow it to fix its structural weakness through acquisitions. With Oi in restructuring, it is unclear to us how the four-player market structure could evolve. We would certainly welcome potential consolidations, and we have not ruled out the possibility that TIM could be put up for sale by its parent, Telecom Italia, which is highly leveraged and needs cash.