Item
2
Ministry
of Federal Planning
Public
Investment and Services
Secretariat
of Communications
NOTE C.S.
No. 1004/08
Buenos
Aires, June 26, 2008
Messrs.
Telecom
Italia SpA
Telecom
Italia Internacional NV
Av.
Eduardo Madero 900, 26th floor
City of
Buenos Aires
We hereby
inform you that under the proceedings mentioned below, the Communications
Secretariat has decided that Telecom Italia SpA (“Telecom Italia”) and Telecom
Italia Internacional NV (“Telecom Italia Internacional”) shall refrain from
doing the following acts without obtaining the express and effective approval of
this Secretariat: (a) executing any contract, agreement or legal act which
implies or may imply an increase, for any reason, of its shareholding interest,
direct or indirect, in Sofora Telecomunicaciones S.A. (“Sofora”), Nortel
Inversora S.A. (“Nortel”), Telecom Argentina S.A. (“Telecom Argentina”) or
Telecom Personal S.A. (“Telecom Personal”). (b) executing any contract,
agreement or legal act which implies or may imply any disposition to third
parties –whether controlled, controlling, related companies or otherwise- of the
rights to which Telecom Italia or Telecom Italia Internacional are entitled in
respect of Sofora shares or of the rights to which Telecom Italia and Telecom
Italia Internacional are entitled in relation to the purchase options on Sofora
shares, (c) executing any contract, agreement or legal act which
implies or may imply any disposition to third parties –whether controlled,
controlling, related companies or otherwise- intended to limit, restrict or
distort competition or access to the Argentine telecommunications markets and/or
which may represent abuse of a dominant position on a market to the detriment of
the general economic interests.
-I-
On April
28, 2007 PIRELLI & C. S.P.A. (“Pirelli”), SINTONIA S.P.A. AND SINTONIA S.A.
(“Sintonia”), as sellers, and TELEFONICA S.A. (“Telefónica de España”),
ASSICURAZIONI GENERALI S.P.A. (“AG”), INTESA SANPAOLO S.P.A. (“Intensa”),
Sintonia and MEDIOBANCA S.p.A (“Mediobanca”), as purchasers, entered into a
series of agreements whereby Pirelli and Sintonia sold 100% of the shares of
OLIMPIA S.P.A. (“Olimpia”), the main assets of which are shares of Telecom
Italia S.p.A. (“TELECOM ITALIA”).
Such
agreements provided that the purchasers would use a common corporate vehicle,
later on named Telco S.p.A. (“Telco”) which would receive the shares of Olimpia
and, at the same time, a direct contribution from AG and Mediobanca in shares of
Telecom Italia.
The voting
shares of Telecom Italia owned by Olimpia (approximately 18%) and the voting
shares of Telecom Italia that AG and Mediobanca jointly undertook to contribute
to Telco (5.6%) represent, as a whole, 23.6% of the voting rights of Telecom
Italia.
Later on,
Olimpia merged with Telco and Telco purchased an additional stake in Telecom
Italia, thus becoming the owner of approximately 24.5% of the voting shares of
Telecom Italia.
All the
transfers of Telecom Italia voting shares, whether direct or indirect, shall
hereinafter be referred to as the “Transaction”.
Telecom
Italia holds 50% of Sofora shares, directly and indirectly through Telecom
Italia Internacional. Sofora owns 67.78% of the shares of Nortel (which
represent 100% of the ordinary shares of Nortel). Nortel has 54.74% of the
capital stock of Telecom Argentina. Nortel and Telecom Argentina, jointly, are
the owners of 100% of the capital stock and voting rights of Telecom
Personal.
Telecom
Italia Internacional has two options to acquire the remaining 50% of Sofora
shares (Docket No. S01:200801/2003 of the Registry of the Ministry of Federal
Planning, Public Investment and Services).
-II-
Under its
scope of authority (mainly decrees 62/1990, 677/1990, 764/2000 and 1142/2003),
the Communications Secretariat is reviewing the Transaction.
In such
respect, we must remember that Section 1 of Law 23696 declared the provision of
public services in state of emergency, and Sections 8 and 10 established that in
order to allow for the privatization of companies owned by the National
Government such companies must be subject to privatization, and the National
Executive Branch was authorized to conduct the privatization processes with the
authority to exclude all monopolistic privileges and/or provisions and/or
discriminatory prohibitions which, if maintained, would impair the achievement
of the privatization goals or prevent the relevant service
demonopolization.
Decree
731/1989 provided for the privatization of the basic telephone services based on
the total or partial award of the shares of two corporations which would be
granted the license for the provision of basic telephone services in two areas
to be defined in the relevant bidding specifications. Such corporations would be
assigned certain assets from ENTEL. The intention of such Decree was to
demonopolize and deregulate the telecommunication service so as to improve it
for the benefit of users.
Decree
62/1990 called an International Public Bidding for the privatization of the
telecommunication service through the sale of the shares of the corporations
created by Decree 60/1990, under the terms of Decree 731/1989, as amended,
pursuant to the guidelines set forth in the Bidding Specifications which was
approved by the Decree first mentioned in this paragraph, as
amended.
Decree
2332/1990 approved the transfer of shares of the Licensee Companies created by
Decree 60/1990 which were awarded 60% of the shares of Sociedad Licenciataria
Norte S.A. and Sociedad Licenciataria Sur S.A.
Section 42
of the National Constitution, as amended in 1994, inter alia, acknowledged goods
and services users and consumers the right to freedom of choice and established
that the authorities shall safeguard such right, defend competition against any
form of market distortion, control natural and legal monopolies and quality and
efficiency of public services.
In line
with the constitutional provision, Decree 264/1998 was passed to govern mainly
issues on defense of competition, as it arises from its whereas
clauses.
Law 25,000
approved the Fourth Protocol to the General Agreement on Trade in Services
adopted in Geneva, Swiss Confederation, on April 15, 1997. Under this agreement,
the Republic of Argentina undertook the duty to ensure that such suppliers that
jointly or individually are dominant suppliers refrain from using or maintaining
anti-competitive practices.
Decree
465/2000 provided for complete deregulation of the telecommunications
service provision market, as from November 9, 1990, without any restriction
under the treaties executed by the Republic of Argentina.
Decree
764/2000 approved the Licensing Rules for Telecommunications Services, National
Interconnection Rules, Universal Service General Rules and Rules for the
Administration, Management and Control of the Radioelectric Spectrum. One of its
main goals is to remove hindrances derived from a monopolistic or restricted
competition regime. Accordingly, paragraph 10.2.C) of the Licensing Rules for
Telecommunications Services established as one of the main obligations of
suppliers to observe the principles of fair competition, and not to incur in
anti-competitive conducts, abusive and/or discriminatory practices, under the
legal provisions in force.
In the
same Decree 764/2000 it is set forth that the provisions of the Rules related to
the respect owed by the operators to fair competition rules, imply a general and
preventive
control of
the actions performed by the telecommunications market participants, without
prejudice to the authority of the Defense of Competition agencies that may act,
ex post facto, in any specific case of infringement of Law
25,156.
-III-
Following
the above regulatory overview, it should be highlighted that in Resolution 78
dated October 16, 2007, the Argentine Antitrust Commission under the case that
reviews the Transaction, considered the following:
That
Telefónica de España is the owner, directly or indirectly, in Argentina of more
than 98% of the capital stock of Telefónica de Argentina S.A.
That
Telecom Argentina is one of the two major fixed-line operators in Argentina and
the owner of Telecom Personal, a cellular service provider.
That
Telefónica de Argentina is the other operator of major fixed telephony, mobile
telephony and Internet access services.
That the
basic telephone service market is a privatized and regulated market, subject to
the balance imposed under the express prohibition of monopolistic practices by
the Constitution and by law.
That as a
result of the Transaction, Telefónica de España would become an influential
shareholder of Telecom Italia and, through it, of all its controlled companies,
including Telecom Argentina.
That
Telefónica de España’s “self-limitation” provisions in respect of decisions of
its competitor Telecom Argentina, would prima facie be irrelevant at the time of
exercising its influence on decision-making.
That the
acquisition by Telefónica de España of an interest in Telecom Italia is part of
a commercial and industrial plan of strategic expansion which must be analyzed
by the relevant regulatory entities since the acquisition of one by the other
may affect the market and, consequently, users, competitors and third-party
shareholders.
To sum up,
in such resolution, the Argentine Antitrust Commission stated that there were
reasonable grounds to believe that the Transaction was “likely to potentially
distort market competition standards and harm general economic
interests”.
In such
resolution, the Argentine Antitrust Commission provided for the appointment of
two observers in Telecom Argentina, one of whom was appointed by the National
Communications Commission, a decentralized agency within the scope of authority
of this Secretariat.
The
observers have submitted the relevant report which is not necessary and
pertinent to review now given its confidential nature.
Under the
present circumstances, any alteration or change in the control structure of
Sofora, Nortel and Telecom Argentina, which directly or indirectly involves
Telecom Italia or Telecom Italia Internacional, without the prior approval of
this Secretariat as the Enforcement Authority, must be avoided.
Otherwise,
the telecommunications market competition distortion which the Argentine
Antitrust Commission considered prima facie a potential risk would actually
occur. It is the duty of this Secretariat to prevent it.
-IV-
The
Transaction was not submitted by the contracting parties, Telecom Italia,
Telecom Italia Internacional, Sofora, Nortel or Telecom Argentina to the prior
approval of the Communications Secretariat.
However,
this Secretariat of Communications, within its scope of authority, must adopt
any available measures to comply with the constitutional duty imposed under
Section 42 of the National Constitution and its related
regulations.
Accordingly,
for the time being, it is deemed necessary to adopt the measures described in
the introductory paragraph, notwithstanding any other resolutions which may be
adopted in the future in line with the conclusions that may derive from the
analysis under way.
It is
stated for the record that the measures informed herein were decided under the
authority granted by Section 42 of the National Constitution and Decrees
62/1990, 677/1990, 764/2000 and 1142/2003.
Sincerely,
Signature
and seal from: Architect Carlos Lisandro Salas, Secretariat of
Communications.