Fala sério!  (“Talk seriously!,” “You must be kidding!”) is likely one of the only remnants of my two semesters of university Brazilian Portuguese—well, that and the ability to sing “Happy Birthday."  Nonetheless, nobody in that classroom years ago would have believed that major companies, namely Vivendi and Telefónica, would one day be fighting for ownership of a Brazilian Telco. 

In an escalating price war that has repercussions on three continents, French media giant Vivendi and Spanish Telco Telefónica have been bidding up Brazilian operator GVT--the country’s fourth-largest high-speed Internet provider.  In a somewhat surprising move, Vivendi bought out 37.9% of GVT with the option of buying another 19.6% so it can have total control of the broadband telco.  The price tag?  A cool $4.2 billion.  Telefónica sources said the Spanish telco will not pursue any further counteroffers.

The move is noteworthy for a few reasons:

It underlines the strategic  importance of Brazil as an emerging market

In a report we published recently, we talk about the importance of Brazil as an emerging powerhouse.  Our base case model predicts broadband subscriptions growing to nearly 20 million by 2013, implying a 15% CAGR.  Broadband sub and revenue growth is largely predicated on increasing importance of IP-delivered video content, as well as the expected surge in IPTV providers in the Latin American region.  By hitching its wagon to an established player at this point in the game, Vivendi has the opportunity to establish a beachhead in a key emerging market--one whose tv market is expected to grow faster than Western Europe.

It’s a direct challenge to Telefónica in its “home turf”

Telefónica, through its Telesp subsidiary , has enjoyed a nice piece of the Brazilian fixed broadband market--market share is estimated to be around 28%. Vivendi’s takeover of GVT challenges Telefónica’s position in the Sao Paolo market, puts it on the defensive, and further limits its ability to expand outside of the Sao Paolo metro area.

It further paves the way for an eventual Comcast NBCU merger

Vivendi’s move is a clear and final signal that the company is ready to sell its 20% ownership of NBCU, valued at approximately $6 billion.  Indeed, it will need to in order to finance the GVT purchase.   This freeing up of ownership will pave the way for an eventual takeover of NBC Universal by Comcast.

I expect we'll be seeing more of this type of emerging market "pre-positioning" going on the next few years.