Oi S.A.

Currently, we don't incorporate any scenario into our base case in which Oi could divest part of its business or even be entirely acquired by its competitors. A potential sale of the mobile operations, for example, would probably weaken its business profile, but could enable it to meet large debt maturity and investment needs. The negative outlook reflects the challenges the company faces in implementing its capex plan in order to reverse the revenue decline and improve profitability and cash flow. The outlook also reflects the risks of delays in capex because the latter partly depends on the completion of the planned asset sales. We could lower the ratings in the next six-12 months if Oi is unable to advance

... telecom market requires sizable investments in broadband networks and coverage capacity to provide the best service to clients that are continuously increasing data consumption. Oi has been less competitive because its 4G coverage is weaker than domestic peers such as Claro and Vivo, making it difficult to raise prices to recover margins. We estimate margins will pick up only from 2020 on, as a result of investments of about R$7 billion per year. However, execution risks will remain high as "deep pocket" competitors continue to lead innovations and provide higher value-added services, which will increase their ability to adjust prices and could pressure Oi's ability to regain profits....

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