Claro’s Desktop Deal Could Reshape Brazil’s Broadband Sector

By Brazil Stock Guide – A potential acquisition of internet provider Desktop by Claro SA (AMX CLAR3) represents a pivotal shift in Brazil’s broadband strategy and could trigger a wave of consolidation among internet service providers, according to a new analysis by XP Investimentos.

The report, titled “Broadband game | Claro’s move could reshape the sector,” details how the deal would mark a departure from Claro’s organic growth model in fiber-to-the-home, or FTTH. “The interest in Desktop clearly marks a shift in Claro’s FTTH strategy,” the analysts wrote. The move is seen as a competitive play to gain scale and enhance converged service offerings in São Paulo state, a core market where Claro has been losing broadband share.

XP estimates the transaction could generate net present value synergies of between 800 million reais and 1.4 billion reais for Claro. The analysis suggests Claro’s inorganic expansion is unlikely to stop with Desktop, identifying regional ISPs Alloha and Vero as potential next targets due to their FTTH scale and market overlap.

Regulatory scrutiny from Brazil’s antitrust body CADE is anticipated, particularly in cities where the combined entity’s market share would exceed 50%. However, the report notes that past approvals in similar cases suggest remedies or rejection are not automatic, citing factors like network idleness and low barriers to entry for ISPs as mitigating concerns.

The potential deal is expected to force responses from rivals. For Telefônica Brasil SA (VIVT3), or Vivo, it “could accelerate its FTTH net adds pace to protect its turf, and M&A could be a lever.” For TIM SA (TIMS3), Claro’s convergence push “may weaken TIM’s competitive position, especially in São Paulo,” potentially prompting its own transformative fiber deals.

Furthermore, the transaction could unlock negotiations across the sector. “As Claro puts convergence at the center of its strategy… other regional ISPs become clear acquisition targets,” the report states, adding that a merger between large ISPs to gain scale is also a plausible outcome.