Fallout has begun following the decision by Brazilian telecom regulator Anatel to suspend mobile line sales by a handful of carriers in some states due to poor service quality and customer complaints.

Credit Suisse cut its recommendation on TIM Brasil’s shares to underperform from neutral and suggested switching to shares of rival operator Telefónica Brasil SA (VIV, VIVT.BR), which wasn’t affected by the suspension.

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As of July 23, TIM won’t be allowed to sell wireless services in 19 states in Brazil, including Rio de Janeiro. In Italy, TIM’s owner, Telecom Italia SpA (TIT.MI), saw its shares fall by about 7%, while in the Brazilian market they fell about 8%.

TIM said it will enter an injunction today against its suspension from sales and activation of new chips. In a statement, TIM noted that it is investing $1.5 billion (R$3 billion) to improve the quality of communications, but the carrier stressed that this investment is not the only factor that should  be considered. “Local restrictions hinder the installation of new antennas,” the company said.

Meetings with Anatel
After having sales suspended in some states, Claro and TIM had a meeting with Anatel. Oi, which is also under suspension, is scheduled to meet with the Brazilian regulatory agency on Friday.

TIM has not yet presented its plan of action as requested by Anatel. TIM said it is working to have the plan ready at the beginning of next week.

As for Claro, which belongs to Mexico-based América Móvil, CEO Carlos Zenteno met with regulators, and according to Anatel presented a draft of the company’s action plan for improving service quality.

Anatel said that it will make the plans presented by carriers public so that everyone can follow their improvements. The agency will also analyze each state before allowing sales to recommence.

To invest or not to sell
The interim Minister of Communications, Cezar Alvarez, defended Anatel’s action. “The measure was extreme due to the seriousness of the identified issues. While the companies have maintained high volumes of investment, the volume of Brazilians willing and able to consume is greater. And this mismatch was a miscalculation. Therefore, there was a failure on the part of the companies,” he told Convergência Digital, an RCR Wireless News syndication partner.

Alvarez noted that although only three operators have been penalized, the problem is widespread in the industry and summarized Anatel’s action as a message to either “not sell or invest.”

The interim minister rejected, however, the attempt by the telecom operators to make the government share in the responsibility for the problems because the promise of network incentives have not materialized.

Informa Telecoms & Media’s Marceli Passoni noted that this is not the first time Anatel has taken such a measure. Back in 2009, Anatel prohibited Telefónica from selling fixed-Internet broadband services in São Paulo due to poor service quality. “The new ban was undoubtedly extreme, but it serves to alert mobile operators of the importance of maintaining quality, not only for the network but also for  billing, the contact center, time-to-resolution of problems, etc.,” said Passoni.