By Tatiana Bautzer and Gram Slattery
SAO PAULO, March 7 (Reuters) - Brazilian state-run utility Cia Energetica de Minas Gerais SA has told parties interested in its fiber-optic arm that it intends to sell those assets in an auction rather than privatize its unit Cemig Telecom, two people familiar with the matter said.
Cemig had broken off the divestment process for its fiber optic unit last year. Earlier this month, its board approved the integration of Cemig Telecomunicações SA, as the unit is formally known, into the parent company.
With the move, Cemig is able to sell its fiber assets in an auction, likely on Brazil's B3 stock exchange, with interested parties delivering bids in sealed envelopes, said the sources who wished to remain anonymous because the matter is private.
The auction would avoid the trickier task of privatizing one of the units, while still giving Brazil's major telecoms players a rare chance to expand their fiber network through an acquisition.
Brazil's major telecoms companies are increasingly looking to expand in broadband, as Brazil's mobile and pay-TV markets become increasingly saturated, weighing on profitability.
Among the interested companies in assets owned by Cemig Telecom, whose fiber optic network stretches 9,500 km (5,900 miles) across five Brazilian states, is Brazil's largest carrier, Telefonica Brasil SA and TIM Participações SA, the sources said.
Smaller contenders are Vogel Soluções em Telecomunicações SA, owned by investment firm Patria Investimentos Ltda, Algar Telecom SA and Aloo Telecom, in which U.S. investment firm Cartesian Capital Group LLC has a stake.
Sources close to the deal estimate bids may vary from 300 million to 500 million reais ($93 million to $154 million), depending on which assets will be on sale.
Cemig and TIM declined to comment. Aloo and Algar did not immediately comment. Vogel confirmed its interest in the transaction and said it is "waiting for the formal proceedings."
Telefonica Brasil said it was "well positioned for organic growth" but was "also looking at market opportunities."
TIM announced the expansion of its ultra-fast fiber-to-the-home (FTTH) broadband service in December outside Rio de Janeiro and Sao Paulo, and Telefonica Brasil is also focusing on expanding its FTTH network.
While both companies have an appetite for inorganic growth in broadband, according to several people with knowledge of their thinking, there are relatively few short-term opportunities.
Despite widespread interest, few small regional broadband assets are for sale. Brazil's Minas Gerais state, where Cemig Telecom has most of its assets, is both relatively populated and affluent, but also extremely mountainous, making it more expensive to build a fiber network from scratch.
($1 = 3.2382 reais) (Editing by Bernadette Baum)