Telcel expecting 80% customer growth in 2000, mostly from pre-paid customers and decreasing profit margins
Monday December 13, 5:27 pm Eastern Time
INTERVIEW-Mexico's Telcel sees more growth ahead
By Fiona Ortiz
MEXICO CITY, Dec 13 (Reuters) - Telcel, the cellular phone subsidiary of Telefonos de Mexico (NYSE:TMX - news), said on Monday it would double its investment budget next year to $900 million to meet demand in what is expected to be another boom year for the industry.
''We plan to double our network. The budget for next year is about $900 million, and 80 percent of that will go to infrastructure,'' Telcel Chief Executive Daniel Hajj told Reuters in an interview.
Telcel -- Mexico's biggest cellular company -- is part of the business empire of Mexican magnate Carlos Slim Helu, who bought Telefonos de Mexico, or Telmex , from the government in 1990. It invested $450 million in infrastructure in 1999.
Explosive cellular phone growth in Mexico this year left Telcel without enough network capacity to handle the flood of new traffic. Hajj said the company would not be caught off guard in the future.
''What we want to do is over-invest a little next year, in case we have more surprisingly big growth. We want to have some over-capacity in the network ... to be prepared,'' he said.
Hajj said Telcel expected to have between 4.8 million and 5.2 million subscribers by the end of the year, or about 180 percent more than at the end of 1998.
Telcel sees its customer base rising about 80 percent, or by 3.5 million, in 2000. Growth is expected to be strongest among pre-paid subscribers, who buy a phone and packages of phone time instead of paying a monthly service fee, Hajj said.
Currently about 75 percent of Telcel's subscribers are prepaid, a percentage that is expected to increase, he said.
Hajj said Telcel would finish 1999 with more than 100 percent growth in sales of prepaid cellular time, and close to 100 percent growth in cellular phone traffic.
He said the company has overcome the growing pains of August and September when the company could not handle an explosion of new traffic with its existing cellular networks, and users were plagued with busy signals and disconnected calls.
A flood of customer complaints led to threats from the Federal Telecommunications Commission (Cofetel) to fine Telcel and other cellular phone companies with similar problems if quality did not improve.
Hajj said Telcel was now complying with the regulatory agency's quality standards, holding the percentage of dropped calls to less than 7 percent and the average time to establish a call to less than 20 seconds. He said the company would have no problem meeting tougher quality standards Cofetel will impose next year.
To improve quality, Telcel added two more phone traffic switches in Mexico City, bringing the total to five, and made huge increases in number of cellular sites. Telcel now has 30 switches nationwide and 1,000 sites, or radio bases.
In Mexico City, Telcel has been able to bring new sites on line faster than previously because of an agreement with the Mexico City Federal District government, he said. The housing authority in the capital city used to block permits for new antenna locations but has now agreed not to do so.
Hajj said Telcel had no immediate plans to make an initial public stock offering, despite some pressure from Telmex investors to do so.
Telcel had a 21.6 percent operating margin in the third quarter, up from 19.1 percent during the third quarter of 1998. Telcel's operating profit rose to 734 million pesos, or 80 percent higher than in the third quarter of 1998.
While almost all of the post-paid handsets Telcel sells are digital, few of the prepaid handsets are, but Hajj said that will change next year with an aggressive marketing campaign.
Despite widespread poverty in this country of 100 million, the cellular business would continue to grow, especially because of ever-cheaper prepaid service, he said.
He said the penetration of cellular phones per person in Mexico is low by international standards, at about 7 percent, even when adding up all of the cellular companies, including Telcel's strongest competitor Iusacell (NYSE:CEL - news), managed by U.S.-based Bell Atlantic, which has some 1.3 million subscribers.
Next year Telcel will introduce some wireless data services for cellular users, including financial information, traffic and sports scores, Hajj said.
He said Telcel's huge coverage, in 60,000 towns and cities in Mexico, would help the company in an environment of increased competition next year.
Hajj predicted profit margins and prices for existing cellular phone companies in Mexico will come down in 2000, as a third large cellular telephone company, Pegaso, expands its coverage. Leap Wireless International Inc. (NasdaqNM:LWIN - news) owns 29 percent of Pegaso. |
