BellSouth mired in Latin America
accessatlanta.com
By KATHY BRISTER and MIKE WILLIAMS
Atlanta Journal-Constitution Staff Writers
Buenos Aires, Argentina -- In a country where average income has plummeted 72 percent in three years and the once-employed rummage through trash for food, it's difficult to sell wireless phones.
Yet Jose Maria Soneira keeps trying. He shows up every day to supervise a Movicom-BellSouth store serving half as many customers as it did a year ago, despite this country's scarce and unreliable wired phone service.
"People still want the phones, but it's something they just can't afford," Soneira said.
A fifth of Argentina's work force is unemployed. The country has defaulted on $140 billion in foreign debt. It is being strangled by Latin America's economic downturn. While Argentina's situation is extreme, most nations in the region are gasping.
So is BellSouth, which has wireless operations in 11 Latin American countries and last quarter wrote off $354 million from currency devaluations. It also reported a 19.8 percent drop in Latin American revenue.
Some within BellSouth are wondering what an Atlanta-based local phone company is doing so far from home, in a region plagued by economic volatility and political uncertainty. BellSouth arrived here 14 years ago, lured by the opportunity to offer wireless phone service to millions of people.
Now the company is losing millions of dollars in the region, but it can't afford to get out.
BellSouth has spent billions buying wireless licenses, building networks and establishing its brand. It could not recoup that money if it bailed out now, said Bill Norton, a telecommunications analyst who worked for the Baby Bell for 18 years. He left earlier this year to start Atlanta-based Global Communication Consulting with other former BellSouth executives.
"BellSouth finds itself with an asset that, if put on the market now, would be significantly undervalued," Norton said.
If the region can right itself, opportunities for BellSouth are enticing. Telecommunications research firm Yankee Group estimates 16 percent of the region's population uses wireless phones. It predicts penetration will grow to 26 percent by 2006.
BellSouth is the second-largest wireless brand in a region with a need for better phone service, said financial analyst Drake Johnstone of Davenport & Co. "It would seem silly to throw in the towel because they hit a rough spot."
The company expected tough times when it entered Latin America in the late 1980s. But back then, BellSouth's local phone business in nine Southeast states was a moneymaker that mitigated the risk.
Today, the same wireless technology that made Latin America so promising a market is eating away at BellSouth's core business at home. Businesses and consumers are replacing wired lines with wireless phones. They also are tightening belts and spending less on telecommunications. Competitors are wooing BellSouth's customers, and many are getting to those customers via lines BellSouth is required to lease.
"We've had all of these things happen, and so many are outside of our control. We can't control economic conditions here or in Latin America," said BellSouth spokesman Jeff Battcher. "We can control our costs."
To that end, BellSouth has cut jobs throughout the region and consolidated customer service, network and billing operations across several countries. It is launching multicountry advertising campaigns. It also sliced this year's capital expenditure in the region to $300 million from the $500 million spent in 2001.
Still, it's a struggle. In Argentina, once considered a model of Latin American economic reform, wireless phone companies have lost 800,000 customers, said Alejandro Prince, an Argentine telecom analyst. Movicom-BellSouth has lost a fifth of its Argentine customers since last year.
Some of the region's losses are offset by impressive growth. In Ecuador, BellSouth nearly doubled its wireless customer base between mid-2001 and mid-2002. But across Latin America, customer rolls grew just 2 percent during the same period.
In September, BellSouth withdrew a plan to sell up to $1 billion of its Latin America Group common stock. Issuing shares that track the Latin America wireless operations no longer fits its strategy, BellSouth said.
The move followed news that AT&T Corp. may be considering absorbing its Latin American subsidiary and retiring the unit's publicly traded shares.
America Online Latin America last year lost $228 million. The AOL Time Warner subsidiary, which provides Internet service in Brazil, Argentina and Mexico, recently has struggled to sidestep delisting on the Nasdaq stock market.
Telecom and tech companies aren't the only ones having problems.
Coca-Cola reports earnings next week, and analysts are expecting Latin America to be a trouble spot, particularly Argentina. The region accounted for 25 percent of Atlanta-based Coke's sales volume in 2001, behind only North America.
Last year, economic problems in Argentina and Chile forced another Atlanta company, Home Depot, to get rid of stores there.
And, now, a left-leaning political climate, largely a reaction to the economic crisis, has Wall Street more skittish than ever about the region. Brazil, Latin America's largest economy, is poised to elect Luis Ignacio Lula da Silva, a vocal critic of U.S. domination of the region. His strong showing in Brazil's presidential primary sent that nation's currency plunging and foreign investors on the run.
Eloy Vidal, a telecommunications engineer with the World Bank, is worried Latin American governments will react by re-establishing control over telecommunications. The World Bank, which makes loans to developing countries, encouraged opening telecom markets.
"In the early '90s, phone service was really terrible in Latin America. Now, at least you can have a phone in most cities," Vidal said. "The downturn is not related to privatization. It is not related to reforms. Governments should not backtrack."
Uncertainty about what Latin American governments will do is among BellSouth's main worries. But the region's economies are just as unpredictable and have even more ability to hurt the company's bottom line.
A telling fact: If the region's currencies had remained stable, BellSouth's Latin American business would have been profitable each of its 14 years.
"I think in Latin America you always have to be ready for the unexpected," Battcher said. "We've been on that roller coaster since 1988. We've been hanging on real tight, and we're hanging on even tighter now." |
