Telcel becomes the only wireless game in Mexico
biz.yahoo.com
By Fiona Ortiz
MEXICO CITY, Feb 6 (Reuters) - Mexico's smaller mobile telephone companies are even weaker as
market leader Telcel's domination grows and the consolidation of the sector expected last year will
likely to occur this year, analysts said.
While privately held Pegaso and Unefon are running out of money to expand
coverage and No. 2 player Iusacell (NYSE:CEL - news) struggles to shift its
strategy, Telcel, the main unit of America Movil (NYSE:AMX - news) added 2
million new users in the last three months of 2001, its best quarter ever.
Analysts said it is very possible Spain's Telefonica , which has mobile telephone
operations in northern Mexico, will buy another operator this year, bringing
deep pockets to compete against Telcel. Such a buy was expected last year, but
talks with both Pegaso and Unefon got stuck on price.
``The waiting has been an advantage for Telefonica because the other
companies are needing the money more and more and valuations have gone
down in the last year,'' said Stefaan Peeters, an analyst with the Accival
brokerage in Mexico City.
Patrick Grenham of Salomon Smith Barney said in a recent report that, as small
competitors look for equity capital, they will run into difficulties, ``as investors
near the crunch time, it could force some to exit the business and sell out. This could be Telefonica's next opportunity to enter the market.''
But if Telefonica buys a smaller operator, it will take a while before it can challenge Telcel, Grenham said.
A spokesperson at Telefonica Moviles Mexico said the company ended December with 1.2 million clients in the regions in northern Mexico where it operates and hopes to have 2 million by the end of 2002. Although he would not comment on negotiations, he said the company, ``hopes to become a national operator soon.''
UNBEATABLE TELCEL
Telcel, part of the business empire of Carlos Slim, ended 2001 with 17 million subscribers, or some 77 percent of the market, which closed the year at about 22 million. Telcel's parent company, America Movil was spun off from Slim's Telefonos de Mexico (Telmex) (NYSE:TMX - news) in late 2000.
Mexico's cellphone market exploded in 1999 after the country went to a calling party pays system. There are now more cellphones than traditional lines and many people buy cheap mobiles and use them for incoming calls, costing them nothing.
While many global wireless companies are in a slump, on the back of Telcel growth, America Movil has become one of the
best-performing wireless telecommunications stocks in the world, analysts say.
Telcel, which has nationwide coverage, expects to add 3.5 million new subscribers this year, slower growth than last year as the company works off a bigger base.
Grenham told Reuters that as Telcel begins its change to GSM technology and adds data services over mobile telephones, its service will improve, making it even tougher for competitors. GSM or Global System for Mobile Communications is the world's most popular mobile telephone standard.
COMPETITORS LAG
Telcel's biggest competitor, Grupo Iusacell, which is 39.4 percent owned by U.S. telephone giant Verizon Communications (NYSE:VZ - news) and 34.5 percent by British company Vodafone Group Plc (quote from Yahoo! UK & Ireland: VOD.L)(NYSE:VOD - news), is lagging far behind. The company had 1.7 million customers as of October.
And analysts say they are still waiting for the company to revive growth after it changed strategy in 2001, away from contract or post-paid clients, and to prepaid
Contract clients are more profitable and Iusacell previously focused on these higher-quality clients. But the company found it could not compete with the huge growth of all the other firms, who focus on prepaid clients.
``We still need to see the results of the change in strategy,'' Peeters said.
``Iusacell faces the biggest challenge since it missed out on the industry's high growth rate of the last two years, while going through a slow restructuring process that has shown financial results, but still has to prove being operationally effective,'' said Felipe Gonzalez, a research analyst with The Yankee Group in Mexico City.
Another competitor, Pegaso, has spent $1.8 billion to build a nationwide system, but has not had enough money to make its coverage as complete as Telcel's. Running low on investment money, the company got very close to striking a deal last year with Spain's Telefonica, but the talks broke down over price. In recent months Pegaso has cut jobs in an efficiency drive.
Meanwhile, the company's vendor financing deal with Qualcomm Inc. (NasdaqNM:QCOM - news) is in trouble. Qualcomm has written off the debt Pegaso owes and said in November it is trying to sell its Pegaso stake. U.S. firms Leap Wireless International (NasdaqNM:LWIN - news) and Sprint Corp. PCS Group (NYSE:FON - news) also have stakes in Pegaso.
A Pegaso spokeswoman told Reuters the company had 940,000 subscribers at the end of January, compared with 550,000 at the end of 2000 and with 791,000 at the end of October 2001.
Another Telcel competitor long rumored to be in talks with potential international buyers is Unefon, a venture started by Mexican broadcaster TV Azteca (NYSE:TZA - news), aimed at low-end consumers with cheap per-minute rates.
Unefon ended 2001 with 825,000 subscribers, up from 156,000 at the end of 2000, a source at the company said. |
