re: Verizon in Latin America
Good article but it is probably 45 days old minimum.
>> A Change Of Heart
Francis MacDermot
Mobile Communications International
Issue 89, 01 March 2002
In the past, Verizon International had everything going for it yet failed to take advantage of the opportunities to expand its market share. However, things are now beginning to change.
As operators go, Verizon International has been a disappointing performer in the Latin American wireless market. It has, of course, considerable advantages. It is part of a company which turns over $67 billion; it is a veteran of the region, having entered its main markets in the early 1990s; it has comparatively low debt levels; and it has had strong market positions - number one in the Dominican Republic and number two in Mexico, Puerto Rico and Venezuela.
But on the other hand it appears to have squandered its chances. Unlike rivals, such as Telefonica and BellSouth, it has failed to take advantage of market opportunities to expand its regional coverage and remains reliant on five countries. This has left it vulnerable to shocks of the kind that is now afflicting it in Argentina and may yet hit Venezuela. It appears to have been slow to exploit synergies between its operators. And it has also surrendered market share: in Venezuela a traditional share of about 45 per cent has quickly been eroded to little more than 30 per cent by new GSM entrants; in Puerto Rico, Verizon's subsidiary appears not to be capturing any new additions; in Mexico a 22 per cent share in 1999 has been reduced to less than ten per cent today.
Some of these troubles can, of course, be ascribed to the merger of GTE and Bell Atlantic that gave birth to Verizon. Such was the scale of this undertaking that it was perhaps inevitable that the company would take its eye off the international ball for a while. But the merger is two years old and Verizon does finally look as though it will take its Latin American investments in hand.
Loosely, its plan seems to be to concentrate on "areas that have important ties to the US," says Steven Marcus, a spokesman for the international division. More precisely it sees an opportunity in serving US Hispanics (a group numbering 35.3 million at the 2000 census) both at home and in their native countries. "There is a strong community and affinity of interests between the US and Latin America and the Caribbean," states Marcus.
Four of the five properties fit the bill well. Puerto Rico is often thought of as a 51st US state. The Dominican Republic, the Caribbean's second biggest country, has long provided immigrant workers to the US. Mexico is, of course, one of the US's biggest trading partners and there is an important interchange of people and ideas with the southern states of the US. All three countries are important holiday destinations for North Americans. And Venezuela, perhaps because of its oil wealth, is far more oriented towards the US than any other South American country. But Argentina seems out on a limb, having neither strong trading nor strong cultural ties with the US or any other of the Verizon properties.
One sign that Verizon means to be more than a rich absentee landlord came with a commitment to CDMA. Having announced that its TDMA networks in Puerto Rico and Venezuela will be overlaid with CDMA, the company can now look forward to operating a common platform in all its markets with one core infrastructure supplier: Lucent Technologies. "The move is a critically important step," says Marcus. "It will enable us to roll out 2.5G and 3.G products across our territories, giving us efficiencies and economies of scale."
Interestingly, the decision to overlay CDMA at Movilnet in Venezuela, an operator with 2.5 million subscribers, was by no means a foregone conclusion, even though "Verizon was pushing for it," says Guillermo Olaizola, the company's president. The option was chosen after "a thorough evaluation of alternatives" which included waiting for UMTS or using the untried GSM 850. CDMA was preferred to GSM not only because of its spectral efficiency and superior voice capacity but also because it could be overlaid immediately.
"We did not have any time frame or idea of the cost of new spectrum," says Olaizola. The overlay should be operational by the middle of the year and, by the year end, 300,000 to 400,000 customers should be using it, he claims.
Another indication that Verizon has woken from its post-merger siesta is that it is increasing its ownership stakes. This year it chose to exercise an option to acquire a further 12 per cent equity in its Puerto Rican holding company, TELPRI, bringing its total stake to 52 per cent. And last year it increased its stake in Mexico's Iusacell while bringing Vodafone - its partner in Verizon Wireless - into the subsidiary with an investment of $973 million. Together the two now own 74 per cent of Iusacell. Their investment has coincided with a new burst of growth. First came the acquisition of Portatel, an operator in the south, for $80 million. Although it covers some of Mexico's poorest states, Portatel is important for coverage and Cancun, a major destination for US holidaymakers and conference-goers, lies in its area of operation. But Iusacell has also started to expand its network in the north using long-held PCS spectrum. Both moves, and a new drive to attract prepay users should help Iusacell staunch the loss of market share.
With Iusacell pushing for nationwide coverage, Verizon can paint a pretty picture of its properties round the Gulf of Mexico. The four units potentially cover about 140 million people with an all-CDMA network. This makes for an important roaming area and Verizon is trying to introduce seamless roaming between the affiliates and the US: it is available in Puerto Rico and Mexico and on the cards in the Dominican Republic. If the Verizon Wireless brand can be stuck on all these properties (as it has been in Puerto Rico) they could start to form a highly complementary extension to the US and Canadian operation. A further way to add value to the investments will be to get companies to share knowledge and platforms around. One sign that this is happening is the adoption of Movilnet's voice and WAP portal, tun-tun.com in the Dominican Republic and Puerto Rico.
The big question with Verizon International is why Argentina? The investment, made by GTE in 1994, would have made sense if it had been followed by investments in Chile, Uruguay or Brazil. But Verizon has thus far stayed away from opportunities, leaving its Argentine subsidiary, CTI, adrift in a region dominated by Telefonica, BellSouth and TIM. In the current situation, it must be an investment Verizon rues doubly.
It owns 60 per cent of CTI, an operator with about 1.5 million subscribers at the end of 2001. Having bought a PCS licence and built a network to cover Buenos Aires in the last two years, the company has also built up net debt of $1030 million according to ING Barings, an investment bank.
This is twice that of its only competitor with a stand-alone wireless business, Movicom BellSouth. The trouble is that all but about $100 million of CTI's debts are held outside the country and therefore cannot be converted to pesos (as locally-held debts can be). With quarterly revenues of $145 million now worth only $72 million, CTI is evidently up against a wall and ING reckons that it is 95 per cent certain to default on its debts.
Against a backdrop of rapidly rising unemployment and sharp economic contraction, the operator faces severe operational difficulties too. One problem will be to contain its own bad debt. With 60 per cent of all users being subscription customers, according to estimates from EMC, this may mean migrating large numbers of customers to prepay. A second problem will be to find ways of raising tariffs in a market where the government and media are ready to jump on the first vestiges of inflation.
CTI can find some hope in its situation. The economic crisis will almost certainly curtail all investments in network expansion, but of the four competitors, CTI probably has the greatest existing coverage. Its strong position outside Buenos Aires could also serve it well if, as expected, the countryside eventually starts to benefit from some export-led growth.
Yet even so CTI will still look out of place in Verizon's portfolio. But selling it may be difficult: "Tell me of an investor who wants to come and invest in Argentina today," said the president of CTI in a recent interview. Verizon may have to stick with it for a while to come. <<
- Eric - |
