Despite Skepticism, BellSouth Says International Plans On Track
Dow Jones Online News, Thursday, August 06, 1998 at 12:32
By Craig Karmin, Staff Reporter
NEW YORK -(Dow Jones)- BellSouth Corp. officials insist there is no
change in the company's aggressive approach to Latin America, but some
industry observers are wondering if the dominant U.S. telecommunications
player in the region might be rethinking its international strategy.
Questions were raised after BellSouth's surprising failure to win a
single auction during last week's privatization of a dozen units of
Brazil's phone company, Telecomunicacoes Brasileiras S.A., or Telebras
(TBR).
That poor showing has led some to speculate that Atlanta-based
BellSouth (BLS) may believe it has already spent too much in Latin
America, and in Brazil in particular.
Others wonder if the recent merger agreement between GTE Corp. (GTE)
and Bell Atlantic Corp. (BEL) might be forcing BellSouth to concentrate
on domestic, rather than international, partnerships.
"This is a company whose strategy is subject to change because of
what is going on around it," said Eric Strumingher, an analyst at
PaineWebber Inc.
And as long as BellSouth continues to sit out the domestic merger
wave while its peers link up, analysts say any change in the company's
international partnerships takes on greater significance.
"BellSouth's conservative approach to a U.S. consolidation strategy
underscores the importance that the company be a major player outside
the U.S.," said Scott Wright, a Fahnestock & Co. telecom analyst.
But BellSouth officials are adamant that there is no retrenchment in
the company's pursuit of new business in Latin America.
"None whatsoever," said John Price, a spokesman for BellSouth's
international operations, which includes telecommunication services in
nine Latin American countries, from Nicaragua to Argentina.
"We saw the Telebras auction as part of a larger process that we've
already participated in," he said. "But we're still looking for growth
opportunities."
He noted that if BellSouth missed a chance at the Telebras auction,
the company still has other options in Brazil. Foremost, BellSouth can
bid on the so-called mirror licenses, concessions the government will
grant later this year to compete with the privatized Telebras units.
Brazil plans to sell three local fixed-line services and one
long-distance operation. The deadline for bids is early November.
Another possibility for BellSouth is to take a managerial role in the
fixed-line concession for Tele Norte Leste, the company that covers the
northern and eastern regions of Brazil. That license was won by a team
of two Brazilian companies without telecommunication expertise.
"All signals from them suggest that BellSouth is exceeding forecasts
(in Brazil)," said Simon Flannery, a telecom analyst at J.P. Morgan
Securities Inc. "If I was them, I'd be looking to be a full-service
provider in Sao Paulo."
Some analysts, however, suggest that BellSouth may already have spent
too much money in Brazil, which could explain the company's no-show at
last week's $19 billion Telebras privatization.
Last year, BellSouth led a consortium that spent $2.5 billion for a
cellular license that covered Sao Paulo and the metropolitan area - more
than twice the amount offered by the next highest bidder.
Or, to put it another way, BellSouth paid an eye-catching $144 per
person, making the Sao Paulo license "one of the richest bids in the
history of cellular," according to Raul Katz, chief Latin American
telecom analyst at Booz-Allen & Hamilton Inc.
Katz added that BellSouth spent another $556 million for the rights
to offer cellular in six northeastern states in Brazil.
"I think they're going to be more conservative," Katz said of future
BellSouth investment in Brazil. "The company seems to be saying, 'We
want to see a return first before we spend more capital.' "
Reports in Brazilian newspapers suggest BellSouth was deliberating
about the company's strategy right up to the start of the Telebras
auction.
The daily Folha de Sao Paulo reported that Jose Pio Borges, one of
the privatization program's coordinators, said that just days before the
event, BellSouth asked the Brazilian government to postpone the auction
for two weeks.
The paper also reported that "the absence of North American BellSouth
was the second biggest surprise of the auction," surpassed only by the
success of Spanish- and Portuguese-led consortiums.
That view is shared by many U.S. observers.
"Clearly BellSouth is committed to being a player in Latin America,"
said Fahnestock & Co.'s Wright. "And I'm surprised they didn't bid more
aggressively, even though they've already spent money down there."
Perhaps most surprising was the revelation that BellSouth declined to
even bid on the jewel of the privatization - Telesp, the fixed-line
service for 5.4 million customers in the southern state of Sao Paulo
that many observers expected BellSouth would likely win.
These land-line properties were seen as a compelling strategic fit
with the Sao Paulo cellular license acquired by a BellSouth-led group
last year.
BellSouth points out that it is adding 30,000 wireless customers a
week in Sao Paulo and that the company has already realized more new
Brazilian subscribers than it expected by year's end.
- Craig Karmin; 201-938-2020; craig.karmin@cor.dowjones.com
Copyright (c) 1998 Dow Jones & Company, Inc.
All Rights Reserved. |
