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 Technology News | November 2006 
The Race for Numero Uno in Latin Wireless
 Geri Smith - BusinessWeek
| | América Móvil is fighting Telefónica for mobile supremacy in Latin America. But as prices fall, consumers are the ultimate winners. |
For the past five years, two mobile operators have been battling head-on to become the dominant player in Latin America: América Móvil (AMX), controlled by Mexican billionaire Carlos Slim, and Telefónica (TEF) of Spain. Both have spent billions to snap up competitors and expand their networks for hemisphere-wide coverage. So far, América Móvil has the upper hand, with 113.9 million wireless clients to Telefónica's 78.8 million.
But the battle is far from over: Already 319 million Latin Americans, or 56% of the population, have mobile phones, and Pyramid Research Latin America analyst Omar Salvador estimates penetration will reach 79%, or 476 million customers, in five years. Competition for all those new clients will be intense.
The latest skirmish is in Brazil, where the arch-rivals are competing for low-end and high-end customers alike, from the hillside shantytowns of Rio de Janeiro to the executive boardrooms of São Paulo. Brazil is the region's largest mobile-telephone market, with 96.7 million active handsets accounting for nearly one-third of Latin American users.
Focusing Down Market
In Brazil, Telefónica still leads with a 29.8% market share in a joint venture with Portugal Telecom, followed by Telecom Italia with 25%, and América Móvil with 23.2%. But Telefónica's share, which was 34.5% a year ago, is being chipped away, as challengers aggressively market cellular services to lower-income Brazilians.
Now, in a new twist, Telecom Italia says it received in early November an unsolicited offer to buy its Brazil operations, a deal expected to be worth around $8 billion. América Móvil spokeswoman Patricia Ramirez refused comment on reports that América Móvil was making the offer, which would boost its Brazil market share to 47%. "Our position in Brazil is very strong, and while we don't necessarily need to make that kind of investment, we are always open to options if conditions and prices are right," she says.
Even without that acquisition, América Móvil's aggressive growth in Brazil poses a real threat to Telefónica, which saw the Brazilian share of its worldwide revenues fall from 18% to 14.7% over the past year. Telefónica has spent more than $44 billion on acquisitions in Europe and Latin America since 2004 and has said it won't pursue the Telecom Italia deal because it has committed to spending no more than $1.91 billion on acquisitions through 2007. "Even so, Brazil is a highly competitive market, and it's very important to us," says Telefónica spokesman Eduardo Zaldivar.
Seeking the "Triple Play"
Still, Telefónica is focusing on its year-old worldwide efforts to merge its fixed-line and mobile businesses in an effort to win synergies and boost profitability as digital technology allows telephone operators to offer "triple play" services—high-speed Internet access, video on demand, and voice communication—through broadband connections. In Latin America, Telefónica has 24 million fixed-line and 6.6 million Internet access clients.
Telefónica already offers triple play, including limited video content, in Chile, Brazil, Argentina, Peru, and Mexico. And it's buying up satellite TV operators as it waits for telecom regulators in the region to approve rules. "We're focusing our efforts on our technological edge so that we can offer broadband and video services as soon as the region's regulators allow it," says Telefónica's Zaldivar. But so is Telmex, the region's largest fixed-line operator (also owned by Mexico's Slim), which controls Brazil's long-distance operator Embratel. With tens of millions of customers for its fixed-line and Internet access service, mostly in Mexico and Brazil, Telmex is joining with América Móvil to offer services competing with Telefónica.
Focusing on higher-end value-added telecom services in a region where around half the population is poor may be a risky bid, says Pyramid's Salvador. More than 80% of Brazil's mobile-telephone customers use prepaid service—buying cards to recharge their phones—rather than signing monthly contracts. América Móvil's average client uses just 71 minutes of airtime each month, spending around $12.50. Although such revenue can add up, signing up all those customers has an impact on profits as well. "The two big operators have had to become more competitive in pricing to win customers," he says. "They're trying to build economies of scale to decrease their costs, but even as they're doing that, their revenue per subscriber is decreasing."
As América Móvil and Telefónica battle it out, the big winners are Latin American consumers, who have seen the cost of handsets and airtime drop significantly over the past five years. Wireless technology has made it possible for consumers to skip waiting lists for fixed-line installation and go directly to mobile or fixed-wireless phones. "Mobile telephones were considered a luxury, but today, the ice cream salesman on the street has his own cellular phone," says Telefónica's Zaldivar.
Smith is BusinessWeek's Mexico bureau chief. |
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