The machinations between Dutch incumbent KPN and Mexican giant America Movil continue, as the latter seeks to boost its stake to almost 28% and gain a European foothold.
KPN has rejected the bid by the Carlos Slim-run unit to increase its shareholding to 27.7%, saying this undervalues the company, though America Movil has been steadily accumulating shares on the market anyway. At the end of last week its stake rose from 8.7% to 20.9%. KPN maintains: ‘The current and potential future value of KPN is not reflected in the unsolicited partial offer by America Movil.’
Meanwhile, KPN plans to sell off its Belgian unit, Base, beginning the process next month, to improve its credit profile and financial flexibility. This could be too late to prevent its Latin American predator succeeding in its aim, say analysts. The Base decision came a day after talks between KPN and Telefonica, about merging their respective German cellco units, fell apart. The Dutch firm wanted to sell its E-Plus subsidiary to Telefonica to unlock shareholder value and deter investors from accepting America Movil’s offer.
In an analyst call, America Movil’s CFO Carlos Garcia Moreno repeated the firm’s strategy of being a “strategic long term partner” for various European players, often via minority stakes, as it looks for new sources of growth and influence. Although its Latin American home market has far greater subscriber growth potential than Europe, Movil’s huge presence means it is running short of opportunities for M&A or new revenue streams there. However, Latin America, where Movil has 246m mobile customers in 17 countries (plus an MVNO in the US), will remain the core priority, said Moreno. And he admitted to inexperience in Europe, saying: “We’re just arriving. It would be very pretentious for us to say we know everything and can tell them what to do.”
Moreno said the $4.9bn that his firm is spending on the acquisitions, much of it using cash on hand, will push its net debt up to $27.8bn from $22.9bn. Last week the company increased its stake in Telekom Austria to 6.75% and tabled an offer that will lift that to 16% if accepted by shareholders.
There are plenty of poor precedents for carriers who sought to build multinational reach via minority stakes, and firms like DoCoMo and Vodafone have pulled back from such strategies. But with prices low in the eurozone and growth opportunities being squeezed in Latin America, the timing looks good for a European push, and Movil does have a good track record of buying troubled operators at low prices and turning them around.
And some analysts point to the advantage rival Telefonica gains in Latin America, through its experience of service differentiation and user behaviour in its more developed western European markets. Telefonica has leveraged its European experience by introducing application based pricing, a strategy pioneered in Europe, to Colombia. As well as consumer propositions, stakes in Austria, the Netherlands and Germany, and other highly mobile territories in future perhaps, could give America Movil experience and contacts in key new markets like M2M and enterprise. For instance, both Movil and KPN have strategic agreements with Jasper Wireless to provide pan-regional M2M connectivity.
Despite the declining opportunities for Movil to acquire new operators and territories in its native region, that does not mean there is no growth in Latin America ‘ and European services expertise may help it exploit that better. Latin America has made relatively slow progress in mobile broadband, but with some of the barriers set to fall over the next couple of years, the region will have over 50m 4G subscribers by the end of 2017.
This will be a dramatic leap for a market which has been burdened by spectrum caps and the dominance of the two operator giants, which has reduced competition and innovation, according to Cintia Garza, Latin American analyst at Maravedis-Rethink and author of a new regional 4G forecast. The report, entitled ‘4G Latin America Analysis and Forecasts 2012-2017′, says there will be 51m 4G users (mainly LTE, with some surviving WiMAX) in five years’ time.
“With only five small commercial LTE deployments in the region so far, 4G market adoption is rather slow,’ commented Garza. This slow pace will continue for the next two years because of ‘a slow spectrum allocation process, a rather conservative attitude by dominant mobile carriers towards 4G, a low ARPU and the dominance of prepaid in the region’. But after that progress will accelerate as demand for data balloons and 3G networks, which will still dominate mobile broadband, start to come under strain. That, in turn, will put pressure on regulators and operators to act more responsively.
Operators will spend a cumulative total of $13bn on LTE and WiMAX by 2017, but this investment will still be driven by the big two. America Movil and Telef’nica currently control about tw-thirds of the region’s total mobile subscriber base and they will continue to dominate in the LTE era.