After years of being dominated by America Movil, the rapidly growing Mexican market is being turned upside-down, with the government preparing to launch a state-run mobile network, and to push the incumbent to reduce its telecoms holdings.
The government said it had received its first bid to build and run the new national mobile network, which will support new service providers on a wholesale basis and introduce new competition for Movil, whose cellular arm currently has 69% market share.
While some hope it will support new entrants, other commentators believe it will mainly be harnessed by existing minority cellcos, such as Telefonica Movistar and Iusacell, to extend their coverage and capacity at lower cost than rolling out their own equipment everywhere.
The first proposal is reported to come from a consortium led by Ericsson and Alcatel-Lucent, which would presumably share the build-out of the network. The government estimates the roll-out will cost $10bn over 10 years and the consortium is still looking for funding, and an industrial partner, according to the reports. The network would be based on LTE in the 700MHz band.
Huawei is also said to have held several meetings with officials about a possible bid. Virtually excluded from major infrastructure projects in the US, the Chinese firm is said to be taking a keen interest in expansion in Latin America.
The winning bid should be selected by the middle of next year, though state-run wholesale networks have a poor record in terms of time to market, and often become mired in political wrangling between operators and regulators. That pattern has been seen, for instance, in Russia, where a project for a shared LTE network ended with the provider, Yota, being acquired by just one of the cellcos, MegaFon; and in Kenya, where market leader Safaricom has opposed the spectrum choices for a state-backed shared LTE project.
America Movil will face greater competition on several fronts, as it is being pushed to offload some of its assets in Mexico to reduce its dominance and satisfy new competition regulations. Earlier this month, AT&T was reported to be a frontrunner to buy the networks that Movil plans to put up for sale in states along Mexico’s east coast. The price would be about $17.5bn, say sources, and other candidates include SoftBank, China Mobile and Canada’s Bell Mobility.
“If we weren’t looking at Mexico and Latin America more broadly and thinking about what opportunities there were to further shareholder returns down there, and begin to diversify our revenue sources, I think we’d be asleep at the wheel. So yeah, we are intrigued by it,” AT&T’s chief strategy officer Stankey said at the time.
Japan’s Softbank is certainly having similar thoughts about expanding south of the border, having secured its new power base in the US by acquiring majority ownership of Sprint. The carrier is said to be considering an investment in Grupo Iusacell and to be in the advanced stages of reviewing the Mexican firm’s assets. As Bloomberg noted, Iusacell’s owner Ricardo Salinas said earlier this month he would soon reveal a “world class strategic partner”, and the company already has a roaming deal with Softbank.
Softbank will be in an improved position to extend its territory by acquisition, having won a windfall from the US IPO of Chinese ecommerce giant Alibaba, which raised a record $25bn. Softbank, which is the largest shareholder in Alibaba, forecast a gain of about $4.6bn as a result.
In July, Iusacell was reported to be in merger talks with Telefonica, Mexico’s second mobile operator, which is keen to take advantage of the regulatory shake-up to improve its position. However, Salinas was said to be ready to block a Telefonica deal (he owns 50% of Iusacell). Such a deal would unite the country’s second and third largest mobile carriers and the combined entity would have 27m subscribers in total, but still only 27% mobile share, far behind America Movil with 71m connections. It is not clear it would appeal to regulators either.
At the time, Salinas wrote on Twitter that Telefonica “wishes to buy Grupo Salinas’s stake in Iusacell. It is not for sale. I am optimistic about Iusacell’s future. We will keep investing to grow.” But he may be taking a softer stance towards Softbank.
The other 50% owner of Iusacell is broadcaster Grupo Televisa, which is also reportedly in its own talks with Telefonica. Reuters says that partnership options could include Televisa launching an MVNO service on the Spanish firm’s network, to a bundling/cross-marketing agreement for Televisa’s cable activities, to a fully fledged quad play joint venture. The most ambitious option would probably appeal to regulators because it would provide a stronger competitor to America Movil’s fixed/mobile/TV offerings – whereas they would have been more hostile to a Telefonica/Iusacell tie-up, which would reduce the number of cellcos.
A deal with Telefonica, in any form, would fill the mobile gap which will be left once Televisa concludes its $717m sale of its half of Iusacell to Salinas. This has been agreed regardless of Salinas’s future plans for the unit.