The Mexican telecommunications market, consisting of wireless, fixed-line, broadcast TV, and satellite TV, is facing increasing competition. Predominantly controlled by a few companies, each and every sub segment of this market currently witnessed virtually monopolistic character. However, during last one year, the internal conflict intensified as one time foes turned out to be friends and vice versa.
Yesterday, Grupo Televisa S.A. (TV), the largest media and pay-TV company in the Spanish speaking world, has decided to purchase 50% stake of currently bankrupt Grupo Iusacell, a small wireless operator of Mexico. Televisa will pay a total of $ 1.6 billion of which $ 37.5 million will be in cash and the remaining $ 1.57 billion in convertible debt. This was Televisa’s first attempt in the lucrative Mexican wireless market after its failed venture in late 2010 with NII Holdings Inc. (NIHD) controlled Nextel Mexico.
In February 2010, Televisa signed an agreement to acquire a 30% stake of Nextel Mexico for approximately $ 1.44 billion with an option to further raise its share to 37.5%. In August 17, 2010, the Mexican wireless regulator CoFeTel approved the auction bid submitted by the Televisa-Nextel venture for a 30 MHz nationwide block in the 1.7 GHz band of wireless frequency. The bid raised several eyebrows as theTelevisa-Nextel bid size was for just $ 14 million.
Even after the government’s decision to award the radio spectrum, the Televisa-Nextel venture faced more than 70 lawsuits in several Mexican courts and some of the courts granted injunctions to its competitors. Interestingly, Iusacell, with whom Televisa at present wants to form a wireless business, argued that it will be unfair to allow a large firm like Televisa to enter the mobile market for such a small amount of investment. Televisa controls 70% share of the Mexican pay-TV and satellite TV market. Consequently, on October 18, 2010, both Televisa and Nextel decided to terminate their joint venture.
In the meantime, bitter clash of telecom supremacy occurs between the two largest cable operators and telecom operators in Mexico. Grupo Iusacell is a part of Grupo Salinas, which also controls, TV Azteca. After Televisa, TV Azteca is the second largest pay-TV operator in Mexico, controlling around 30% market share. These two cable operators accused America Movil S.A.B. de C.V. (AMX) and Telefonos de Mexico S.A.B. (TMX), which is popularly known as Telmex for higher interconnection charges.
Incidentally, both America Movil and Telmex are controlled by Carlos Slim, currently the richest person of the world according to the Forbes magazine. America Movil controls 71% of Mexican wireless market and Telmex controls 80% of Mexican wireline market. These two companies, in turn, accused both Televisa and TV Azteca for pushing up advertising rate and eventually withdraw advertisement from their respective networks.
Telmex is trying hard to get government approval to enter into the cable TV market. This is a counter move by Carlos Slim to enter into its rival’s market. However, so far the company failed to get the order, which would enable Carlos Slim to offer triple-play bundled services of voice, video, and data.
In a major twist to ongoing telecom drama, Telmex yesterday announced that the company has made a contract to provide the infrastructure for upcoming 3G wireless broadband network of Nextel Mexico. Just a year ago, the Televisa-Nextel venture was seen as a potential threat to America Movil and Telmex. At present, Nextel and Telmex have become friends.
Nevertheless, we believe a foothold in the lucrative Mexican wireless market will open up a strong revenue stream for Televisa. Iusacell currently controls just around 5% of the Mexican wireless market, way behind 71% of American Movil and 21% of Telefonica S.A.(TEF). However, the company’s existing network covers 70% of Mexico and currently, it has approximately 4 million subscribers.
In our view, Televisa is trying to create an innovative converged communication platform by adding Iusacell’s wireless and broadband services to its existing portfolio of pay TV services that provides market leading content and multiple distribution channels. This new venture will offer converged quadruple play services consisting of wireless, TV, broadband data, and fixed line voice. However, a big question remains whether the Televisa-Iusacell deal will get Mexican regulatory approval.
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