As per recent Reuters report, China Telecom Corp. Ltd. (CHA), the third-largest telecom carrier of China, is mulling over a possible investment opportunity in Mexico.
The company is eyeing to invest in the upcoming state-owned mobile network project in Mexico which is valued at an astounding $10 billion. Although China Telecom refused a direct comment on the matter, it did state that management is looking for a suitable investment opportunity in Mexico.
The government of Mexico has undertaken this massive mobile network project to instil competition in the highly monopolistic telecom industry. Last year, the Mexican government had reformed its telecommunications sector to curb the monopolistic power enjoyed by the incumbent America Movil SAB (AMX).
The company’s wireline division, Telmex, currently controls around 80% of the Mexican market, whereas its wireless division, Telcel, holds about a 70% market share. The Mexican regulator is aiming to restrict America Movil’s market share within 50%.
Meanwhile, the Mexican government has decided to complete the vendor selection process for the state-owned mobile network project by mid-2015. In Sep 2014, a government spokesperson revealed that Ericsson LM (ERIC) and Alcatel-Lucent SA (ALU) have formed a consortium and submitted bid for this project.
Recently, Reuters reported that China Telecom is seeking a Mexican partner to form a consortium to take part in the mobile broadband project. Toward this end, the company secured several billion dollars of financing form Chinese state-controlled banks.
Mexico is the largest economy in the Latin America region with a growing middle class population eager to spend more on high-speed wireless networks for facilitating the use of smartphones and tablets. Also the wireless penetration rate is relatively lower in this country.
Thus, weighing such positives, an investment in that nation may bode well for China Telecom while diversifying its revenue stream. At present, the company carries a Zacks Rank #4 (Sell).
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