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Telefonica, Iusacell to Share Networks to Fend Off Slim

Telefonica SA (TEF) and Grupo Iusacell SA, trailing Carlos Slim’s America Movil SAB (AMXL) in Mexico’s phone market, will share their networks to challenge the billionaire’s supremacy.

The accord between the second- and third-largest Mexican mobile-phone carriers enables them to use each other’s wireless towers and fiber-optic cables, the companies said yesterday in Mexico City. The five-year arrangement includes roaming agreements across the country, and the companies will collaborate on network expansion.

The alliance helps cut investment costs for Madrid-based Telefonica, which is seeking to reduce 57.1 billion euros ($71.8 billion) in debt after Standard & Poor’s lowered the company’s credit rating last month. It also gives Telefonica access to land-line assets in Mexico that the company has been unable to buy itself because of a cap on foreign ownership.

“With alliances like this, both companies are showing their willingness to invest in Mexico and offer lower prices and better coverage,” Adrian Steckel, chief executive officer of Iusacell, said yesterday at a news conference.

The agreement will enable the companies to “share without halting competition,” Mony de Swaan, president of Mexico’s Federal Telecommunications Commission, said at the news conference. The accord won’t require regulatory approval, he said.

Joint Venture

The move follows Telefonica’s deal last week to form a U.K. network-management joint venture with Vodafone Group Plc. (VOD) Telefonica said last month it’s also exploring the sale of shares in its Latin American businesses and its German unit. Telefonica is considering more network-sharing arrangements like its Mexico and U.K. deals, said Juan Abellan, president of the company’s Mexico unit.

Telefonica rose as much as 1.2 percent to 9.92 euros and was trading up 1.1 percent at 12:31 p.m. in Madrid.

Iusacell, closely held by billionaire Ricardo Salinas, is seeking ways to boost its market share after getting a $1.6 billion investment from broadcaster Grupo Televisa SAB. (TLEVICPO) Mexico City-based Iusacell had 5.4 million mobile-phone subscribers at the end of last year, according to Televisa’s annual report, representing 5.7 percent of the market.

Telefonica has 20 percent of mobile-phone subscribers, and Mexico City-based America Movil has 70 percent.

Convertible Debt

By investing in Iusacell, Televisa received debt convertible into a 50 percent stake in the mobile-phone carrier. The broadcaster hasn’t been able to convert the debt because Mexico’s antitrust agency rejected the agreement in January. The companies are awaiting word from the agency on the appeal of the decision. Steckel declined to comment yesterday on the antitrust case.

Televisa and Telefonica, along with cable-TV carrier Megacable Holdings SAB (MEGACPO), also have a joint venture to operate fiber-optic lines owned by the state-run electricity utility.

Televisa gained 1.4 percent to 55.03 pesos yesterday in Mexico City.

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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