Alestra SA is considering a second attempt to challenge Carlos Slim for Mexican home-phone customers after the government’s move to rein in the billionaire’s dominance in the market.
Chief Financial Officer Bernardo Garcia said last year’s telecommunications reform law piqued the interest of Alestra, which sees an opportunity to revisit the residential market years after narrowing its focus to corporate phone clients. Alestra, owned by Alfa SAB, is interested in a merger with home-phone provider Axtel SAB as a way to gain consumer users, though no talks are currently under way, said a person with knowledge of the matter.
The return of Alestra would be a new headache for Slim’s America Movil SAB (AMXL), which is already busy fending off cable companies and other phone carriers from poaching its customers. Alestra’s interest was renewed in part because of the government’s plan to create a public network by the end of this year, providing more capacity for Slim’s competitors to offer Internet services.
“All the bases are set so that it becomes a last-mile network that could perfectly combine with our growth plan,” Garcia said in an interview last week. “If it allows us to return to a market with smaller broadband needs, such as small businesses or even home businesses, it could be a natural expansion for us.”
Axtel (AXTELCPO) rose 4.5 percent to 5.34 pesos at the close in Mexico City trading after Bloomberg reported on the deliberations, giving the company a market value of about $504 million. Alfa gained 1.6 percent to 37.38 pesos.
The government’s network, which will be open to both public and private investors, must be fully operational by 2018, according to Mexico’s telecommunications overhaul. Lawmakers are now working to pass a separate piece of legislation that fills in details for the implementation of last year’s bill.
Alestra, a former unit of the U.S. long-distance giant then called AT&T Corp., entered the residential phone market in 2000 and failed to put a dent in the market share of America Movil’s Telmex landline unit. Slim’s company has held about 80 percent of Mexico’s telephone lines for the past decade. In 2011, AT&T sold its stake in Alestra to co-investor Alfa, which also owns processed-food and chemical businesses.
“We have been fighting for almost 20 years,” Alfa Chief Executive Officer Alvaro Fernandez Garza told reporters last week in Queretaro, Mexico, where he was opening a new Alestra data center. “It forced this company to focus on businesses. But the important part is that we are allowed to compete in other sectors as well.”
Alestra, based in the northern city of San Pedro Garza Garcia, may consider acquisitions as it studies options for growth in Mexico, Garcia said. Last year the company invested $150 million, including the purchase of Gtel Comunicaciones SAPI, a smaller Mexican company with a similar business model, and the construction of the 780 million-peso ($59 million) data center in Queretaro.
Investors are speculating that a bigger deal is in the offing. Shares of Axtel, also based in San Pedro Garza Garcia, have climbed as much as 45 percent since mid-December on speculation that it’s a possible target, according to a research note last month by Grupo Financiero Ve Por Mas.
Axtel is Mexico’s second-largest landline phone company, with about 935,000 lines in service, and has focused much more on residential customers, offering fiber-optic lines with video and high-speed Internet in large cities such as Monterrey and Mexico City.
Alestra and Axtel have met several times to discuss a purchase, and while Alestra remains interested, it has no imminent plans to buy the company, said the person with knowledge of the negotiations.
Alestra’s interest grew after Axtel’s 2006 purchase of Avantel SA, a long-distance carrier with an extensive network, said the person, who asked not to be identified because the information is confidential. Discussions have broken down over price, the person said. An Axtel press official had no immediate comment.
“Avantel and Alestra practically started at the same time,” said Julio Zetina, an analyst at Vector Casa de Bolsa SA. “Alestra started out as a fiber-optic network for long-distance calls, which migrated to value-added, data services. It’s the same case for Avantel -- it has a fiber-optic network that could be interesting, as well as an important portfolio for corporate clients.”
While it contemplates new investments, Alestra has kept its net debt at a ratio of about 1.0 to earnings. (ALFAA) That helped garner the company ratings upgrades from Standard & Poor’s, Fitch and Moody’s Investors Service.
Earnings before interest, tax, depreciation and amortization rose 21 percent to 517 million pesos in the third quarter. Alfa is expected to report fourth-quarter results tomorrow after the market closes.
“It’s perfectly acceptable to speed up our growth through acquisitions, as long as we find something that takes us down the road map we’ve drawn out for ourselves,” Garcia said. “Alestra can be at peace knowing it has the support to continue growing, continue investing, and to acquire new clients or business alliances.”
To contact the reporter on this story: Patricia Laya in Mexico City at email@example.com
To contact the editor responsible for this story: Nick Turner at firstname.lastname@example.org