NII Bets $3 Billion on Turnaround Starting in Slim’s Turf
NII Holdings Inc. (NIHD), the Latin American mobile-phone carrier whose shares have declined 64 percent this year, is anchoring its turnaround on a $3 billion plan to compete better against the world’s richest person on his home turf.
NII is set to announce today that it will begin service tomorrow on its 3G, or third-generation, mobile-phone network in Mexico, giving smartphone users a new option in a market where Carlos Slim’s America Movil (AMXL) SAB dominates. NII, which is based in Reston, Virginia, and operates under the Nextel brand, will initially offer 3G plans in 34 cities, said Gustavo Cantu, vice president of the company’s Mexican unit.
With the new network, NII can offer more advanced phones and services such as faster video downloads to encourage subscribers to spend more and keep them from switching to its bigger rival. NII, which carved out a niche in Latin America by offering a walkie-talkie service to business clients, is seeking to persuade investors it can reverse declines in Mexican customer spending and loyalty.
“If they’re able to participate in the data market, they should be able to grow revenue,” said Kevin Smithen, an analyst at Macquarie Securities USA Inc. in New York. “Expectations are low on this name, so that’s a really important thing.”
NII, a former unit of Nextel Communications Inc. (S), won a government auction of mobile-phone airwaves in 2010 to get the capacity for the network, bidding $14.2 million. The company will pay 18.3 billion pesos ($1.42 billion) over 20 years for government licensing fees and has pledged to invest about $1.5 billion in the network over five years.
The new service will use a technology called HSPA+ that can offer download speeds of as much as 21 megabits a second, Cantu said yesterday in a phone interview. The network’s first phase includes the largest metropolitan areas in the country, such as Mexico City, Guadalajara, Monterrey, Puebla and Cancun.
The company will sell 3G phones and laptop cards. The handsets will include those for the walkie-talkie service, known as push-to-talk, with the ability to communicate with devices using NII’s old network and its new one, Cantu said.
“There are a lot of users that we haven’t been able to offer high-speed data to in the past,” he said. “We haven’t had the technology and the range of services and devices that we have now.”
NII is the smallest of Mexico’s four mobile-phone carriers, with about 4 percent of wireless subscribers. America Movil, based in Mexico City, has 71 percent. Madrid-based Telefonica SA (TEF), which has operated in Mexico for a decade, has 20 percent of users. Grupo Iusacell SA, controlled by billionaire Ricardo Salinas and broadcaster Grupo Televisa SAB (TV), has 5 percent.
Since NII hasn’t been able to offer a full range of wireless services before, Mexico’s phone regulators consider the company a new entrant in the market, which allowed it to get its 3G airwaves at a lower price than competitors in the 2010 auction. That doesn’t mean it represents a significant competitive threat to America Movil, since its push-to-talk service tends to attract a small segment of business users who can afford higher prices, Smithen said.
An America Movil official, who asked not to be named under company policy, declined to comment.
Mexico is NII’s second-biggest market behind Brazil, with 3.8 million subscribers at the end of June. Mexican sales dropped 7.8 percent in the first half of this year to $1.07 billion, while operating profit shrank 43 percent to $137 million as the company cut prices to hold on to users. The average Mexican customer’s bill shrank 19 percent from a year earlier to $39 a month in the three months ended June.
NII cut its 2012 profit and sales forecasts in August after missing analysts’ expectations for net income for the seventh straight quarter. The company, which also operates in Argentina, Peru and Chile, has struggled with higher customer turnover as users defect to competitors offering faster download speeds and more popular handsets. Churn, a measure of turnover, rose to 2.3 percent last quarter from 1.71 percent a year earlier.
After hitting a nine-year low of $5.93 on Aug. 29, the shares have rebounded, climbing 28 percent. The shares fell 3.2 percent to $7.61 at the close in New York. Chief Executive Officer Steve Dussek buoyed investor optimism in the company’s turnaround last week by boosting his stake by 12 percent to almost 400,000 shares, including unvested, restricted stock.
A smooth start to NII’s Mexican service would help reassure investors after previous 3G network debuts in Peru and Chile were plagued by outages and a lack of handset supply, said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore. Shareholders will view the Mexico network’s performance as an indicator of how NII will fare when it starts offering 3G service in Brazil later this year, he said.
“The fact that this is coming on schedule, with the timing they laid out since the beginning of the year, is positive,” King, who advises buying the shares, said yesterday in a phone interview. “It should give people confidence from a technology standpoint that they’re on the right path.”
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