Telefonica Mexico to Triple Its Share of Industry’s Revenue

Telefonica SA’s Mexican unit, the nation’s second-largest phone company, wants to triple its share of the industry’s wireless revenue, in part by selling more smartphones and Wi-Fi services and targeting small businesses.

The company, which began operating in Mexico in 2001, currently accounts for 12 percent of the wireless market’s revenue, leaving plenty of room for growth, said Francisco Gil Diaz, president of Telefonica Mexico.

“That’s an extremely low share,” he said in an interview yesterday in New York. “We have to increase that share to at least 30 percent in the next few years.”

The move would escalate competition with America Movil SAB, the phone company controlled by billionaire Carlos Slim. America Movil accounts for about 70 percent of mobile-phone subscribers, leaving Telefonica Mexico with about 20 percent -- though legislation passed this month that may rein in Slim’s dominance. On a revenue basis, the disparity is even greater, putting pressure on Telefonica to wring more money from customers.

One way to do that is by selling more smartphones, which encourage customers to use more data by downloading apps, surfing the Web and watching videos. Telefonica Mexico also is bringing Wi-Fi services to buildings in big cities.

“We have to increase presence in revenue and that means increasing our share of smartphones and data offerings,” Gil Diaz said. “That’s where the market is going and that’s where the revenue is.”

‘Greatest Opportunity’

Telefonica Mexico, which at the end of March had 20.5 million landline, wireless and data subscribers, sees small and mid-size businesses as “perhaps the greatest opportunity,” Gil Diaz said.

The market has been “controlled by the incumbent,” he said, alluding to America Movil.

Since it began operations, Telefonica Mexico has invested $13 billion to expand coverage of its wireless network in the country, Latin America’s second-biggest economy, Gil Diaz said.

Mexico’s new telecommunications and media law, which was signed on June 10, will bring additional opportunities, he said. It strengthens regulation of phone and broadcasting industries and encourages outside investment in the market to boost competition.

The legislation is “truly a historic change that will alter forever the way the telecom sector in Mexico functions,” Gil Diaz said. “It will do better for the competitors and more important for the consumers.”

Regulatory Shift

Still, the changes probably won’t prod Telefonica Mexico into making any big acquisitions or asset sales, Gil Diaz said. The company has all the infrastructure it needs to expand its market share in Mexico, he said.

“As far as Mexico is concerned, we are not selling or buying anything right now,” he said.

Latin America represented 51 percent of Telefonica’s 14.1 billion euros ($18.4 billion) in revenue in the first quarter, according to data compiled by Bloomberg. Brazil this year became the biggest single market for Madrid-based Telefonica, the parent company of Sao Paulo-based Telefonica Brasil SA.

“With higher growth rates and low penetration versus other Latam countries, Mexican mobile industry has potential upside in the following years,” JPMorgan Chase & Co. analysts Nur Cristiani and Gabriel Lozano said in an April report about the outlook for the nation’s main economic sectors.

Telefonica shares rose 2.8 percent to 9.94 euros today in Madrid, the biggest one-day increase since April 10, and have declined 2.4 percent this year.

Before it's here, it's on the Bloomberg Terminal.