Nextel Mexico’s Decline Forces Tough Decisions

NII Holdings Inc., a wireless carrier that operates under the Nextel brand in Latin America, is faltering in its attempt to turn a walkie-talkie service into a viable competitor to Mexico’s mobile-phone giants, making it a potential target or partner for a rival.

NII expects to lose about 650,000 Mexican subscribers this year, or almost a fifth of its total, even after investing $1.5 billion to upgrade its network and introduce fancier smartphones. Its Nextel Mexico business hasn’t been able to match the prices and service plans that America Movil SAB and Telefonica SA are offering in the country, NII’s biggest market after Brazil, according to Barclays Plc.

The company is trying to adapt the once-popular Nextel service -- known for its instant voice connections and chirping sound -- to a country that increasingly wants iPhone-style smartphones. Profit margins have narrowed and NII pulled its top Mexico executive out of the country this month, installing him in a new job at its headquarters. That’s raised questions about the future of the business, said Walt Piecyk, a BTIG LLC analyst.

“Mexico has been struggling,” Piecyk, who is based in New York, said in a phone interview. “I think the company would be open to anything at this point.”

Nextel Mexico cut more than 1,000 employees this month, according to Cristina Ruiz de Velasco, the unit’s vice president of public affairs and communications. That’s more than 10 percent of NII’s Mexican staff. The company also is trimming 25 percent of the employees at its headquarters in Reston, Virginia.

Taking Steps

“We’re taking a series of steps so we can be more efficient, optimize resources and align costs,” Ruiz de Velasco said in a phone interview.

NII shares rose less than 1 percent to $2.58 at the close in New York. The stock has lost almost two-thirds of its value this year and is down more than 97 percent from a 2007 high.

Even with the bleak outlook, Nextel Mexico may make sense as an acquisition target or a potential partner, according to Christopher King, an analyst with Stifel Nicolaus & Co. Telefonica or Grupo Televisa SAB could use the company to add phone customers, helping them challenge America Movil’s dominance in the wireless market, he said. America Movil, controlled by billionaire Carlos Slim, serves about 70 percent of the nation’s mobile-phone customers.

Post-Paid Users

Nextel Mexico owns spectrum and has about 24 percent of the country’s post-paid market, according to Barclays. In that segment, customers sign up for monthly subscriptions, rather than less reliable pay-as-you-go plans. Unlike the U.S., Mexico is mostly a prepaid market.

“This is a company that has so many valuable assets,” King said. “But clearly they’re late from a competitive standpoint. At some point, they’re going to need some type of partner there over the course of the next year or two.”

Press officials for America Movil and Telefonica declined to comment, while a representative of Televisa didn’t reply to a request for comment.

Nextel Mexico has an enterprise value of about $2.5 billion, including debt, Jonathan Dann, a Barclays analyst, said in a report last month. Its spectrum is estimated to be worth $288 million, according to his analysis.

The company would be willing to analyze offers for either, Ruiz de Velasco said.

For now, Nextel Mexico is working to upgrade its technology. Earlier this year, it transitioned to phones with software that works over mobile Internet connections, moving away from an aging network technology called IDEN.

Sprint Shutdown

That system, which Sprint Corp. also phased out this year in the U.S., was once cherished for allowing quick bursts of conversation. In recent years, it became outdated and didn’t mesh with modern networks.

The company’s job cuts also could hurt its reputation and spook business customers, Piecyk said.

In October, the company said it would miss its forecast for 2013 profit by 30 percent or more, due to weaker-than-predicted results and the depreciation of Latin American currencies. NII’s John McMahon was named the interim president of Nextel Mexico last week, replacing Peter Foyo, who was transferred as executive vice president of business development at the company’s headquarters. Foyo’s departure was part of a strategic shift, Ruiz de Velasco said.

The company has about $5.7 billion in long-term debt, dwarfing its $1.6 billion in cash and equivalents. That’s reflected in its total market value of $443 million.

The situation could prompt some hard decisions in Mexico, Piecyk said.

“No one wants to be in a position where they are forced to sell,” he said. “In the meantime, they’re hoping to continue to build the network and turn around the decline in subscriber growth.”

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