Telefonica Gains Mexico Momentum After Decades of Battling Slim

  • Carrier topped America Movil, AT&T in first-quarter user gains
  • Telefonica `slightly more optimistic' than market: Alvarez

Telefonica SA is finally making strides in Mexico, where it had struggled to increase its wireless market share past 20 percent in the face of a giant competitor, billionaire Carlos Slim’s America Movil SAB.

The Madrid-based operator added 760,000 subscribers in Mexico in the first quarter, while AT&T Inc. gained more than half a million and America Movil lost about 200,000. Telefonica, which for years had asked for measures to cut into Slim’s 70 percent market share, got its wish in 2014 when new Mexican laws required America Movil to cut fees it charged competitors to connect to its network -- that is, as long as it serves more than half the wireless market.

“The regulation will benefit companies like Telefonica and AT&T” until America Movil significantly reduces its market share, Andres Bolumburu, a Madrid-based analyst at Banco de Sabadell SA, said in an interview. “In the next years, they should be able to gain sizable ground” in Mexico.

Even as competition intensifies in Mexico, following AT&T’s acquisition of Nextel and Grupo Iusacell SA, the fee reductions and user additions helped push Telefonica’s sales there up 8.6 percent to 409 million euros ($470 million) in the first quarter, the company reported last month.

Telefonica has operated in Mexico -- the world’s biggest-Spanish-speaking country -- since 2001, yet gets just 3.8 of its sales there. That’s less than it gets each from Peru, Chile or Argentina, which have much smaller populations.

‘Positive Momentum’

“We have, for the first time, some continuous positive momentum in contracts in Mexico,” Telefonica Chairman Jose Maria Alvarez-Pallete said on a call with investors last week. “We see some positive trends on our own business that allow us to be slightly more optimistic than the overall trend of the market.”

America Movil has criticized Telefonica for seeking to expand its subscriber base in Mexico through antitrust measures rather than capital investments. Telefonica now has about 22 percent of Mexico’s wireless market while Slim’s carrier has 68 percent, according to the latest data from telecommunications regulator IFT.

A Telefonica Mexico press official didn’t respond to phone and e-mail requests for comment.

Telefonica’s cheapest postpaid plan, at 199 pesos ($11.20) a month, offers the same unlimited calls and text messages and more than twice the data of a comparably priced plan from America Movil’s Telcel brand. Prices for mobile services dropped 17 percent industrywide last year, according to IFT data.

Currency Impact

Yet, even as more customers are choosing Telefonica as their wireless provider, a 5 percent depreciation of the Mexican peso against the euro in the first quarter weighed on results.

Francisco Gil Diaz, Telefonica’s executive president for Mexico and Central America, has frequently called for continuing the industry’s asymmetric rules, in which America Movil is singled out for fee reductions. The regulations are set to be reviewed by the IFT in November.

The measures targeting America Movil should be expanded, Gerardo Soria, president of Mexico City-based IDET, a consumer rights group, said in a phone interview.

“There are many things that haven’t been done and that could still be done to improve the market,” Soria said.

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