DOING BUSINESS IN MEXICO : Bell Atlantic to Buy Up to 42% of Cellular Phone Firm Iusacell : Telecommunications: The move puts the East Coast’s largest cellular provider in the midst of Mexico’s wireless phone wars.
Bell Atlantic Corp. agreed Monday to pay as much as $1 billion for up to 42% of Grupo Iusacell, a major Mexican cellular telephone company.
The move will put Bell Atlantic, the largest cellular telephone company on the East Coast, into the middle of Mexico’s wireless telephone wars and is the latest example of surging international interest in the expanding Mexican telecommunications market.
AT&T;, Southwestern Bell, Northern Telecom Ltd. and other companies have joined Paris-based Alcatel and Sweden’s LM Ericsson in competing for telecommunications contracts and investments since the Mexican government privatized phone service two years ago in an attempt to drag its antiquated telecommunications system into the modern era.
The alliance with Bell Atlantic is Iusacell’s first step in a frontal attack on Telefonos de Mexico, the former government monopoly that was sold to an investor group including San Antonio-based Southwestern Bell.
Armed with Bell Atlantic’s investment and proceeds from an anticipated stock offering, Iusacell plans to step up its competition with Telmex by using a 36-year-old radiotelephony license to offer basic service on non-cellular wireless telephones, said Austin Beutner, a consultant to Iusacell.
The service could be available in the next 12 to 18 months, he said.
Bell Atlantic stock fell $2 on Monday to close at $59.375 on the New York Stock Exchange in what traders said was profit taking. Also, the companies said that for the first several years, the deal is likely to have a slightly negative effect on Bell Atlantic’s earnings per share.
Meanwhile, despite the Bell Atlantic threat, Telmex shares jumped $1.375 to $51.75 on the NYSE, tracking a strong rally in the Mexican market, where the Bolsa index jumped 40.14 points to 1,905.62, its first close above 1,900 since Sept. 10.
Nevertheless, Iusacell is counting on customer frustration with delays of up to six months in obtaining a traditional Telmex telephone--an important factor in the growth of the company’s cellular business--to provide a client base for the new wireless enterprise.
“Iusacell is in a position to provide telecommunications services to an underserved national market,” Vice Chairman Carlos Peralta said in a statement. “Mexico currently has fewer than eight lines per 100 people.”
Scarce lines and unreliable public phones have kept Iusacell’s cellular business booming since the company received the first government concession in 1989.
With just under 90,000 subscribers, Iusacell has about 38% of the cellular market in metropolitan Mexico City, said Amelia Maccoun, an analyst who follows Telmex at Santa Monica-based D.A. Campbell Co., a securities firm. Telmex’s cellular subsidiary, the only nationwide operator, still dominates Mexican cellular services.
Nationwide, Mexico has about 350,000 cellular telephone subscribers.
Competition for cellular business is cutthroat by Mexican standards. Both companies have grabbed the attention of potential customers by employing well-known actresses and soccer coaches to bash their rivals in only slightly veiled references.
Initially, Bell Atlantic will invest $520 million in a 23% stake in Iusacell. Purchase of the additional shares will be subject to unspecified conditions.
Bell Atlantic will appoint seven of Iusacell’s 15 directors and three senior officers who will be involved in the company’s day-to-day operations.
Iusacell may also raise additional money by selling another 10% of the company’s shares, probably to investors on the Mexican Stock Exchange and international markets. Until that offering, officials of the closely held company are unwilling to provide information about sales or profit.
“This investment is consistent with Bell Atlantic’s strategy of building and owning full-service networks in important markets in the U.S. and worldwide,” said Lawrence T. Babbio Jr., chairman of Bell Atlantic Enterprises International Inc. “It also represents a significant commitment to Mexico and a steppingstone to other opportunities in Latin America.”
Iusacell owns interests in telephone companies in Ecuador and Colombia.
TRC Telecommunications Research predicts that the Latin American telecommunications equipment market will grow from $32 billion in 1990 to $59 billion in 1995. Mexico’s equipment purchases are expected to total about $5 billion in 1995, according to the research firm.
