THE NEW YORK TIMES
November 23, 2002
Big Mexican Cellphone Company Moves Into Brazil
By ELISABETH MALKIN
http://www.nytimes.com/2002/11/23/business/worldbusiness/23CELL.html?todaysh
eadlines

MEXICO CITY, Nov. 22 - Domination of its rapidly growing home market has
made América Móvil the largest wireless telephone company in Latin America.
Now it is charging into Brazil, where it faces much fiercer competition. 
América Móvil won an auction on Tuesday for three mobile phone licenses in
Brazil, including one covering the most prized market, metropolitan São
Paulo, with a $120 million bid. Adding the three licenses to its patchy
existing network in Brazil will allow América Móvil, controlled by the
Mexican billionaire Carlos Slim Helú, to offer service in most of the
country, the continent's largest, and to compete with services owned by
deep-pocketed European rivals that already have extensive geographic
coverage.
Together, Brazil and Mexico represent more than three-fifths of the Latin
American wireless phone market. With nearly an 80 percent share already in
its hands in Mexico, América Móvil has been looking to make its mark in
Brazil, and it spent some $570 million there in the first half of the year. 
How the expansion fares will be an important test for Daniel Hajj, the chief
executive and Mr. Slim's son-in-law. In Mexico, the only rival with the cash
and expertise to offer a significant challenge is Telefónica Móviles of
Spain, a distant No. 2, with 2.2 million subscribers to América Móvil's 19.4
million. But in Brazil, América Móvil is the challenger, and as many as four
major providers contest each of the 10 service regions.
Telefónica Móviles, in a new joint venture with Portugal Telecom, is the
overall leader in Brazil with 13 million subscribers. Telecom Italia Movil
is in second place, with about five million customers. América Móvil has
almost the same number, but Telecom Italia Movil offers a more sophisticated
technology throughout the country. The European-owned companies are spending
heavily to compete in Latin America despite the recent weakness of the local
currencies. 
All the players are after the same prize that América Móvil executives see
in Brazil: immense growth potential.
"If you look at the percentage of people in Latin America who are younger
than 15 years old, it's more than double what it is in Europe," said Carlos
García Moreno, América Móvil's chief financial officer, in an interview at
the company's modest headquarters in an industrial district of Mexico City.
"So the demographics help. It's a game of penetration in an expanding
universe, which isn't what you have in Europe or the United States." 
Some 100 million Latin Americans now have mobile telephones, according to
Pyramid Research, a consulting firm in Cambridge, Mass. The figure is
expected to grow to 165 million by 2007, meaning that one person in three
will have a mobile phone in five years' time. Right now the proportions are
one in four in Mexico and one in six in Brazil, Mr. García Moreno said. 
Latin America contrasts sharply with the major developed economies, where
growth in wireless phone service has slowed markedly and companies are
retrenching after overinvesting wildly in new licenses and new digital
services in the late 1990's. The technology proved slow to meet expectations
and even slower to generate interest among consumers, while prices for
existing services were beaten down by intensifying competitive pressures. 
That bubble never reached Latin America, where more than half the population
lives in poverty and for many people, cellphones are their first phones. 
"In this part of the world, voice alone will support many more years of
growth," Mr. García Moreno said. 
Even so, as cellphone service has grown from a toy for the elite into a
necessity for the masses, the amount of revenue to be had from each
subscriber has plummeted from $61 a month in 1998 to only $17 a month now,
according to Leslie Arathoon of Pyramid Research. 
Economic growth and rising incomes will stem the fall in revenue per
subscriber, analysts say. In Latin America, wireless data service will
remain a niche application for the wealthy, Ms. Arathoon said, but basic
voice service and simple extras like voice mail and text messaging will
encourage more phone use among the majority.
To sidestep the credit problems associated with serving a low-income
population, Latin American mobile phone operators offer service using
prepaid cards similar to long-distance calling cards, good for a set number
of minutes of calling. The plans are popular with customers, who like having
careful control over the amount they spend on the phone. Telcel, América
Móvil's Mexican operation, pioneered the use of prepaid cards in 1996, and
they quickly caught on elsewhere.
Telcel began life as a unit of Teléfonos de Mexico, known as Telmex, the
dominant Mexican land-line telephone company, which Mr. Slim has controlled
for more than a decade. Telmex combined Telcel with Telmex's operations
outside Mexico and spun them off as América Móvil at the end of 2000.
Besides Mexico and Brazil, the company has wireless operations in Colombia,
Ecuador and Guatemala, and a license to begin operating in Nicaragua. 
In part because it was assigned none of Telmex's debts in the spinoff,
América Móvil has been hugely profitable so far. The company posted $1.9
billion in net income on revenue of $4 billion for the first nine months of
2002. Sales grew 27.9 percent from the comparable period in 2001.
But some analysts say it will have trouble matching that record in Brazil.
In Mexico, they say, the company's astute marketing and rigorous cost
controls have been augmented by an ingredient that will be hard to replicate
quickly elsewhere: Mr. Slim's wide and longstanding political contacts. It
has nothing like that kind of power in Brazil, a more heavily regulated
market where it got its first toehold only two years ago.
It will also have to invest hundreds of millions of dollars to update its
existing operations and build out its network in the territory covered by
the new licenses. To finance that, it has had to borrow, and its debts now
total $3.8 billion.
"It's a highly competitive market, and they're starting in the back of the
pack," said Stephen H. Graham, a telecommunications analyst at UBS Warburg
in Rio de Janeiro. "They need to spend the money, focus, upgrade the
technology and unify the brand." 

************************************************************************************
Distributed through Cyber-Society-Live [CSL]: CSL is a moderated discussion
list made up of people who are interested in the interdisciplinary academic
study of Cyber Society in all its manifestations.To join the list please visit:
http://www.jiscmail.ac.uk/lists/cyber-society-live.html
*************************************************************************************