Date:01/08/11

Mexico's smaller mobile operators welcome lower termination rates

A more competitive landscape in Mexico's mobile phone market after regulators slashed interconnection rates had varying effects in the second quarter on rivals to the market leader, America Movil SAB de CV unit Telcel, and they agreed the reduction will benefit them in the long run.Telecommunications regulator Cofetel cut the amount that mobile operators can charge for completing calls on their networks to 39 Mexican cents, or about 3 U.S. cents, a minute from around 95 Mexican cents, and eliminated the practice of rounding up bills after the first minute.The reduction is negative for cash flows of operators with a high percentage of prepaid customers-such as Telcel and the local unit of Spain's Telefonica SA-many of whom only receive calls on their cellphones.While in the short term the reduction in the termination rates has a negative impact on the company's financial results, in the medium and long term it will cause a substantial change in the dynamics of the Mexican market, which will enhance the competitive position of nondominant carriers," Telefonica said Thursday in its second-quarter earnings report. Telefonica added 510,000 net mobile subscribers in Mexico during the second quarter to 20.6 million, and said its market share rose 0.4 percentage point from a year earlier to 21.5%.
Nextel Mexico, a unit of Virginia-based NII Holdings Inc., which has mostly postpaid customers, benefited financially from the lower termination rates in the second quarter.NII Chief Executive Steve Dussek said in a conference call that the company is encouraged by the Cofetel decision, which would improve the company's competitive position. Nextel Mexico missed its subscriber goal in Mexico in the quarter, adding 59,000 to just over 3.5 million. Dussek attributed that mostly to economic conditions and changes being made in its distribution channels, but said the growth trend was picking up again toward the end of the second quarter and has continued into the third quarter. Telcel, which added 1.3 million subscribers in the second quarter to 67 million, was negatively affected by the lower interconnection rates, which it's applying under protest. America Movil Chief Executive Daniel Hajj Aboumrad said earlier this month that he expects the sudden steep drop in termination rates to discourage investment in marginal rural areas. Mexico's other mobile phone operator, Grupo Iusacell, had more than 4 million subscribers when it agreed in April to sell a 50% stake to Grupo Televisa SA de CV for $1.6 billion. Televisa officials also welcomed the lower rates in a conference call earlier this month.

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