Verizon and Vodafone cut Mexican mobile losses

16 Jun 2003

Verizon Communications [NYSE: VZ] and Vodafone [NYSE: VOD], two of the world’s largest telecos, have admitted defeat in their attempts to crack the Mexican cellular market, by walking away from troubled operator Grupo Iusacell [NYSE: CEL]. Vodafone holds 34.5% of the company, while Verizon has a controlling 39.4% stake, both of which will be sold for just USD10 million to Movil Access, a wholly owned subsidiary of local paging company Biper [MX: MOVILAB]. Biper also controls the country’s fourth largest cellco Unefon [MX: UNEFONA], fuelling rumours that the pair will be merged to provide a more effective rival to the market’s runaway leader, the América Móvil [NYSE: AMX] subsidiary TelCel.

However, before any consolidation can take place Biper must first address the escalating debt crippling the two cellcos. Between them Verizon and Vodafone ploughed more than USD2 billion into Iusacell over the last decade with only an 8% share of the market in return. The operator’s net loss for 2002 near-quadrupled year-on-year to MXN2.08 billion (USD201 million), whilst its predominantly pre-paid subscriber base grew just 2% in the twelve months to the end of March 2003. The cellco is currently around USD811 million in debt and this month missed a payment on USD350 million of bonds. Both Verizon and Vodafone have opted to cut their losses, clearly believing that Iusacell will not become the market leader they had once predicted, with a Verizon spokesman apportioning blame to the country’s regulators, claiming that they have failed to create ‘a level playing field’. However, it is unclear as to whether Biper can oversee a turnaround in Iusacell’s fortunes, especially given the precarious financial state of Unefon, which is itself struggling to restructure around USD350 million in debt.

CIT's Datafile of Latin American Telecommunications