An Analysis of the Latin American Wireless Telecommunications Market Portfolios of Telefonica and America Movil

In response to slowing growth, intensifying competition in their traditional wireless voice, text markets with an eye toward increasing revenues from offering a bundle of mobile and fixed-line voice, data, text, and video services to subscribers, management at Telefonica and America Movil have restructured their companies and reconsidered their internationalization strategies. This paper focuses on the two companies’ Latin American wireless market portfolios, providing background on why these reorganizational and strategic actions were taken. In particular, the paper compares the portfolios with respect to their market attractiveness and competitive positions in 2008 relative to 2002 on both an overall average and degree of variance basis across the markets in the portfolios. The portfolio analysis technique employed in the paper may have wider applicability for formulating corporate strategy. created to hold Telmex shares previously owned by Group Carso (America Movil, 2010a). At the expiration of the tender offer on June 10, 2010 America Movil owned 93.56% of Telmex Internacional’s outstanding shares and 99.44% of CGT’s outstanding shares, giving America Movil almost total control of Telmex Internacional and a large majority of Telmex shares (America Movil, 2010b). Previously, Telefonica, America Movil’s primary competitor in Latin America underwent a reorganization of its own, consolidating its fixed-line and mobile DOI: 10.4018/jitn.2010100104 42 International Journal of Interdisciplinary Telecommunications and Networking, 2(4), 41-59, October-December 2010 Copyright © 2010, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. operations into three geographic regions: Spain, Latin America, and Europe, a region into which it had expanded significantly in 2006. Why have America Movil and Telefonica made these organizational and strategic moves? Deteriorating conditions in their mobile voice and text markets in Latin America have played a large part. The companies face slowing growth, fierce competition, increasing regulatory pressures, and new entrants. However, they also wish to capitalize on high-growth opportunities in wireless data and video. America Movil now can integrate its wireless facilities with the fixed-line facilities of Telmex and Telmex Internacional, enabling America Movil to reduce operating costs and increase revenues by offering bundles of fixed-line and wireless phone, broadband and video services (Parker, 2010). Consolidating its fixed-line and wireless operations enables Telefonica to develop a network specifically for video content so that it can expand video services to the home (Sinclair, 2010). The outlook for broadband and video services in Latin America is optimistic. From 2009 to 2014 the compound annual growth rate in broadband subscribers is expected to be 15%, compared with 6% for wireless subscribers (TeleGeography, 2010). With regard to video services, the number of Pay-TV households in Latin America is expected to grow from 20.8 million in 2008 to 28.5 million in 2013, a 7.4% compound annual growth rate. This compares with a worldwide compound annual growth rate of Pay-TV households from 2008 to 2013 of 4.3% (IDATE, 2010). Revenues from IPTV video services in Latin America, a market in which America Movil and Telefonica now both compete, are expected to grow at a much higher rate, from $14.3 million in 2009 to $521.5 million in 2013, a 145.6% compound annual growth rate (SNL Kagan, 2010). The outlook for traditional wireless voice and text services was much more favorable in September, 2000, when America Movil was established in a spin-off from Telmex. At the time of its establishment America Movil operated in two Latin American markets (Guatemala and Ecuador) besides Mexico, as well as in the U.S, and had plans for further expansion into attractive markets in the region. By 2002 the company had added four more Latin American markets to its portfolio; by 2008 an additional nine. Telefonica, which the Spanish government had begun privatizing in 1987, had a significant presence in Latin America in 2000. By 2002 Telefonica was operating in nine markets in Latin America; by 2008, thirteen Latin American markets. Telecommunications companies can derive benefits from expanding internationally, including: diversification of the companies’ investment portfolios; enhanced leverage over regulators; the provision of seamless services for multinational customers; revenues from the transference of existing management and technical know-how from operations abroad; and cost reductions through volume accumulations across country locations and market segments (Sarkar et al., 1999). With their expansion into Latin America, America Movil and Telefonica became two of the most internationalized mobile telecommunications operators in the world. According to Curwen and Whalley (2006, 2008) at the end of 2003 America Movil and Telefonica ranked fifth and sixth in the world, respectively, among most-internationalized mobile telecommunications operators in terms of the number of proportionate subscribers (i.e., number of subscribers controlled by the operator); At the end of 2005 America Movil and Telefonica had moved up in the rankings: ranking second and fifth, respectively, in the number of proportionate subscribers, and ninth and third, respectively, in the number of countries invested (they had not made the top ten in this category at the end of 2003). Among international mobile operators in Latin America, at the end of 2005 America Movil ranked first in the number of proportionate subscribers and second in the number of countries invested. The rankings were reversed for Telefonica. Mariscal (2005, 2007) has observed that by 2005 the total market participation of America Movil and Telefonica in some countries in Latin America exceeded 90%, a degree of consolidation that policy-makers had not anticipated. 17 more pages are available in the full version of this document, which may be purchased using the "Add to Cart" button on the product's webpage: www.igi-global.com/article/analysis-latin-american-wirelesstelecommunications/49673?camid=4v1 This title is available in InfoSci-Journals, InfoSci-Journal Disciplines Communications and Social Science. Recommend this product to your librarian: www.igi-global.com/e-resources/libraryrecommendation/?id=2