NII Holdings sees good growth, Mexico sweet spot

NEW YORK (Reuters) - Latin America wireless operator NII Holdings Inc. (NIHD.O) finds Brazil exciting but expects Mexico will remain its sweet spot, with a potential customer base of 20 million to 22 million users.

Brazil only accounted for 15 percent of NII's operating cash flow in the past 12 months, with Mexico taking the lion's share at 70 percent, Chairman and Chief Executive Steven Shindler said at the Reuters Latin American Investment Summit.

NII's client base of 3.5 million subscribers across Latin America should double in the next three years, Shindler said in a conference call from company headquarters in Reston, Virginia, on Friday. Penetration in Mexico is expected to almost double.

NII, which does not break out financial data on a country-by-country basis, expects to add 1.2 million subscribers in 2007. The company operates in Argentine, Brazil, Mexico and Peru under the Nextel brand, and recently started up in Chile.

"Mexico clearly is our largest market, and you should expect that the lion's share of what we produce, a significant percentage ... to come from the Mexican market," he said.

NII, the dominant company in Latin America in the niche area of providing services for businesses, remains on schedule to finish the build-out of its network by mid-year, Shindler said. Once that is done, Brazil should become a "more meaningful" contributor of operating cash, he said.

"All we've done the last few years is put a foundation in place and now the exciting part of the growth kicks in," he said.

As for Colombia, where analysts have speculated about NII's plans, Shindler said the company talks to Avantel, a local operator that uses the same Iden wireless technology used by NII, from time to time. It would be open to a roaming agreement that would allowing NII's clients to use Avantel's network.

But Shindler said NII does not have to be the owner or operator in every country where it has a business.

"I don't want to take away the focus of what we think is absolutely the biggest opportunity that's right in front of us with 43 million potential subscribers to our service and only having 3.5 million of those signed up today," he said.

"We don't need to go into any other country in order to have an incredible growth."

Given the current environment, the company has no plans for Venezuela, said Tim Perrott, an NII spokesman.

Shindler said the company can ride out any economic soft spot, except in the case of a severe downturn, because 95 percent of its users are businesses that need the service.

Shindler also said he wasn't worried by Mexican plans to allow customers to switch carriers and retain their telephone numbers. In the United States, NII's former affiliate Nextel Communications benefited from the change.

Christopher King, an analyst at Stifel Nicolaus, has a price target of $100 on NII, which has been his top pick among U.S. telephone operators for several years. NII shares, which trade at about $72, have tripled since the beginning of 2005.

"One of the things that a lot investors underestimate is this company's ability to continue to grow the subscriber base," said King. He estimates the company's free cash flow will reach an annual $1.4 billion in 2010.

(Additional reporting by Tomas Sarmiento in Mexico City)