June 13, 2012 / 8:11 PM / 7 years ago

Iusacell, Telefonica to challenge Mexico's Slim

MEXICO CITY (Reuters) - Iusacell and Spain’s Telefonica said on Wednesday they have reached a deal to share their infrastructure in Mexico as they seek to mount a stronger challenge to Carlos Slim’s America Movil (AMXL.MX) in the telecommunications market.

The agreement, similar to the one between Telefonica’s O2 and Vodafone in Britain last week , calls for sharing everything from antennas and hot spots to fiber optics as both companies get ready to offer fourth-generation services in the country.

They will start testing Long-Term Evolution, or LTE - a standard for wireless communication of high-speed data - in some cities in Mexico this year, although a fully-fledged launch is not expected until 2013.

The five-year deal will help Telefonica SA (TEF.MC) reach large cities where Iusacell has better coverage. The Spanish company in return will allow Iusacell to tap its network in more rural areas.

Juan Abellan, Telefonica’s representative in Mexico, said at a news conference that the company has about 22 percent of the mobile market in the country. Iusacell has less than 5 percent. The companies declined to give details on roaming costs or rates once the deal kicks in fully.

The combination could put more pressure on Slim’s America Movil, which has about 70 percent of the cellphone market in Mexico.

“There is an elephant in the room,” said Iusacell Chief Executive Adrian Steckel, as he requested that regulators and the government work on new rules to curb Slim’s power.

Local loop unbundling, a regulatory process that allows new telecom operators to access the facilities of the dominant company, is at the heart of the demands of Slim’s rivals.

Mexico remains the only member of the Organisation for Economic Co-operation and Development (OECD) that does not have unbundling in place.

In January, the organization said Mexicans have been overcharged $13.4 billion a year for phone and Internet services as the industry dominated by Slim gouges customers and keeps the economy from growing.

LONG STRUGGLE

Telefonica’s decision to turn to Iusacell caps more than 10 years in Mexico, where it has invested some $13 billion in deploying a network from scratch. The results, however, have been far from stellar.

Despite selling one of every 5 mobile phones in Mexico, the Spanish company gets only about 12 percent of what Mexicans spend on mobile services.

“International experience shows that Telefonica has an open policy in terms of striking deals with other operators in the market,” said a report from Signals Telecom. “The roaming agreement with Iusacell won’t be the first.”

Telefonica previously hosted other operators on its networks in Chile, Colombia, and Ecuador.

The Spanish company plans to invest around $500 million in Mexico this year, while Iusacell sees capital expenditures of between $500 million and $600 million through December 2013.

Iusacell’s deal with Telefonica takes place as the Mexican cellphone company waits to learn whether regulators approved the sale of half of the company to broadcaster Televisa TLVACPO.MX.

Televisa bid $1.6 billion for half of Iusacell in 2011, but the transaction was initially blocked in a 3-to-2 vote in January.

Mexico’s Federal Competition Commission killed the plan because of concerns about an alliance between Televisa’s boss, Emilio Azcarraga, and fellow TV mogul Ricardo Salinas, who owns No. 2 broadcaster TV Azteca (AZTECACPO.MX), as well as Iusacell.

After Televisa and Iusacell requested a review of the transaction, regulators voted a second time last Wednesday. The decision will not be made public until later this week.

It was unclear whether the Telefonica deal would extend to Televisa if the broadcaster’s bid for Iusacell is approved.

Additional reporting by Tomas Sarmiento; editing by Simon Gardner and Andre Grenon

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