Spanish Telecom Firm to Acquire Majority Stake in Wireless Company in Mexico

[Rich]

Friday March 8 12:00am
The Dallas Morning News
Copyright 2002 Knight Ridder/Tribune Business News
Copyright 2002 The Dallas Morning News


MEXICO CITY--Spain's Telefonica SA said Thursday that it would acquire a majority stake in Mexico's Pegaso PCS, to become the No. 2 service provider in Mexico's ballooning wireless communications industry.
The purchase sets the stage for increased competition in the $ 5.5 billion wireless business, which has become one of the fastest-growing components of the country's overall telecom sector.

Telefonica will boost efforts to take on market leader America Movil SA, which dominates the business with about 17 million customers, analysts said. Telefonica will have more than 2 million after its acquisition of Pegaso.

"The Spaniards' strategy has been to go where cellular development has been very strong, in the north and northwest," said Daniel Lund, the president of Mund Americas, a telecom research firm in Mexico City. "Now they're coming down into the rest of Mexico. They're very good at moving into different markets."

American depositary receipts of Telefonica Moviles SA, the company's mobile telephony arm, rose 2.3 percent to $ 7 in Thursday trading. America Movil's ADRs fell 3.9 percent to $ 19.06.

According to a statement Thursday by Madrid-based Telefonica, the Spanish company will pay an undisclosed amount for 65 percent of Pegaso. Cesar Alierta, Telefonica's chief executive officer, was scheduled to provide more details at a Friday press conference.

The purchase will extend Telefonica's customer base throughout Mexico. In October 2000, Telefonica paid $ 1.8 billion for Motorola Inc.'s wireless assets in northern Mexico.

Pegaso founder Alejandor Burillo, a former executive at Grupo Televisa SA, owns a majority of Pegaso's shares. Other shareholders include Sprint Corp. and Leap Wireless International Inc.

Pegaso is one of several companies that have added customers as Mexico's wireless industry has exploded.

The country has gone from 1 million mobile lines in 1996 to about 21 million at the end of 2001. Global companies from Nextel Communications Inc. to Vodafone Group Plc have flocked to Mexico in recent years.

The gains stemmed in large part from Mexico's adoption of a "caller pays" regulatory scheme, in which mobile phone users pay nothing to receive calls. And mobile phones went from a status symbol of the elite to a way for millions of people to get their first phone line.

The growth has increased America Movil's market dominance. Telecom tycoon Carlos Slim Helu -- the president of fixed-line giant Telefonos de Mexico SA -- controls the company. San Antonio-based SBC Communications Inc. also owns a stake.

Arturo Elias Ayub, a top Telmex executive and close adviser to Mr. Slim, predicted America Movil would remain the market leader for the foreseeable future.

But he acknowledged that Telefonica's purchase of Pegaso would strengthen its position in Mexico. Telefonica already ranks among Latin America's largest telecom companies, with wireless and fixed-line operations throughout South America.

"Telefonica is an important competitor," Mr. Elias Ayub said. "They have experience in Mexico, and this makes them stronger."

[Gman]

I saw this story also and have been wondering if Sprint users will be able to roam onto Telefonica's network as they can on Pegaso's. Sprint owns 25 percent of Pegaso and if they are selling their stake to Telfonica (haven't heard either way) they might be able to include an expanded roaming agreement in the deal. Telefonica has much more coverage than Pegaso.

G.