Mexico is a country of stark contradictions and now more than ever, it’s facing a tough phase of uncertainty. In this editorial, we take a closer look at AT&T and its performance, its effects on competition as well as the impact of the economics and international instability on the telecom and tower industries (among others).
AT&T’s Q4 2016 earnings call drew a positive picture of its Mexican operations. According to the company’s CFO John Stephens, the telecom giant has made 4G LTE available to 78mn people, added 1.3mn new wireless subscribers in Q4 and over 3mn throughout the year. The CFO defined Mexico a “remarkable success story” in spite of its challenges, namely “foreign exchange and what happens with the peso.”
For the quarter, the carrier’s international operations are still in red though as a result of the extensive investments being made in Mexico and in other LatAm markets for its DirecTV operations (US$240mn loss vs US$260mn one year earlier).
But competing in the Mexican market isn’t easy and AT&T had to adjust its prices considerably and is currently offering a 6Gb data, voice and text plan (including U.S. coverage) as low as US$25 vs US$80 being charged in the U.S. for a comparable plan. A smart move to gain new subscribers to which Telcel promptly responded with its own US$24 plan.
The merit of driving prices down and opening up to the elimination of fees for calls between Mexico and the U.S. is to be attributed to AT&T. But while AT&T’s efforts in merging and rationalising the Iusacell and Nextel’s networks are commercially paying off, Telcel’s market dominance has been virtually unaffected with the local carrier going from 69% market share in Q1 2014 to 68% in Q4 2016.
In the meantime, the other contrasting force, Movistar, did gain 5% market share over the past two years, but the company is currently dealing with more than twenty different audits for US$1.4bn in unpaid taxes dated back to 2007. A controversy that might jeopardise Movistar’s Mexican performance, especially since the carrier doesn’t have a history of large investments in the country and may need to boost its network to remain competitive.
América Móvil is under Moody’s scrutiny in light of the competitive challenges and reduced growth perspectives in Mexico. But while the company’s financial results as of Q3 2016 did show a 2.4% revenue decline from the year-earlier quarter in Mexico, in Q4 2016 results rose for the first time since Q3 2015 (+0.3%) and the group as a whole is still going strong with positive results in Chile, Argentina and Central America.
Going back to AT&T, the Mexican unit has also seen a change in management this past December as a result of the retirement of AT&T’s Vice-Chairman and CEO of the Business Solutions and International unit Ralph de la Vega, who has been replaced by the then CEO of Mexico Thaddeus Arroyo. Kelly King, formerly in charge of AT&T’s consumer mobile division in several U.S. states, has then been appointed AT&T Mexico’s CEO.
Some of my conversations with tower industry leaders from Mexico lead me to think that doing business in the country isn’t challenging only because of the devaluation of the Peso, the integration of two networks and the stiff competition among carriers but also, and possibly foremost, because of the peculiarity of the country, its culture and differences from the U.S.
If this was just a portion of the problem in 2016, it could be quite a crucial element in this new year, marked since its very beginning by a new wave of political tensions between the U.S. and Mexico. Carlos Slim very rarely hosts press conferences but he felt it was time to do so on January 27, as a consequence of the mounting tensions between the two countries. Slim addressed the nation to stay united against “a risk not seen in 100 years.” The risk of a wall between the U.S. and Mexico. The risk of the Mexican Peso plunging further down against the U.S. Dollar. And the risk of the national economy stalling as a result of this diplomatic crisis. The last thing Mexico needs right now is for its current state of the economy to worsen. And towercos (among others) know this all too well.
While AT&T talks about its Mexican success story as a product of its growth in customer base and 4G LTE achievements, the flip side of the coin is the complete absence of any Build-to-Suit activity. In fact, while initially having assigned some projects - which I haven’t been able to quantify - to various firms including some pure BTS players as well as its long standing U.S. partner American Tower, lately AT&T has apparently withdrawn its BTS plans in their entirety and is not building sites, at least not through third-parties.
while AT&T talks about its Mexican success story as a result of its growth in customer base and 4G LTE achievements, the flip side of the coin is the complete absence of any Build-to-Suit activity
A vacuum that no one could really predict and that is bound to cause considerable troubles to those BTS firms that entered Mexico mainly to serve AT&T with its deployment needs (and we know there are quite a few of them). If and when AT&T decides to revive its BTS plans no one can predict, and I am inclined to believe that the Mexican market is likely to stay as it is for a while whilst stakeholders assess the effect of the current political situation on the economy, before committing to huge investments.
The Trump-impact on Mexico’s GDP has been very limited in Q4 2016 but the real test is yet to come since the U.S. has just started discussing and advancing some of the policies that could have an effect on the Mexican economy. And in an ironic twist, one of the biggest losers could be AT&T since Mexico isn’t new to boycotting international companies in the midst of diplomatic crises.
And while Mexico, its political stability and overall economy are being tested, one of the biggest winners of all is Telesites, whose co-location activity as well as new builds have been progressing at a steady pace - as proven by its ever-expanding portfolio which grew over 17% YoY (12,555 as of Q4 2015 vs 14,708 as of Q4 2016).
Additionally, Telesites is one of a few firms listed on the Mexican Stock Exchange (Bolsa Mexicana de Valores) who are virtually immune to any U.S. protectionism, according to Mexican newspaper Expansión. And this is due to various factors including its lack of debts in U.S. Dollars as well as its revenue being generated only in Mexico and without direct connection with the U.S. In fact, Telesites’ market cap is growing; since November 8, its stock price has registered an increase of 10.2%. However, as noted by Expansión, Telesites deals with infrastructure which isn’t necessarily imported from the United States but is paid for in U.S. Dollars, and the strengthening of the currency against the Mexican Pesos is going to have a direct impact on the balance sheet of the company.
The Mexican Peso is suffering but according to Gerardo Rodriguez, a portfolio manager at Blackrock, who recently spoke with Forbes “What you have in the peso price right now is all based on a bad outlook for Mexico. But I think that once we get a proper framework on U.S. and Mexico trade relations, you will see the market be more supportive because the underlying situation in Mexico’s economy is still quite strong.” And we all hope this is the case!
TowerXchange will keep reporting on the evolution of the Mexican telecom market and will discuss it in full details with experts from leading companies including Telesites, American Tower, Mexico Tower Partners and Torrecom at the 4th annual TowerXchange Meetup Americas, taking place in Boca Raton, 7-8 June 2017. Click here for more info!
