- NII selling its Peru holdings could help fund investments to become a major cellular competitor in Brazil and Mexico.
- Mexico and Brazil are extremely competitive markets; still, the long-running wireless demand boom could help lift NII’s prospects.
On April 4, regional Latin America wireless specialist Nextel International (NII) announced that it was selling off its wholly owned Nextel Peru subsidiary to Chile’s incumbent provider Empresa Nacional de Telecomunicaciones (Entel). The purchase price is expected to be US$400 million when the transaction completes in H2 2013. NII will continue to compete with its existing wireless services in Mexico, Brazil, Argentina and Chile.
The Nextel brand name is familiar to people across the Americas as a provider of specialized mobile radio (SMR) supporting push to talk (PTT) via Motorola iDEN gear. The technology is used by businesses such as construction, vehicle dispatch, possibly government and emergency communications, and other field workforce management environments. In North America the Nextel brand gradually faded after Sprint merged with the company in 2005. In Latin America, NII continued to operate independently and the company’s path entered cellular services. NII planned its move into 3G W-CDMA deployments starting in 2009. It won spectrum slices ranging from 20 Mhz to 60 MHz in 1.7/1.9/2.1 GHz bands, in addition to its existing 800 MHz SMR operations.
But national cellular networks, sales/support infrastructure and customer acquisition are all extremely capital-intensive. NII had $6 billion revenues in 2012, and CapEx alone was $1.5 billion in 2012; NII expects to spend another $1 billion in capital costs in 2013. Meanwhile, announced 4G plans from competitors including regional heavyweights Telefónica and América Móvil adds to the sense of urgency for NII to shore up its foundation in cellular services while it has the chance.
In the bigger picture, NII’s biggest opportunities lie with national cellular services in Brazil and Mexico. These are by far NII’s largest existing markets, and carry the most upside potential. To put it into context, in 2012 Brazil generated almost 50% of NII’s revenues and Mexico about 35%; Argentina generated a little over 10%, Peru a little over 5% and Chile less than 1%. Selling operations in Peru is justified if it helps finance NII’s play to establish its cellular play in its primary markets. By the same logic, NII could look for buyers of its assets and operations in Argentina and Chile, if it means allocating more needed resources toward winning in the key markets of Brazil and Mexico.
NII had built out its W-CDMA network in Peru in 2012: With the sale, it never really had a chance to develop 3G cellular in that market. However, NII also built out cellular infrastructure across Mexico and launched services in 2012, and launched some of its coverage areas in Brazil in 2012 with buildout continuing into 2013. NII faces difficult competitive conditions in both Mexico and Brazil. The long-running boom of wireless services in Latin America should be a tailwind helping the company, if it can keep pace with this stiff competition from exponentially larger and deep-pocketed wireless competitors.