June 19, 2001, 3:59 PM — The growing Mexican cellular market took on a different look Tuesday, as Telefonica SA completed its purchase of four cellular operating companies from Motorola Inc., according to a statement released by Motorola. The deal for Baja Cellular, Movitel, Norcel, and Cedetel was announced last October for US$1.8 billion worth of Telefonica stock, and ownership of the four companies will be transferred to Telefonica's subsidiary, Telefonica Moviles SA.
The acquisition puts Telefonica third in the Mexican cellular market, behind Telcel's 10.5 million subscribers and Iusacell's 1.7 million subscribers, according to a report released by the Yankee Group in May of 2001. Total cellular usage in Mexico is expected to grow to 33.5 million users, or 33 percent of the total population by 2006, as estimated by the Yankee Group.
Telefonica dominates the worldwide market for Spanish telecommunication services, but lacked a presence among Mexico's estimated 15 million wireless subscribers except for a minority stake in Portatel, a carrier on the Yucatan Peninsula. The completion of the deal gives the former state monopoly a strong foothold in the northern regions of Mexico, where the highest percentage of residents use cellular phones, according to the report.
Motorola has undergone trying times in the first half of 2001, reporting its first quarterly loss in 15 years for the first quarter, and slashing jobs worldwide. The company cited increasing conflicts between its customers and operating companies when announcing the Mexican deal in October, saying that the maturation of the worldwide market for wireless communications has caused its operating companies to directly compete with its customers for the same business.
However, Telefonica sees an opportunity in Mexico, albeit one with decreasing growth rates projected by the Yankee Group report. Baja Cellular, Movitel, Norcel, and Cedetel have a limited coverage area, covering only certain regions in northern Mexico. But additional revenues are seen in roaming charges from the neighboring U.S, and the four carriers enjoy strong brand recognition. Telefonica does not plan on rebranding the companies, according to the report.
The key to an extended presence in Mexico is the region containing the capital, Mexico City, home to the greatest amount of people and economic activity. The Yankee Group said Telefonica is considering the acquisition of Unefon, which has a national CDMA (code-division multiple access) network, or the purchase of PCS licenses from Midicel, which is currently in negotiations over its failure to pay for the licenses, as ways of breaking into the lucrative Mexico City area.