OPERATOR SERIES: Axtel to punch above its weight in Mexico

By
Wednesday, November 30, 2016

Even though it only operates in Mexico, where it has a small market share, Axtel is about to embark on a landmark project that could transform the local telecom industry.

Axtel is a minority shareholder, along with Megacable, in the Altán consortium, which in mid-November won the contract to build the wholesale 4G shared network known as Red Compartida. The US$7bn project will have to provide coverage to at least 85% of the country's population five years from now.

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The network – which will begin operations at end-March 2018 – is to be designed, installed and operated by the Morgan Stanley-led consortium for 20 years, with the possibility of extending it another 20 years.

Headed by CEO Tomás Milmo Santos (pictured), Axtel offers fixed-line services that include telephony, broadband, internet and TV.

In early 2016, it merged its operations with telco Alestra, which is focused on corporate consumers and has five datacenters and an extensive fiber optic network, as well as cloud and consultancy services. As a result, Monterrey-based conglomerate Alfa, the parent company of Alestra, obtained a controlling 51% share of Axtel, which became its subsidiary. 

The merger sought to create economies of scale and financial synergies, with pro forma annual revenue of nearly US$900mn from the combined base of corporate and residential clients.

Axtel has continued to operate as a holding company listed on the Mexican stock exchange. In the third quarter, it reported revenues of 3.83bn pesos (US$206mn), up 63% year-on-year. Gross profit grew 55% year-on-year to nearly 3bn pesos, while Ebitda increased 11% from the previous quarter.

The company said its IT segment – in particular the fiber to the premises (FTTP) business line – drove the positive result, along with initial synergies from the merger.

Solutions for companies and governments yielded revenues of 2.49bn pesos, up 86% from the previous year. And in Q3, the company teamed up with Cisco to launch Alestra Next Cloud Collaboration, a service geared to corporates and governments that it claims can generate savings of up to 30% in investments, physical space costs and meeting logistics.

The merger became effective on February 15, and the full benefits of its synergies are expected in 2017, as non-recurring expenses from the merger will offset benefits obtained this year, the company has said.

Axtel reported having 467,000 customers at end-September, compared to 537,000 a year earlier and 605,000 at end-2014. At end-September, Axtel had 529,000 active phone lines (266,000 fixed, 263,000 wireless). 

Revenue from voice services fell 20% in 3Q16 due to a drop in revenues from fixed-to-mobile calls and a 77% decrease in international traffic. Last year, Axtel also experienced a revenue reduction in voice services due to the elimination of national long-distance fees. 

Axtel reported revenues of 717mn pesos from voice services in 3Q16, including income from Alestra's telephony services, compared to 277mn a year earlier.

Data from regulator IFT shows that in 2015 Axtel had 3.9% of the fixed telephony segment, behind América Móvil's Telmex and Telnor brands with 62.5%; Grupo Televisa with 19%; and Telefónica's GTM with 6.8%. 

BROADBAND

Axtel began offering internet services back in 2000 and launched the Axtel X-tremo high-speed internet plan in 2010.

Revenues from broadband services totaled 778mn pesos in the third quarter, of which 499mn came from fixed-line and 279mn from wireless. 

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PAY-TV

Axtel was awarded a concession to offer pay-TV services in 2009. In 2013 the telco launched the IPTV platform Axtel-TV in the Mexico City, Monterrey, and Guadalajara. Leveraging its FTTH network, Axtel was able to add triple-play to its offer. 

Axtel-TV had 123,000 subscribers in Q3, 19,000 subscribers more than in the year-ago period. It is part of a group of operators with a combined pay-TV market share of 7.8%, far behind market leaders Sky (Televisa), Dish-MVS, and Megacable, according to the latest available IFT data, from 3Q15.

M&As

Both Alestra and Axtel have traditionally relied on inorganic growth as a means to expand their offerings and geographical presence.  

In 2006, Axtel bought local internet and telephony company Avantel, acquiring 7,700km of fiber optic. Axtel paid its former competitor US$310mn in cash and US$190mn in assumable debt. 

In 2013 Alestra purchased voice, data, and video service provider G-Tel for an undisclosed price. G-Tel had fiber optic and wireless networks in the northern state of Baja California and in the Riviera Maya. In 4Q14 the company acquired IT solutions provider S&C Constructores de Sistemas, which offered management and consulting services as well as expertise in datacenters.

Alestra purchased 51% of IT solutions firm Estratel in 2015, and Axtel completed the acquisition of the remaining 49% in July 2016.

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