Morgan Stanley-led group wins Mexico's 4G network

Thursday, November 17, 2016

Mexico awarded its shared wholesale 4G network to the Altán consortium on Thursday as expected, though the previous disqualification of a second bidder may come back to haunt the project, telecom analysts told BNamericas.

The group led by Morgan Stanley, and which includes Mexican operators Megacable and Axtel, offered coverage of 92.2% of the country's population, above the minimum requirement of 85% established in the bidding documents.

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Altán will have to provide coverage to 30% of the population by March 2018; 50% by the third anniversary of the contract signing date, and 85% by the fifth anniversary. The full promised coverage will be achieved by the seventh anniversary, said Ezequiel Gil Huerta, head of telecom and broadcast policy at the communications ministry (SCT), during the award event in Mexico City.

The required US$7bn investment will be carried out under the public-private partnership model, in which Altán will invest at least 30% of the required capital in equity, said the official. The network will be designed, installed and operated by the consortium for 20 years, with the possibility of extending it another 20, according to an Altán press release.

The network is set to begin operations on March 31, 2018.

Nevertheless, the disqualification earlier in November of bidder Rivada Networks could come back to haunt the project.

"It's still advisable to wait and see what the courts will do about the amparo [Rivada's appeal]. Litigation is a historical factor in telecom projects in Mexico," said Jésus Romo, director of Telconomia, a telecom public policy and regulation consulting firm.

Two judges – one specializing in administrative matters and another in telecommunications – recently declined to rule on Rivada's appeal, citing a lack of jurisdiction. The matter has been referred to Mexico's collegiate tribunal, whose ruling on the jurisdiction could take several months, said lawyer Rodrigo Pérez-Alonso, a partner at Techonomics, a Mexican consulting firm specializing in telecom regulatory and legal affairs.

Rivada can also appeal to nullify the SCT verdict through the administrative court to be reinstated in the bidding, he added. Rivada spokesperson Brian Carney said the company "will continue to fight with every means at [its disposal]."

"[From a legal prospective], this decision is not yet set in stone. In six months to a year, the whole bid could be thrown out," Pérez-Alonso said.

On Wednesday, BNamericas reported that Rivada accused Altán of relying on confidential information from the SCT to prepare its bid. In response, Altán spokesperson Juan Rivera said on Thursday that the group was studying the possibility of taking legal action against Rivada.

Morgan Stanley holds a 33.38% stake in Altán through an indirect subsidiary of North Haven Infrastructure Partners II, an infrastructure fund that invests in OECD countries. The China-Mexico Fund – managed by the International Finance Corporation (IFC) – holds 23.36%; and Canadian pension fund manager CDPQ owns 12.68% in partnership with investment vehicle CKD-Infraestructura Mexico (CKD-IM), which includes funds from the four largest Mexican pension funds (Afores), meaning that public funds will be used to finance the project.

Minority shareholders include Axtel, Megacable and Eugenio Galdón, chairman and CEO of Spanish telecom company Mulitel.

The shareholders have committed to invest an initial US$750mn in the project, according to the Altán press release.