Technological and regulatory changes in the telecommunications industry will open a new area of competition for companies operating in the sector in 2008. Similar changes will impact the information technologies area, in which Latin American companies fight for a place in the sun of the growing global outsourcing business.
This is reflected in the ranking of the top TEN of the sector, where there are small players giving the big guys a run for their money, giants who have their sights on the region, and companies that have grown through mergers and acquisitions, and gained strength to play in the global arena.
AXTEL: THIRD IN DISCORD
Who dares face Telmex? This has been the billion dollar question in Mexico since Mexican telephony was privatized in 1990. And finally, 18 years later, two contenders have appeared who are putting up a fight. One of them is the all powerful Telefónica, which wages a continental campaign against Carlos Slim’s telephone companies. The other is local company Axtel, which has positioned itself as the second largest fixed telephony operator in Mexico after acquiring Avantel in 2006. Axtel gained market share continually in 2007, and has improved its financial and operational profile with a more balanced mix of products, according to risk raters Moody’s. Amendments to Mexican telecommunications regulations, such as the introduction of number portability in 2008, represent an opportunity for Axtel.
TELEFÓNICA: DESTINATION LATIN AMERICA
The Spanish telecommunications giant is already the main player in the Latin American sector, together with Carlos Slim’s Telmex and América Móvil. But the Spanish want more. The income of their Latin American units is growing at a much brisker pace than its European subsidiaries, and projections indicate that this tendency will be maintained. According to data from consulting firm IDC cited by Telefónica, the Latin American telecommunications market is the one that will grow the most in the world (by an annual average of 7.8% over 2006-2007), which represents some US$50 billion to 2010. Telefónica wants to take a big slice of this pie with an aggressive growth strategy in the region.
BRIGHTSAR: ORIENT EXPRESS
In 2007 we selected Brightstar as one of the rookies of the decade in the telecommunications business. The company, geared toward distribution of cellphones and after-sales service, was founded by Bolivian Marcelo Claure in 1997 and posted US$3.5 billion sales in 2006. Now armed with fresh capital (in July 2007 investment firm Lindsay Goldberg made a US$283 million equity investment in Brightstar) Claure is readying moves on the Chinese and Russian markets, keys to achieving his objective of US$6 billion sales in 2008.
GVT: SIZE ISN’T EVERYTHING
The market has spoken. In the ten first months since being listed on the Sao Paulo stock exchange in February 2007, shares in Brazilian telco GVT doubled in price, reflecting investor interest in the company founded in 1999 and which won a fixed telephony mirror license for areas including the Federal District and Santa Catarina, Paraná and Rio Grande do Sul states. In addition to these operations, GVT has started offering corporate services in Sao Paulo, Rio de Janeiro and Belo Horizonte. The company has invested heavily in technology and has the advantage of not being tied to service universalization commitments or price limits; commitments that those companies who bought Telebrás units upon privatization are subject to. Analysts consider that GVT still has considerable room in which to grow, and, like Axtel, it will benefit from the implementation of number portability.
CPM PRAXIS: STEPPING UP TO THE GLOBAL PLATE
How to compete with India in IT services? For many Latin American companies, especially Brazilian, the answer is to develop niche strategies. This is the proposal of CPM Praxis, the company that resulted from the merger of two important Brazilian IT firms in early 2007. According to some analysts, European and US companies are looking for alternative to the concentration of IT services in India. CPM Praxis has opened offices in the United States to win contracts in this market and help its plans to increase its 2008 earnings to some US$800 million.
MEGACABLE: LONG LIVE TRIPLE PLAY
The largest pay-TV operator in Mexico (and the secondlargest broadband provider after Telmex) has not rested on the laurels of its market leadership. In November it raised more than US$600 million through a stock offering on the Mexican stock exchange. Cash in hand, the operator paid off debts and was able to continue seeking opportunities to acquire and invest in new technology to expand its combined cable TV, telephone and broadband Internet access services. It’s aim is to be able to offer triple play services to 97% of its 3.4 million home network.
QUINTEC: SOUTH AMERICAN SPENDING SPREE
The Chilean IT solutions and Apple equipment retailer is getting ready to travel again. After a second stock offering on the Santiago exchange in September 2007, Quintec has fresh funds to finance acquisitions in Brazil, Peru and Chile. Foreign purchases are a fundamental part of Quintec’s business strategy, and the company aims to double sales between now and 2010 to US$220 million/ year, of which more than 50% will come from outside Chile. Quintec already operates in Mexico, Colombia, Brazil and Argentina.
OI: DEFENDING TERRITORY
Oi, the largest fixed telephone operator in Brazil, is revving up to practically double its broadband coverage in 2008. The company hopes to end 2008 with 400 cities with access to its services, compared to 220 at end-2007. Furthermore, the company won five 3G wireless telephone licenses in December 2007 and has also agreed to buy Tele Norte Celular Participaçoes, which will give it coverage in northern Brazil.
HUAWEI: BRAND AND MARKET
Generally, people associate low price and quality that’s not the best with Chinese made products. In a global survey carried out in 2007 by consulting firm Interbrands, 66% of those surveyed felt that the statement “made in China” is negative for Chinese brands. Nevertheless, a handful of companies in that country have started to differentiate themselves and are among globally recognized brand names. The survey highlights the case of telecommunications equipment manufacturer Huawei, which it ranked seventh in leading Chinese brands. The strategy of heavy research and development investment and strict cost control that allows it to offer competitive prices has made Huawei one of the main equipment providers in Latin America, especially in the area of new generation networks.
TIVIT: WHO’S AFRAID OF THE INDIANS?
2007 was a turbulent year for Tivit, the information technology company controlled by the Votorantim group, one of the largest private industrial conglomerates in Brazil. In April, Tivit merged with the contact center company Telefutura, and in August it acquired Softway, a call center and business process outsourcing (BPO) company. Tivit emerged from the mergers with some 25,000 employees and invoicing in the order of US$345 million in 2007. With this size and a request made in late 2007 to place more shares on the Sao Paulo stock exchange, Tivit is preparing to come out into the international market to fight the outsourcing market with Indian companies.
