Telmex this and Telefonica the other. America Movil is going here and the Spanish there. That regional consolidation is winning in Carlos Slim’s offices or in the Gran Via 28 tower in Madrid. Talking telecommunications in Latin America –in other words, about Carlos Slim and Cesar Alierta–had become a familiar Christmas time conversation. It fits, but you tire of hearing the same things from the previous year.
But there is always something new, and in 2007 it was Tomas Milmo Santos. Member of the oldest Monterrey caste –the nephew of half of Cemex’s administrative council, beginning with the capo di tutti capi Lorenzo Zambrano– Milmo Santos has made Axtel today’s headline news.
His fixed wireless telephony company, which transmits voice, video and data, and has 10% of the Mexican communications market, acquired Avantel in 2006, a VoIP provider for business and government, for US$500 million and absorbed its US$190 million debt. According to the Mexican press, he now has his eye on Maxcom and Alestra, the second largest fixed telephony operator in the country, and a corporate cellular provider, respectively. Initially focused on the corporate sector and with magnificent seed money from the Zambrano and Alfa Group in petty cash, Axtel ran to northern Mexico to start to take bites from Telmex’s pie, the all powerful owner of 90% of the fixed telephony lines in the country.
What has the daily hot bread done to Milmo Santos and his company? First, it maneuvered the positioning of the company and, with the initial business confirmed, it has dedicated itself to giving it volume. The acquisition of Avantel, which will be completely consolidated this year, has already contributed what it has to that strategy. Now with 23 Mexican cities on the client list, Axtel generated US$545 million in sales between January and June of last year, 110% more than in the same time period in 2006. With everything set to grow and a lot of dynamism, this made Axtel the telecom company with the greatest growth in Mexico and Latin America in 2007.
Furthermore, Axtel is at a unique junction and market. Before taking office as president, Felipe Calderon announced that he would combat monopolies and, although he has not taken great measures, he seems to have gathered the clouds to unleash a storm on telephone companies Slim, Telmex and Telcel. The battle to be the first to offer triple play services-- the platform that allows TV, cable and telephony companies to provide video, voice and data--opened fire. In time, Telefonica and Telmex itself mounted a legal battle for charges of interconnection versus international property. And later the smallest telephone companies came to question Telmex and Telcel’s quasi monopoly for the nth time.
Axtel got into the same wrestling match--but not without first giving its company a respectable scale. First, breaking a very cultivated low profile, Milmo Santos has been pressuring regulators, questioning what he considers a block by the cellular companies to the traffic of his company. (Because Axtel does not participate in the “the one who calls pays” system, its clients must absorb the cost of calls that they receive from users from other companies, or reject the communication). Axtel has also joined the antimonopoly chorus demanding more foreign participation in fixed telephony.
Milmo Santos’ corporate plan is aggressive. The purchase of Avantel gave him the scale to go from US$600 million in invoicing in 2006 to more than US$ 1 billion at the end of 2007. Avantel has also expanded Axtel’s cash flow for, as Milmo Santos is planning, attacking the cuadruple play market with more resources--he wants to offer mobile telephony in 2008 or 2009 with WiMax technology--align himself with a cable proivder and purchase other telephony operators.
That dynamism has made for the most interesting reading. Analysts believe that Axtel can double its market share in the next five years, in some measure thanks to greater competition and less specific weight of the Telmex-Telcel tandem in a growth market. On the other hand, speculations have already begun regarding Milmo Santos’ real intentions with his company. Banco Santander analysts have predictibly assured that Axtel is a bite sized snack for Telefonica, and needs to make its fixed telephony department in Mexico grow. The Mexican press has echoed this interpretation, that pushes Axtel down a bitter road of hostile offers, but Milmo Santos has denied any interest in selling. And it’s predictable that he will. Whether it really intends to accept a proposition from Gran Via, it is advisable to keep the indiscreet eyes of the press far from its negotiations. And if he plans to keep the wheel of Axtel under his control, there is nothing like negativity in the press. If everyone finds out, then the boy of the moment prolongs his Warholian fifteen minutes of fame.
