Mr. Del Valle, as you know, UBS reactivated its strong investor recommendation on Iusacell saying that the new target prices, approximately 9% of the current price. Given the expertise provided by the XXX telecommunications company, what is the historical background of this alliance with Horizon and Iusacell's historical background?
First of all, Iusacell was established as a cellular provider in 1989. As a company involved in wireless communication, it comes since 1967, where a different technology and different products were available. In 1989, the concessions for cellular frequencies were awarded. The relations with Bell Atlantic begins initially in 1993, when it was able to invest around 1.2 billion dollars in this company through equity and the injection for working capital. Back in 1997, Bell Atlantic took the operational control of Grupo Iusacell, which, after being a family-run business, began the "professionalisation" of the company. If you ask about our relationship with Horizon in the joint venture between three US companies: Bell Atlantic, which acquired GTE; and the joint venture with XXX. In the international arena, it's only between Bell Atlantic and GTE. Now, since the implementation of these new companies, which was approved by the FCC last June, we are part of that global organization. Bell Atlantic used to own 40% of Grupo Iusacell, 30% is in the hands of our local shareholders and the balance in the public hands, mostly in the New York Stock Exchange. The way this company was established in 1989, initially the Mexican portion purchased one region. Mexico is divided into 9 regions for the two different bands (Band A and band B, we belong to the B band service providers). Grupo Iusacell initially, in 1989 and through 1995 acquired three other regions, so we own 4 regions out of the nine in the Band A. The other 5 regions, 4 are in the hands of Motorola and the other, South East of Mexico, is in the hands of private investors. Very recently, back in 1998, there was a new option of new wireless spectrum related to the PCF spectrum and Grupo Iusacell acquired two new regions for an amount of approximately 60 million dollars. So now, Grupo Iusacell enjoys the participation via cellular or via PCF spectrum in 6 of the 9 regions in Mexico.
Iusacell was the first cellular service provider in Mexico City. What would be the main services you provide today, excluding the Internet services?
Grupo Iusacell was the first company to launch the cellular service because of the background of the IMTF frequencies we used to have since 1957. In 1990, the other B band was awarded to the local Telmex carrier, which began competition throughout the nation. Our key differentiators are and have been the following: Iusacell provides its wireless products in two major components, one is a component called post-paid product and the other is the pre-paid product. Also, back in 1995, through a joint venture we were awarded another license for paging. We felt that for us to be able to compete we had to have some other products to offer and because we were not blocked by any regulatory standards as not to provide any other services, we also got involved in the concession of the long-distance service. So, in 1996-97, we were also awarded, by paying a fat amount, as a long-distance carrier. With that regard, you have four products: wireless post-paid, wireless pre-paid, long-distance, and paging. During the process of implementing new technology, mostly addressed to fixed-wireless, because of the relationship with the previous spectrum (IMTF), we also got involved with what we call the "fixed-wireless" service, which competes to the local wire line service. This service came to be as an experiment because it had to be related with the acquisition of the spectrum both from the company and towards the government as to expand the teledensity and fixed telephony. So we got involved in an experimental launch of fixed-wireless on the area of 650Mh, which is something that is used in Eastern Europe (mostly countries such as Poland, the Czech Republic) and some countries in Southeast Asia (mostly Vietnam and Indonesia). The license for the 450Mh spectrum was also awarded in 1998 but because of certain regulatory and technical issues, the company has not paid that license yet because we are expecting a clean up of the spectrum. This spectrum is very easily utilized within the industry of trunking (lumber) because it grows parallel with the trunking frequency. Right now, there are many companies that are utilizing this spectrum illegally, so if and when the government cleans it up, we are going to be paying for the license. Currently, we have close to 1.5 million users in the cellular arena. Out of those 1.5-1.6 million customers, we have around 450 thousand post-paid customers, so we have around 1.15 or 1.2 million pre-paid customers. We have around 17,000 fixed wireless users on an experimental basis. We also have close to 20 thousand paging customers, 10 thousand residential customers and many corporate accounts in the long-distance. If you compare the small non-core businesses that are the residential long distance, we are way behind the competition but that is not our core business. Our core business is to generate the long-distance traffic and revenue via the wireless users. You can see that the product share shows that 95% of our base customers is addressed towards the cellular arena, both prepaid and postpaid.
Once again, you were the first to compete with Telmex on the long-distance services. What do you think about the last monopolistic activities judgement from the COFETEL towards Telmex? Do you think Telmex will abide by this judgement?
For many years, since 1996, not just our group but
the whole industry, have been looking upon the split
and the call of a dominant carrier. The dominance
is expressed in many ways and those areas have been
affecting the development and overall growth of
the overall telecommunications industry in Mexico.
In order for you to have a basis on why the industry
and Iusacell have requested so strongly from the
government to apply the dominant carrier position
to Telmex is the fact (and the company itself stated
this) that we were going to have 20% teledensity
penetration in the wire line arena by the year 2000.
That was stated as a plan in 1990 when the company
was privatized, and again in 1996 when we introduced
the new Federal Telecommunication Law. By the year
1999, we knew that it was not going to be achieved
because the company had implemented certain ways
to avoid the growth of the market and it hasn't
been investing as it was initially requested by
the government in order to accomplish the plans
stated in 1990. The fact that the government has
finally taken the decision to declare Telmex as
a dominant company in the areas of long distance,
local telephony, Internet data, and as a supplier
because the remaining long distance and local companies
depend on its interconnection with the almost 11
million users the local company has. Another issue
is in wireless as well as in the quality of the
services being provided to the other companies.
We believe that it's very valid and its our position
to applaud the Mexican regulatory body that in the
last couple of weeks has submitted a document were
it declares Telmex's dominance in long distance,
Internet data and local telephony as well as to
define very clear rules in what is pro-subsidies
and quality levels on the service provider arena.
The last item, which is the separation of the wireless
company from the wire line company has been announced.
Seeing that whatever long distance companies along
with the wireless companies that we have been consulting
with the regulatory body as for this to happen,
is finally happening. Telmex will react with junction
in terms of the interconnection rate, on their position
to show all their financial numbers in terms of
cost, structure, in order to provide price alternatives
to the other long-distance carriers, Telmex has
stated that it doesn't want a price control. Nevertheless,
we feel that it should happen because it's normal
for a company to apply one price to a large corporation
and in terms of competitiveness apply a higher price
as a service provider to a competitor, so that's
the unbalance we want to solve within the regulatory
environment. |
You also have this competition on the telecommunications sector in Mexico with such companies as Telmex. You have a huge number of subscribers which is a huge increase comparing the first quarter of this year with last year's first quarter, 88%. How do you explain such a great increase in this number?
I believe it's due to one achievement Grupo Iusacell introduced both in the market and to the government's attention. Since 1997, Grupo Iusacell was looking for the implementation of "Calling Party Pays" in Mexico. We felt that that was going to be a good product for the growth and increase teledensity penetration in wireless as well as to have more rational ways to charge the customers because in traditional telephony, whoever places a call to another wire line or wireless company, should be paying for that call. In the wireless arena in Mexico until 1999, whoever received a call and whoever placed a call was charged for both of them. In European countries, this is absurd because Calling Party Pays was born during the development of wireless technology and wireless efforts in Europe. So, the leadership taken by Grupo Iusacell in 1997 was with promotion to reduce the tariff of the incoming calls for the customers by 25%. Back then, the government said it would increase and promote teledensity and it happened. In 1997 through 1998, the market's growth was close to 50 or 60%. At the end of 1998 we implemented another 50% reduction and from 1998 to early 1999 we saw that the market was growing at a rate close to 80%. In May 1st 1999 the implementation of Calling Party Pays did happen and that year the market growth was higher than 100%. As you stated, from the first and second quarter of 1999 to the second quarter of the year 2000 our customer base grew almost 88%. This was also due to the fact that the market has been growing steadily because the wire line was not able to satisfy the needs of the Mexican telecommunication demand. As you may see by the figures of wire line growth, since the early '90s, it has been growing at a rate of probably 2%. So, we have had an index of 10 to 11 million users for the past almost 10 to 11 years while wireless, from 1989 to 2000 has surpassed the 11 million customers.
This year, talking about the latest services you can offer, you introduced Internet services through cellular phone called "Internet Movil Iusacell". What is the current figure of subscribers contracted to these Internet services and what benefit do you foresee for Iusacell in the future?
When we talk about the figures of Internet users and its mobility, first we must make a parenthesis and explain about the low percentage of Internet literacy in Mexico. The number of Internet users (wire line, wireless, laptops, PCs, PDAs) is very low, 4.5 million users in a 100 million inhabitants country. With that, you can see the low level of Internet literacy though everyone expects this to change. To make matters worse, from those 4.5 million users, you have what is called repetitive users, sometimes double or triple. Some of the users have a laptop at work and a PC at home. That means that one person is being counted twice or thrice. We believe we have less than 3 million real Internet users. But one technology we absolutely feel is going to make a big change is mobile Internet. The reason is the barrier of entry. The overall per capita income in Mexico is 4,700 dollars. With 4,700 dollars a year, not very many people can have access to a laptop or to a PC. Nevertheless, with the prices of wireless handsets dropping below a hundred dollars or digital being around 150 dollars, a lot of people will be trying to get into wireless Internet very soon. Iusacell has being doing something about this. In 1999 we were the first to launch the one-way or Internet 1, which is called the short message service. The two-way service, which is based on the wireless access protocol (WAP), was launched in April. Initially, because of the very low Internet penetration, we thought that by the year 2000, we would be able to have around 5 and 10 thousand users. We have to make the entire map in order to evaluate what those 10 thousand users really mean. As you may recall, we have close to 450 thousand post-paid users, so five percent is very little. We are planning, because of the availability and better knowledge of the content within the wireless portals, this content will be the trigger to have a greater amount of users of the Internet mobile. Our target key users, and again this is a point were we compete against the very high-end Internet users which are in the financial, banking or industry world, are those who need to be within Internet reach at any time. So people in the financial arena, people related with the Mexican Stock Exchange, people related to the New York Stock Exchange and need to be in constant contact with Internet would be our target customers. But again, if the Mexican penetration in wireless and Internet is so little, that means that we are going to be able to satisfy the demand of those very high-end customers very soon. And if we reach 20% of our post-paid penetration in the forthcoming 18 months, that's going to be a great success for the company. This means we'll have 150 thousand users of Internet mobile. Then, in the forthcoming future, due to the fact that the price of the handset is going down, we feel that we'll be able to promote and make the masses use Internet, but that will happen by the year 2003-2004.
What is Iusacell's part in the alliance with BBVA Bancomer's mobile banking services and what does this corporation entail, does it cover any other areas?
As I told you when I explained wireless penetration, the key differentiator is going to be the content. Content doesn't mean you get into restaurants, movie theaters or bars. Content is related to finance, so being related with a bank such as BBVA Bancomer is very important and we also working with other partners as to supply a differentiator against our competition. It would include airline services, ground transportation services, hotel services, entertainment and one of the key areas will be on the financial world. When you get into a relationship with a bank, you get into transaction. The voice market is moving and evolving dramatically into the data market. By the year 2001-2002 our voice traffic is going to change to the data traffic because we'll be more involved in B to C transactions. With the advent of a treaty that may happen in Mexico in 2003, the broadband capabilities will be expanded in wireless so the B to C, machine to consumer, machine to machine transactions are going to increase dramatically. In wireless data and wireless Internet we'll start seeing a tremendous change from what traditional voice transportation. Prices are going to be very low because of the amount of traffic and vice versa.
But then again, for the first quarter of this year you had a high growth of XXX, which represented 30% being 27.30 million dollars compared to the first quarter of 1999. This capital increase is going to be reinvested in the cellular services or are there other plans or projects to expand to Latin America, for example?
No, Grupo Iusacell is an independent company from the Horizon group in Latin America because we have local partners there. Our core business is cellular and our focus country is Mexico. Yes, the tremendous success we've been enjoying in the financial arena is due to the financial world's confidence in our results and commitment since 1996. In terms of margin (earnings before income tax, depreciation and amortization), back in 1996 we had a 17% margin. In 1999 our margin rose to 34%. We doubled it in less than 3 years and for the year 2000 the expectation is 37%. In terms of revenue growth, back in 1997 (when Bell Atlantic, now Horizon took the operational control) we were enjoying revenues of around 250 million dollars and this year this number will surpass 500 million dollars. The other part which is something we should very proud of is that in February 1997 we had 232 thousand customers and we'll finish this year with close to 1.9 or 2 million customers. It means we grew 9 times in 4 years.
Thank you very much. |
IUSACELL