Mr. Vargas, could you give our readers a brief inside view of MVS's structure which is divided in three different sections: television, radio, telecommunications?
Our group, as you mentioned, is divided into three major divisions which have different projects and companies involved in each one.
The TV division, which is our group's largest is divided into four major activities. The first one is cable TV operations. We serve a little bit more than 700,000 Mexican households through wireless cable or MNVS. That makes us the largest MNVS operator in the world and we are operating in only 7 cities. We have licenses to operate over 40 cities in the country, which will start operations next year over the broad band access in telephony mode. The other company we have is a TV channel production and distribution enterprise. We own 7 different TV channels that we distribute throughout over 19 Latin American countries. Some of these channels are fully owned and operated by our company and some of them are joint ventures. We are partners with Universal Pictures through a channel called USA Networks, we are partners with Telefónica de España and Antena 3 International and the rest of the channels are fully-owned and operated. We have movie and TV production studios and facilities, which enable us to put content into our TV channels. The fourth company in the television division is a company devoted to create private television networks for companies. We create channels made for specific corporations, for Bancomer or Cemex, for example. We have over 18 networks today in the air providing through the satellite programming specifically devoted for corporations.
Then we have the radio division where we own and operate over 90 radio stations throughout the country, basically the largest FM operator in the country. That's the main company in the radio division but it also has two other companies. One is a concert and promotion events organizer, which is the second largest in the country. We put together musical shows, sporting and cultural events throughout the country and its a very successful company. The third company in the radio division is a digital paid radio service which has 20 channels of fully-digital service, it serves 10 cities in the country and this enables us to provide digital content to our users.
The third division is telecom. Telecom has two main areas. The first one is the creation of portals and through our partnership in other countries we've been able to put together 6 major projects. The other one is a telecommunications company. The group owns over 240 MHz in 40 markets in the country and we are about to start lending broad band access telephony voice over IPN wireless enhanced digital services for households throughout the country. We're partnering with one of the world's largest telecommunications trying to deploy this project in the coming months and we'll be ready on the first quarter of this year.
Who is this partner company?
We haven't signed yet, so I can't say.
Then we have the portals division and each portal has its own characteristics. We have 6 portals. The first one we started is called Ad-net and was Mexico's first. It has been recently sold to Star Media but we have to operate the project for the next 5 years. So we are in the process of an sales operation but we still maintain not only the control over the project but we are also in charge of its technological advance. We do the advertising, sales, content providing, we basically still operate the project 100%. The second one is called plazaclick.com which is a cybermall, a shopping center which enables small and medium companies to do business through Internet using our company's technology and media to advertise and bring traffic to the sight. We've launched this recently and it has been overwhelmingly successful, it has surpassed our expectations. The third portal we are involved in is a partnership among Mexico's leading hotel managers called Posadas de México, ourselves, Telmex and the five major food and restaurant chains. Our group owns a restaurant chain so we are leveraging the know-how we have in the restaurant and Internet business. We are putting together a B2B sight in order to lend the restaurateurs a tool they might have access to buy things from others. The fourth portal we are involved in is also very aligned with our core business, which is the selling of advertising time. It's a sight devoted to sell advertising in Latin America's major portals. We are doing sales for Yahoo Mexico, America Online, Star Media, Terra, El Sitio, Sportia, you name it. We basically have all the big names. We package some of those portals with traditional media and we have software that allows us the activity of any portal and become an intermediary between the buyer and the portal. We recently launched it and have been most successful. We have a fifth project involve with distance learning. Our private TV network has a subdivision in TV. Up to date, our company has 44,000 students on a daily basis taking postgraduate courses and degrees through satellite. We give all kinds of courses to professionals with the collaboration of the Monterrey Tech, which is one of Mexico's most recognized universities. So what we did was to move this to the Internet world signing deals with some of Mexico's and US most prestigious universities such as Kellogg University, Harvard, San Diego SU, the Georgia Tech, among others which allows us to provide specialization courses to individuals throughout Latin America without having to attend the universities and having the possibility to receive a diploma out of these universities. This project will be launched in the first quarter of next year. This is the only project that we haven't launched at this point in time. And then again, Citaris which is our largest Internet project.
Before we continue to introduce Citaris.com, I would like to focus on the distance learning project you mentioned. Is it restricted to the Mexican market or do you plan perhaps to offer this service as well in other Latin American countries, as this is might be the future of education?
That's right. We are planning to open the project in Argentina and Brazil in our first stage and in the second stage we are planning to service the Hispanic community in the USA. The third stage is the rest of the Spanish-speaking web.
Is there any involvement of the public sector, the government, as this is usually a public objective?
The kind of education we will be providing is specialized for executives so though the concept of distance learning will be fast and Internet will be an amazing tool, the scope of the project at this point in time is targeted to corporations but we have no doubts that in the near future we will expand our business plan to reach all kinds of students and bring distance education worldwide or to the Spanish-speaking web. It's a fully private project. The government is very interested in helping to materialize this kind of projects but with a more popular and vast coverage, not so specific.
Concerning your activities on the telecommunications sector, how does the current problematic situation with Telmex, which is being accused of applying monopolistic methods, affect you and what do you foresee for the telecommunications sector in Mexico including the opportunities of private initiatives as yours?
I fully believe that the government will regulate the relationship between Telmex and the other carriers, which will enable the market to enter into a more fair competition arena. It's not possible for Telmex to be the only company to have those kinds of conditions with its competitors being the major carrier in the country and be different from its counterparts on different places of the world. So I think that the government is about to make dramatic changes which will enable the other competitors to enter the telecommunications and telephony arena. Our strategy is Telmex-free, it doesn't depend on Telmex because it's a network built over the 40 major markets in the country which is basically 96% of the total population and enables to connect on a two-wave through microwaves to our users. So, we basically don't need for the kind of services we are willing to provide any Telmex infrastructure. We have excellent relations with Telmex, it's our biggest client, our biggest competitor, we are also one of its biggest clients. I have sued them, they have sued me and at the same time I'm a very close personal friend of Mr. Slim. We are about to be partners in our B2B restaurant portal, so with a company of such size you may expect to have all kinds of relations in one. They compete against us in all the activities our company is involved in.
The latest move of MVS Telecom in the Internet, was to introduce the portal citaris.com just a week ago. Would you please explain our readers what makes this entertainment portal different from other similar projects that have been introduced not only in the Mexican markets but also in other international markets?
Citaris is a vertical portal, we believe very much in its vertical philosophy. It's a portal fully devoted to the entertainment world, and this means a lot of ups and downs and a lot of controversy around entertainment portals. Our core business is entertainment. We do entertainment for a living in radio, TV, and the different arenas we participate in. In Internet we have access due to the relationship we sustain with major record labels, movie studios and we basically maintain a very close relationship with them which enables us to have access to very important content. On the other hand, one of Citaris's characteristics is that it's planned to be a Panaregional portal. In different projects where we participate we have partnerships all throughout the continent with major media players in the region, for example, Grupo Clarin in Argentina, and in different ventures with Abril, Brazil's second largest media group. Taking leverage of these partnership is that we have decided to invite them to participate in Citaris and to help us develop on a country-per-country basis the same model but understanding the philosophy and needs of each particular market. I would say that's the second differentiating point on our strategy. We want to make a Mexican site made by Mexicans for Mexicans understanding the Mexican way of thinking. We want to replicate that in Brazil and make a site made by Brazilians understanding the Brazilian identity and philosophy. We want to cover Mexico, Argentina and Brazil in the first stage, the second stage would be Spain and the USA and the third would be the rest of Latin America. | And in Mexico do you start in all the cities simultaneously?
In Mexico we are covering the 3 largest markets at this point in time and before January of next years, within the 3 coming months, we are opening 2 more cities and throughout next year we'd like to expand to the countries where the group has participation. We have offices and people in over 40 cities in the country so we'd like to provide them local content and make the portal as local as possible. We believe in a concept called local which gives you the global reach but the local content.
The third differentiation point of Citaris is that it's the country's first third generation portal. We are using technology developed in the USA by a company called ATG which enables us to personalize the content of the portal. Since day 1, the portal starts learning from the user on a user-per-user basis and starts generating content generated for that particular user creating a circle of learning and each time the content is more specialized to the needs of each particular user. This allows two things: the first one is to sell more targeted advertising and the second one is to assure the Internet browser to have a very nice experience through our portal.
The fourth differentiating point would be that it's a portal designed to carry broad band products. We believe that the Internet will become more interactive and media reached in terms of audio and video and the Internet, as you know, will change dramatically because today it has the limitation of connection which is very narrow and doesn't allow the Internet to have full quality of digital audio and video on demand basis but we believe that in the very close coming months we will have that throughout the world. We, ourselves, are providing broad band access to Mexican household and are doing everything to be ready for broad band content whenever it's deployed.
It's a project that, as a vertical project is made out of 9 channels for every particular activity in the entertainment industry which is TV, radio, movies, theatre, restaurants, art and culture. Every single channel has functionalities that make them unique. We have a programmable radio station which allows the programmers to chose the songs they want to listen to with great quality specifically customized for the user. We have reservations on-line and video games.
What were the total investments into this latest project and moreover taking into consideration that nowadays Internet is the most direct and simple way to advertise what are your expectations for advertisement revenues?
With the investment that we've made in the portal sites, because it's two different things, in telecom we are planning to invest 600 million dollars in the next year because a lot of infrastructure is required there. In Citaris we've invested 42 million dollars and we're planning to break even in the 30th month and we're planning to participate in around 5 to 7%, depending on the year, of the Internet advertising market in the country and in the region. In Brazil we're expecting to have the lowest penetration due to the huge amount of competition in that market but it's the largest market in the region. We are planning to reach 3% of the Brazilian market and 3.5% of the Argentinean market. It will give us advertising revenues of more than 150 million dollars in the fourth year of operations.
I'm a bit surprised that you chose this time to introduce this portal because actually, you introduced it almost too late, if you look at the efforts undertaken by your competitors.
No, let me tell you what we have in mind. We don't see this as a catch-up opportunity, we see it as the next logical move in a multimedia group as ourselves. We see this on the long run. We don't want to make a cash-out of 400 million dollars and forget about the project, we believe that this is the future of our media. We believe that traditional media will converge in the digital world and the new economy and Internet will be for sure, due to its anatomy an architecture which is open, the prime distribution source of digital media. So we've been working in the Citaris project for a year and a half but we preferred to wait and present a very strong and well positioned in its project in its financial plans than launching something just to catch up the NASDAQ wave.
As a matter of fact, there are already many competitors here and we are witnessing the same process that we followed in the USA, Europe and Asia. It started with a booming number of portals and afterwards the sector was going through a difficult consolidation period and then there were a few survivors. What makes you think you are going to be one of the survivors even though you have the background and experience already?
Forbes magazine published three or four months ago an article called "The Empire Strikes Back" and this article said something that really stroke me. Amazon today is the world's biggest retailer in the world because it has 4 distribution centers in the USA and all the infrastructure and whatever. They said, what if Wal-Mart, which doesn't have 4 distribution centers in the USA, it has 4,000, decided to come into the marketplace? 60% of the toys manufactured in the world are sold through Wal-Mart. So, there was this huge wave of ventures and projects in the Internet but I think the clicks and brick world will prevail among the clicks world. We believe that the companies that have the experience, the know-how, the technology and the background of different activities (there's retailers, there's bankers, there's travel service providers, entertainment providers -which is the traditional media and we've been doing entertainment for the last 30 years and we've been able to sell to our advertisers these 30 years of experience-) and we believe that this is only an evolution of our traditional media. We don't see it as a portal, we see it as our first step in the new economy which we believe all traditional media will end up in the Internet and Citaris is our flagship for that.
You mentioned already some of your partners. You are working together with March First on this project for example, you are working with Star Media which contributed with 30 million US dollars for your division Adnet.
That was an up-front payment. It's a US$200 million deal if we achieve the performance we have estimated.
.but in Argentina you could have already a partner as Star Media for instance. What should be the profile of those partners you want to ally with?
Media groups, content generators, content navigators, cable broad band distributors, and whoever has access to media in order to generate traffic in a site. Generally, my partners in Argentina and Brazil are large media groups.
As you know, the Far Eastern Economic Review is addressing mainly to an audience in Asia, but also in the USA and Europe. Asia is already a very highly developed e-commerce area, how could your company but also Mexico benefit from the experience coming from Asia in terms of technological knowledge exchange but also in terms of direct investments?
I think we have benefited from Asian providers and technological partners because a lot of the technology we are implementing in Mexico comes from Asia. We have working today in our offices a group of at least 20 Asian helping us put together the programming and getting ready for our Internet sites. We believe that Asia, as a region, is the most advanced in terms of technology and business concepts and as a potential market means growth in the near future for our company. As of today, we are benefiting from their knowledge, their know-how and the investment opportunities that exist in Asia.
Mr. Vargas, a final, more personal question. What is your background in this sector?
I studied in the ITAM University in Mexico. I also have a degree in UCLA. I've been working in the company since I was very young starting in very low positions. I worked 14 years in the radio division until I headed that division for four or five years and then I was also involved in the TV division for a couple of years and then I started this new telecom division. I've been the chairman of the Radio Chamber in Mexico. I participate in a lot of boards in different companies throughout Mexico and the USA. |
MVS TELECOM 