Latin America: Telecom Turmoil

Recent news from Latin America points to the regions uniquely unpleasant version of the telecom downturn.

AT&T Corp. (NYSE: T), for instance, recently announced a "non-binding" agreement to sell its stake in AT&T Latin America Corp. (Nasdaq: ATTL) to a U.S. holding company called Southern Cross Group LLC for a mere $1,000 (see AT&T to Sell Latin American Biz). Shortly thereafter, AT&T Latin America said it's been delisted from the Nasdaq due to its persistently low share price (see AT&T LA Gets Delisted).

This week, a spokeswoman for AT&T Latin America confirmed that the company is looking for a partner or acquirer, a move which would permanently sever its relationship with its former parent. While AT&T Latin America won't comment, scuttlebutt has it that Southern Cross or Brazil's Atrium Telecomunicacoes may be nosing around.

The idea that a carrier the size of AT&T would sell its stake in what was once viewed as one of the world's telecom hotspots -- and sell it for such a paltry sum -- may be startling to those who haven't followed regional business news. For those who have, it's yet another symptom of the region's telecom implosion.

"Things have been bad for awhile," says David Humphreys, industry manager for Latin American communications at Frost & Sullivan. During the boom of the late nineties, he says, Latin American infrastructure was seriously overbuilt, throwing regional carriers into sizeable debt. The global telecom downturn, exacerbated by serious governmental problems in several countries and the resulting abandonment by international investors has Latin America's telecom sector reeling.

Add to all this a resistance to competition among regional incumbent carriers, and a particularly heady witches' brew results. This week, for example, Mexico's leading carrier, Teléfonos de México (Telmex), was accused of longstanding monopolistic practices by Mexico's antitrust body, Comision Federal de Competencia, according to an Associated Press report.

While AT&T Latin America doesn't have a presence in Mexico (its parent company does, through partner carrier Alestra), the alleged price gouging at Telmex is symptomatic of how Latin America's incumbent carriers jealously guard their businesses, resisting outside competition, some say.

And the competition is formidable: In the pan-regional scene, in which AT&T Latin America competes, Spain's Telefònica and France Telecom SA (NYSE: FTE) each have a sizeable presence, as well as AT&T Corp., apparently to the detriment of AT&T LA.

"AT&T LA has found itself competing against its own parent," says Dennis Burke, analyst at Pyramid Research.

All this makes for a confusing array of corporate and political interests, which is exacerbated by the fact that each of the region's countries has a unique set of factors contributing to its particular market. Leading the pack are Mexico and Brazil:

What's the prognosis? That seems to be up for grabs. Southern Cross and other investors seem bent on buying up cheap assets in Latin America, particularly ones that don't call for a lot of capital input. Wholesale voice carrier ITXC (Nasdaq: ITXC), for instance, is bulking up its presence in Brazil (see ITXC Hires Brazil Sales Honcho). But according to analyst Tim Horan of CIBC World Markets, ITXC's model of selling wholesale links and using the public Internet won't cost it a lot. "ITXC isn't putting a lot of capital into it," he says.

Others say Latin America may be slow on the comeback trail, and will suffer a slow process of consolidation before anything starts to turn around. Business data services, for instance, which were thrown up willy-nilly during the boom, are still being cleared off by incumbents and other players.

Still, there's some hope: "We expect 2003 to be a little better than 2002," says Frost & Sullivan's Humphreys. "But that's not saying much. There's a lot of uncertainty."

— Mary Jander, Senior Editor, Light Reading
optical_man 12/5/2012 | 12:50:54 AM
re: Latin America: Telecom Turmoil ATT is screwing it's Latin American chances up. This is not an indication of Latin American Telecom turmoil.
Look at BellSouth's successes down South as just one example of a growing market. There are many more.
Get off the ATT bandwagon. They've shot themselves in the head by gorging in Steak and Potatoes and Cake, at every meal, and wondering what the ruckus is outside the gates, a la Marie Antoinette. It's just taking a while for the corpse to die (2004?).
flanker 12/5/2012 | 12:50:41 AM
re: Latin America: Telecom Turmoil If you compare the relative rate of corporate bankruptcies in Latin America to Europe, North America or Asia, Latin America comes out ahead in terms of having the lowest experience relative to assets or capital invested.

If you take away exposure to Argentina, its hard to find a single major bankruptcy among Latin american carriers.

ATT Latin America was a roll up of garbage assets from Northland's old Chilean company, FirstCom. In terms of ridiculius overvaluation, FirstCom did to ATT what AOL did to TimeWarner.

BobbyMax 12/5/2012 | 12:50:04 AM
re: Latin America: Telecom Turmoil It is sad but fact that the American carriers have no idea about the amount of hardship the citozens of Latin America suffer. By the time money is converted to dollars, the business does not make sense. The same thing is happening here in the US, the long distance rates have fallen to less than five cents. Most of the long distance companies here in the US would be unable to provide service. Besides massive corruption in the US industries, many carriers are operating under serious financial problems.
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