Latin America: Telecom Turmoil
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