NII Streamline Strategy Goes Too Far
NII Holdings , the parent company for Nextel's Latin American operations, released its preliminary results for 2 012 earlier this week. Chairman Steve Shindler described the results as ' [falling] short of expectations ' and outlined proposals to streamline the business, including the potential sale of assets in Peru, Chile and Argentina, in order to focus on its core markets in Brazil and Mexico. BMI supports the initiatives in its 2013 strategy but cautions against a swift exit from its operations in Chile and Argentina .
Nextel's strategy in Latin America has been to focus on high - end users, offering postpaid contracts in urban areas to businesses as a niche player. This allows the company to generate m ore revenue from its users , resulting in traditionally higher ARPUs in these markets than its competitors. It also means the subscriber base is lower because it does not expand infrastructure to rural or income-challenged areas. This strategy has achieved its greatest success in Brazil and Mexico, helped by the rapid economic growth these two markets have experienced in recent years. In Q312, operational revenues from Brazil and Mexico accounted for 81.5% of the total for the region, and 70.4% of the overall subscriber base. BMI expects growth to rebound in Brazil in 2013, after a slowdown in 2012, and we remain optimistic on Mexico's long-term prospects.
BMI is in favour of NII Holdings' decision to sell 4,500 tower assets in Brazil and Mexico, as we have long held the view that operators can substantially reduce costs through sale and leaseback arrangements from tower companies. This trend is becoming more prominent in Latin America, and Telefónica has led the way in this strategy, reducing its tower portfolios in Brazil, Chile, Mexico and Peru ( see our online service, December 24 2012, ' Telefónica Taking The Lead In Tower Sharing ' ). As mobile operators face problems of market saturation and slowdown in growth, it has led to ARPU levels falling and lack of opportunities to increase subscriber numbers. As a niche company, Nextel has experienced this in Brazil and Mexico, where ARPU has declined 31.2% and 15.2% respectively, between Q311 to Q312.
|Nextel KPIs Q312|
|Operating Revenue & ARPU (US$)/Total Subscribers ('000)|