According to media reports, Spanish telecom incumbent, Telefonica S.A. (ADR) (NYSE:TEF), plans to share its network with various Mobile Virtual Network Operators (MVNO’s) in Mexico. In this regard, Telefonica will also host U.K.-based cellular company Virgin Mobile, which is expected to start operations in the country in second quarter of 2014.
Several other telecom companies have also shown interest in using Telefonica S.A. (ADR) (NYSE:TEF)’s network. The company wants to end 2014 with 5 to 10 MVNO’s in Mexico. Apart from its tie-up with Virgin Mobile also wants to continue with its organic growth.
Technically an MVNO does not require huge start-up investments in spectrum acquisition and installation of cell towers. Instead, an MVNO leases tower space from existing service providers and offers communication services.
Telefonica S.A. (ADR) (NYSE:TEF) already has a network sharing deal with Mexican Operator Iusacell. By hosting various virtual operators, the company is trying to optimize its network capacity in Mexico, where the company has 20 million customers and is a distant second to market leader America Movil SAB de CV (ADR) (NYSE:AMX). Carlos Slim-owned America Movil controls the majority of the Mexican telecom market with 70 million customers.
Mexican telecom regulator is trying to identify the dominant companies and prepare laws to curb the power of dominant market leaders like America Movil. This will open up space for the entry of some new companies in the country.
It could be part of Telefonica S.A. (ADR) (NYSE:TEF)’s plan to partner the new companies, which could enter into the country’s telecom scene as and when the market opens up for them. This will allow the Madrid-based company to close the gap on leader America Movil SAB de CV (ADR) (NYSE:AMX).
Apart from customer additions, Telefonica could also leverage financially. The telecom behemoth has one of the highest debt burdens within the industry. Sharing its network will reduce investments on towers and technologies as the expenses will be shared with the MVNO.
Telefonica S.A. (ADR) (NYSE:TEF) currently carries a Zacks Rank #4 (Sell). However, some better-ranked stocks within the sector are Shenandoah Telecommunications Company (NASDAQ:SHEN) and Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT). Both SHEN and CHT hold a Zacks Rank #2 (Buy).
Disclaimer: This article is written by Zacks Equity Research and originally published at Zacks.com.
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Tags: America Movil SAB de CV (ADR) (NYSE:AMX), Chunghwa Telecom Co. Ltd (ADR) (NYSE:CHT), Shenandoah Telecommunications Company (NASDAQ:SHEN), Telefonica S.A. (ADR) (NYSE