América Móvil’s (NYSE: AMX) Brazilian mobile operator Claro is expected to jump to the number one position in the local market within 3-5 years, displacing the current market leader, Vivo (NYSE: VIV), investment bank Barclays Capital reported in an equity research commentary.
“If you look at the last few years, Claro Brasil has gained a lot of market share, especially if you adjust for the acquisitions that have been made over the years,” Barclays senior research analyst Michel Morin told BNamericas. “In 2005, Vivo had 40% of the market and Claro had 22%. Moving forward to 2009, Vivo has approximately 28% and Claro was at about 26%. América Móvil has added about 4 percentage points [pp] of market share, while Vivo has lost a lot.”
Further, when taking a harder look at the details, Claro has been growing faster in the postpaid segment, Morin noted, “so not only have they been gaining share, but they’ve been moving upmarket as well, such that today, the market share in postpaid is approximately 31% for Vivo and 29% for Claro.”
In fact, Claro has performed well even when compared to Oi, which is a relative newcomer and as such could expect healthy growth, he added. “The Oi brand is the last entrance in the market; they’re more of a startup. They’re still expanding in São Paulo this year and will end the year at about 22% market share. From 2005 to 2008, they added 5pp. The fact that Claro was able to add 4pp, almost the same, is very impressive.”
In fact, according to the analyst, América Móvil has done “a really good job” of growing and gaining share in postpaid throughout most of the markets it operates in. This allows the parent company to leverage more profitable operations in other markets, to focus on growing in Brazil.
“They’re less profitable than perhaps they should be in Brazil because they’re very aggressive in subsidizing handsets, perhaps more aggressive than the others, and I think they’re willing to live with less profitability in Brazil because they’re so profitable elsewhere, that they can afford to do so,” Morin said.
On the other hand, in the case of Brazil’s current market leader, Vivo, “we think both parent companies [Portugal Telecom and Telefónica] are very interested in seeing their Brazilian subsidiary generate healthy free cash flow,” he added.