Telefonica Reportedly in Talks to Merge with Iusacell in Mexico

Spanish telecom giant Telefonica is said to be in talks to merge its Mexican operations with local operator Grupo Iusacell in an aggressive effort to challenge the dominance of Carlos Slim’s America Movil.

Citing sources familiar with the matter, Bloomberg and Spanish newspaper El Economista reported that Telefonica was in talks with Iusacell co-owners Grupo Televisa and Grupo Salinas, who each own 50% stakes in the firm. The news comes barely a week after the UK’s Virgin Mobile revealed its agreement with Telefonica to offer telecom services in Mexico.

“Combined with Iusacell, Telefonica would control almost all the rest of the market, a result that may draw scrutiny from regulators seeking to offer consumers more options in the market,” says Bloomberg report.

Mexico, which is int he midst of reforming its telecom sector, has recently approved a budget of $155 million for its newly formed regulator Ifetel, whose main goal is to spark competition among operators and push down telecom service prices.

According to a recent report by Cofetel, Mexico’s previous telecom regulator, the number of mobile subscribers has risen 6.4% to 101.7 million, and mobile traffic has increased 17% in the last year, while mobile broadband has grown 39% to 12.1 million subscriptions.

A bill for telecom reform is yet to be finalized, but it is becoming increasingly clear that Carlos Slim’s firm is going to face stiff competition in the days to come.  A recent order from the government imposes a 50%-market-share limit on telecom companies operating in the country. This is a setback for America Movil which currently controls nearly 70% of Mexico’s telecom market.

Both sides in Telefonica’s talks with Iusacell are monitoring how that legislation takes shape, as it will affect their decision on whether to combine the companies.

According to Bloomberg, Telefonica entered Mexico in 2001 and had more than 19 million mobile-phone customers in the country by the end of September 2013. Mexico City-based Iusacell had 7.4 million at the end of 2012, the last time Televisa provided a figure. America Movil boasted 72.5 million, while the smallest competitor, NII Holdings Inc., had 3.7 million.