These young vendors are foot soldiers in the raging battle for the booming Latin American cellular market. The number of subscribers in the region jumped by a third to 234 million last year as Telcel's parent, América Móvil (AMX
), faced off against Telefónica Móviles (TEM
), the cellular arm of Spain's dominant fixed-line carrier, Telefónica (TEF
). Today, some 45% of the region's residents have cell phones, and that's expected to surpass 50% by 2008. So far, América Móvil is in the lead, with 100 million wireless customers in 14 countries. But Telefónica Móviles isn't far behind, with 74 million subscribers in 13 Latin American countries and 20 million more in Spain.STEPPED-UP INVESTMENT
Since most adults in developed countries already own a mobile phone, the bulk of the growth in coming years will likely come from developing regions such as Latin America. Such expectations boosted América Móvil's shares by 79% in the year to May 31, helping it take the No. 1 spot on BusinessWeek's InfoTech 100 list. Telefónica Móviles, though, isn't far behind. It's No. 6 on the IT 100 list, and its shares have jumped by 21%. And the action isn't only in cellular. Telefónica, which has fixed-line operations in six Latin American countries, ranks No. 7 on the IT 100, while Telmex (TMX
)—Mexico's dominant operator, from which América Móvil was spun off in 2000—is No. 27.
Now, the two cellular rivals are stepping up their battle. América Móvil is using hefty profits from its home market in Mexico to fund investment in Brazil, where Telefónica Móviles reigns. And the Spanish company has tapped into its earnings in Spain and Brazil to build up its business in Mexico. "The rivalry between América Móvil and Telefónica has put a lot of dynamism into the marketplace," says Wally Swain, an analyst with the Yankee Group, a telecom consultancy.
The reason for the telecom explosion is simple: With prices for the region's commodities, such as iron ore, copper, steel, oil, and soybeans, at record levels, Latin America is growing faster than it has in years. And while the region typically suffers from high inflation during booms, this time around prices have held steady in most countries, increasing consumer buying power.
At the same time, the cost of networking gear has dropped by more than half in the past three years, making it less expensive to build wireless networks than to string wires to every village across the vast region. That has helped the two cellular leaders drive down rates. In Mexico, for instance, prices have fallen by more than half since 2002. And today, América Móvil serves every Mexican town with more than 5,000 inhabitants.
Political stability helps, too. As violence in Colombia has declined over the past year, the number of subscribers there has more than doubled, benefiting both companies. "A lot of areas used to be dominated by guerrillas, people didn't dare travel there, and there was no telecom infrastructure," says América Móvil Chief Financial Officer Carlos García Moreno. As América Móvil expanded operations, he says, "We were very surprised when we would set up a new radio base and find that it immediately became congested. There was a lot of pent-up demand." By Geri Smith