Nortel Weathers Economic Storm in Lat Am

Economic slumps in Latin America -- in particular the devaluation of Brazil's currency -- have affected Nortel Networks Corp.'s sales in the region in the first half of this year, but the company says that business is picking up.

When it reported its otherwise positive second-quarter earnings several weeks ago, Nortel said in a statement that revenues in its Caribbean and Latin America (CALA) region were in a slump and had affected its revenue growth outside the U.S. and Canada.

"The 32 percent growth outside Canada and the United States was driven by significant increases in both Europe and Asia Pacific, partially offset by a decline in CALA," Nortel said in that statement.

Elsewhere in the release, the company stated: "Sales of mobility systems increased significantly with higher revenues in Asia Pacific more than offsetting a decline in Latin America."

Nortel's overall revenue growth was 30 percent for the second quarter of 1999. [See "Nortel Networks' Q2 Results Beat Expectations" July 28.]During the first quarter and, to a certain extent, the second quarter, the economic slump in the region negatively affected Nortel's financial performance, said Martha Helena Béjar, general manager of Carrier Packet Solutions at the company's Caribbean and Latin America subsidiary in Sunrise, Florida, during a recent interview.

Béjar declined to provide details about Nortel's second-quarter performance in the Caribbean and Latin America.

Things have begun to improve, however, Béjar said. For example, Nortel announced this month that it has landed a 5-year contract estimated at US$500 million [M] with Canbrá, a Brazilian carrier whose owners include Bell Canada International Inc.

The outlook is very good for the market in general, Béjar said. A wave of telecommunications privatizations and market openings are fostering the growth of the Latin America telecom market, which is expected to increase at a 12 percent annual clip over the next several years, going from an estimated current value of $52.8 billion [B] today to $74.1 billion [B] by 2002, according to the Yankee Group Inc., a consultancy in Boston.

The increase in competition and the creation of new carriers has fostered investment in the telecommunications infrastructure equipment that Nortel makes and sells. Over the past several years, Nortel has landed a number of significant contracts in the region, including the following:

-- In 1995, a $380 million [M] contract with Avantel to build a network for national and international long-distance service in México.

-- In 1997, supply agreements valued at over $700 million [M], to provide Brazilian B-band license winners, BCP, BSE and Americel, with digital wireless networks.

-- In 1994, an association agreement valued at over $350 million [M] with the Colombian state-owned carrier, Telecom, for the deployment of a digital network.

The company's revenues in the region grew 19.5 percent in 1998, compared with 1997.

The use of the Internet is also promoting the market's growth, Béjar said.

"The Internet is having an incredible impact on the behavior of the market and telecommunications is at the heart of this because it's what makes these networks tick," she said.

Other projects won by Nortel in the region so far this year include a $244 million [M] contract from ImpSat to build a pan-regional data network, and an $86 million [M] project in Haiti to build a wireless network for carrier Haitel. A 3-year, $400 million [M] contract won by Nortel in México earlier this year to build a fixed wireless network for carrier AXtel could grow to as much as $750 million [M] thanks to projected growth, according to the company.

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