Analysts Positive About Telmex-Bell Canada Venture

LOS ANGELES (06/13/2000) - The recently announced joint venture between Teléfonos de México SA de CV (Telmex) and Bell Canada International Inc. (BCI) seems like a good vehicle to help the companies expand their presence in South America, according to analysts.

Telmex, México's dominant carrier, and BCI, the international subsidiary of Canada's dominant telco, announced last week that they plan to create a new telecommunications company to serve South America. [See "Telmex, Bell Canada Form US$3.5B Joint Venture," June 8.]The move will be fruitful for both companies as they try to increase their business in South America, analysts said. Telmex is a strong player in Latin America, particularly in México -- its home turf, and the joint venture will help it strengthen its presence in Brazil, the region's largest telecommunications market, where BCI owns stakes in several carriers.

Meanwhile, BCI gets the support of a partner with deep pockets, they said.

"The joint venture is very convenient" for both, said Carlos Guzmán, Latin America telecommunications analyst at Americas Telecom Consultants in Washington D.C. "Telmex will put the money, and Bell Canada (will put) its licenses (in South America)."

BCI owns stakes in one carrier in Venezuela, one in Colombia and several in Brazil, according to information on its Web site, while Telmex owns a stake in a wireless carrier in Brazil. Together, carriers in which Telmex and BCI own stakes serve a total of 2.5 million customers in South America, according to the companies.

The new company, to be owned in equal parts by Telmex and BCI, will have an initial market capitalization of US$3.5 billion. That includes $1.8 billion in cash that the partners plan to inject into the new company, plus the assets the partners own in South America.

The new carrier will help Telmex rev its already-roaring expansion motors in the region, analysts said.

"With this new venture, I can assume that Telmex will expand its presence to other Latin American countries," said Michael Krier, a senior analyst of Latin America's telecommunications market at the Strategis Group Inc. in Washington D.C.

The Mexican carrier this year acquired the former state-owned telco in Guatemala and has a joint venture with SBC Communications Inc. in Puerto Rico.

It also owns stakes in carriers in the U.S. and the Virgin Islands and is interested in entering the Ecuador and Honduras markets, according to a Telmex spokesman.

"Telmex is looking for participation in new Central and South American telecom markets and is studying a diversity of projects in the region," according to a statement on Telmex's Web page. "Telmex acknowledges that the future of the telecommunications industry lies on the leadership of four or five international companies," and that's why the company is expanding its presence.

Krier said that Telmex's recent partnership with Microsoft Corp. to launch a Spanish-language Web portal in the region has added credibility to the dominant Mexican carrier, which has been accused by competitors in México, including AT&T Corp. and WorldCom Inc., of engaging in anticompetitive behavior, Krier said.

The new BCI/Telmex carrier will focus on fast-growing markets such as broadband communications, Internet services and wireless service, the companies said.

BCI didn't return calls seeking comment.

BCI had revenue of $557.8 million in 1999, while Telmex had revenue of $7.9 billion in 1998, according to financial researcher Hoover's Inc. Canada's dominant telco, BCE Inc., owns 74 percent of BCI, according to Hoover's.

BCI, in Montreal, Canada, can be reached at http://www.bci.ca/. Telmex, in Mexico City, México, can be reached at http://www.telmex.com.mx/.

(Juan Carlos Pérez in Fort Lauderdale, Florida contributed to this story.)

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