FORT LAUDERDALE, FLA. (06/21/2000) - ImpSat Fiber Networks Inc. has decided that, to succeed in Latin America's telecommunications market, it needs to shift its gaze from the sky to the ground.
The company, whose targets are businesses, government agencies and other carriers, has traditionally based its business on satellite-based telecommunications services. But to escape this shrinking market with falling prices, ImpSat is investing heavily to build terrestrial fiber-based networks in several of Latin America's biggest markets. It hopes that this change of focus will boost its revenue and push it into higher-growth markets, such as high-speed, broadband Internet access and data transmission.
"We're concentrating on fiber-optic technology. Our growth will be (attained through) terrestrial fiber networks, but we will continue providing satellite-based services for a long time," said Guillermo Jofre, the company's chief financial officer, in an interview this week.
ImpSat expects to finish this year its terrestrial networks in Chile, Argentina and Brazil, three countries whose combined telecommunications services markets now total US$33.8 billion, according to the company's estimates.
Last week, the company announced it would spend an additional $100 million to link its networks in those three countries, a project expected to begin in the third quarter of 2000 and to be completed a year later, and which would increase the network's size by 25 percent, according to Jofre.
"With this new link, we'll have one sole integrated network" linking Brazil, Argentina and Chile, he said, adding that this will allow ImpSat to have more control over its traffic and thus offer better service.
The company, which also operates in Colombia, Venezuela, Ecuador, México and the U.S., is also building a terrestrial ring to serve Perú's capital. It already has about 1,900 corporate clients in the region.
ImpSat also hopes its reinvention will get it out of the red. The company lost $131.5 million on revenue of $228.5 million in 1999. It expects to post profits in 2004, Jofre said. The company isn't worried that its stock price has lately fallen below its IPO (initial public offering) price of $17, because, according to Jofre, ImpSat has enough cash to fund its operations through 2002.
"We're completely financed through 2002, so we don't need to access the market," he said.
In fact, Salomon Smith Barney Inc. this week upgraded the stock from a "2S (Outperform, Speculative)" rating to "1S (Buy, Speculative)" because it believes the company's strategy of investing in terrestrial fiber networks is on target.
"The fiber network will give the company the ability to carry voice and offer Web hosting and other value-added services in addition to data transmission, thereby allowing ImpSat to fully exploit a market opportunity that we project will grow from $500 million today to $23 billion by 2010," reads Salomon's upgrade report.
The market for satellite services, where ImpSat had so far based its business, has become "increasingly marginalized," and ImpSat is at a further disadvantage because, unlike other competitors in this space, it buys satellite capacity to resell it.
"As a reseller, ImpSat will likely be faced with a margin squeeze as prices fall, whilst its capacity costs remain fixed," the report states.
Salomon is particularly bullish about ImpSat's aggressive plans for Argentina and Brazil, two of the region's three largest telecommunications markets and the two largest in South America.
"When completed, ImpSat's fiber network will give the company a virtually unmatched coverage in South America," according to the report.
However, Salomon warns that ImpSat must move quickly because there are hungry competitors going after the same market, such as AT&T Corp.'s AT&T Latin America, WorldCom Inc.'s Embratel and Telefónica SA.
"ImpSat will face competition from incumbent operators and several new network operators. We believe, however, that ImpSat's ability to offer seamless regional coverage, international connectivity and first-to-market status give it several advantage over its competition," according to the Salomon report.
ImpSat, whose owners include Nevasa Holdings Ltd. (48 percent), British Telecommunications PLC (19 percent) and Morgan Stanley Dean Witter & Co. (16 percent), is based in Buenos Aires, Argentina, and can be reached at http://www.impsat.com/.