Telefónica, Telecom Italia grapple with Latin America challenges

Telefónica and Telecom Italia are currently looking at various options for their respective businesses in Latin America as the two leading European operators continue to seek ways to reduce debt at the group level.

Executives from both companies spoke at the recent Morgan Stanley Technology, Media & Telecom Conference in Barcelona, and indicated that some changes could be ahead in markets such as Brazil and Mexico.

Telefónica, for example, said it could be open to mergers, acquisitions and network-sharing deals in Mexico, where it struggles to compete with arch rival América Móvil and currently controls around 20 per cent of the market.

"We are very open minded to consolidation in Mexico," Telefónica COO Jose Maria Alvarez-Pallete said, according to Reuters, and clarified that consolidation could happen through mergers, roaming or network sharing.

Telefónica has operations in several Latin American markets including Brazil, where it competes with Telecom Italia's Tim Brasil unit. After recently announcing the sale of its entire controlling stake in Telecom Argentina to the Fintech Group for a total price of $960 million (€710.3 million), Telecom Italia is also believed to be prepared to sell its Brazilian unit, although the company's new, CEO Marco Patuano, said at the Morgan Stanley conference that such a sale would not be undertaken simply to reduce group debt.

According to the Financial Times, Patuano said that he would have to evaluate not just the "size of the cheque" for TIM Brasil, but whether he could present shareholders with an alternative investment plan. Telefónica, which is a key shareholder of Telecom Italia via the Telco vehicle, is understood to support the sale of Tim Brasil.

Telecom Italia is also close to the conclusion of the sale and lease back of its mobile towers in Italy and Brazil, from which it intends to raise at least €2 billion ($2.7 billion).

"We assume that it could be second quarter of 2014 for marketing the Italy deal, and for Brazil the process is still in an initial phase. So we will do that sometime in 2014," Patuano said, according to Reuters.

A primary objective for Patuano is to reduce Telecom Italia's net debt of around €28.23 billion ($38.15 billion) and enable the operator to regain investment grade credit ratings after its rating was downgraded to "junk" status by Moody's and Standard & Poor's.

Patuano recently unveiled a plan that will see the Italian operator invest €3.4 billion ($4.6 billion) in next-generation networks, cloud computing and LTE and raise funds of around €4 billion through the sale of the Argentina unit and other assets, and the issue of up to €1.3 billion in mandatory convertible bonds.

Telefónica is under similar pressure to reduce debt, and recently said it has already met its target to cut debt below €47 billion by the end of the year. The operator has already agreed to sell non-core assets such as its units in Ireland and the Czech Republic, and plans to focus on key markets such as Spain, Germany, the UK, Brazil and Mexico.

For more:
- see this Reuters article
- see this Bloomberg article
- see this separate Reuters article
- see this FT article (sub. req.)

Related Articles:
Telecom Italia sells Argentina unit for $960M
Telecom Italia unveils new strategy, plans €3.4B investment
Report: Telecom Italia mulls €9B sale of Brazilian unit
EU to probe Hutchison's bid for Telefónica Ireland
Telefónica agrees to sell Czech unit for €2.5 billion

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