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 Business News | July 2007 
Mexico's Telmex Bets on Internet to Drive Growth
 Chris Aspin - Reuters
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| | Telmex Grid Girl (A1GP) |
Mexico City - Telmex, Mexico's largest fixed-line telephone company, is betting broadband Internet will drive growth in coming years to offset modest expansion in traditional phone lines, executives said on Friday.
Telmex faltered on both fronts in the second quarter. Analysts said broadband expansion was "soft," while a decline in the number of traditional lines in use indicated that competition was intensifying.
On Thursday, Telmex posted a better-than-expected 16.4 percent jump in second-quarter net profit despite soft revenue growth and a decline in the number of lines in use.
The number of lines in use fell 82,000, and at the end of June, it had 18.2 million lines in service.
Officials at Telmex, controlled by billionaire tycoon Carlos Slim, said they would push sales of the company's premium, high-speed Internet package, which now has 2.4 million users, or 60 percent of the broadband market in Mexico.
"We have decided that the growth driver in the years ahead will be the broadband services," Chief Financial Officer Adolfo Cerezo told a conference call with analysts on Friday. "So should we expect to see growth in lines, fixed lines? Yes, I think so, but in the low single digits."
Low broadband penetration, executives said, meant huge potential for future growth and would open the door to offering video services in the future -- alongside telephone and Internet -- in the so-called "triple play" market.
In Mexico, broadband service penetration is at only 15 percent of households, partly because only one home in five has a computer.
Telmex is selling computers in an installment plan -- 36 installments for 173 pesos ($16) a month -- as a way to boost computer use, which is key to its Internet drive. To date, Telmex has sold 1.3 million computers.
BOTTLENECKS LIMIT PROGRESS
"Increasing Internet penetration is a priority for Telmex," Chief Executive Hector Slim, a relative of Carlos Slim, told analysts.
The CEO said that since Mexicans without computers were a "bottleneck which limits our progress" Telmex decided to sell computers by installment.
"If we want to evolve the digital culture in Mexico we have to support computer growth," said CFO Cerezo, who added that Telmex was ready to start offering a "triple play" package but gave no start date.
Telmex executives played down that the declined in traditional lines, saying 40,000 of them were Internet dial-up customers who migrated to broadband.
"We have some deactivations that, in some way, they are a consequence of our marketing efforts," Cerezo said.
Analysts still bemoaned the decline.
UBS analysts Carlos Sequeira and Tomas Lajous had expected a gain of 83,000 lines in the quarter. "Pressures from new competitors and mobile services continue," they wrote in a report.
Broadband growth was also weak, they said. "Net broadband adds were 254,000 subscribers in the quarter, versus our 309,000 estimate, even through dial-up disconnections were higher than expected."
Telmex shares were off 2.19 percent on Friday at 19.64 pesos.
Additional reporting by Tomas Sarmiento, editing by J.S. Benkoe - Reuters Messaging: chris.aspin.reuters.com@reuters.net |
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