Salinas may block Telefonica's Mexican grand plan July 31 2014

Co-owner of Mexico's third cellco, Iusacell, says his stake is not for sale, as Spanish giant seeks acquisitions

By Caroline Gabriel

Telefonica aims to take advantage of the regulatory shake-up in Mexico to improve its position, in a major mobile economy which nevertheless generates less than 3% of its revenue. It is reported to be in merger talks with mobile operator Iusacell, though a deal could be blocked by the latter's 50% shareholder, billionaire Ricardo Salinas.

Mexico is Latin America's second largest telecoms market, but has been dominated by Telefonica's arch-rival in the region, America Movil, controlled by another billionaire, Carlos Slim. However, the regulator is looking to reduce Movil's stranglehold, which could open the door for Telefonica. The Spanish giant confirmed it was in takeover talks with a mobile operator in Mexico, reported to be Iusacell.

That deal would unite the country's second and third largest mobile carriers and would have 27m subscribers in total, but the resulting carrier would still have only 27% mobile share, far behind America Movil with 71m connections. It is not clear it would appeal to regulators either. Although it would create a more viable competitor for the market leader, it would concentrate virtually all the cellphone base, in a rapidly growing mobile economy, in the hands of just two powerhouses - reflecting the Movil/Telefonica near-duopoly which exists in many areas of Latin America, often making it hard for smaller firms to enter or compete.

However, new competition could be introduced when America Movil offloads assets, as Slim is proposing in order to reduce its share voluntarily and avoid more swingeing regulator-enforced actions. One European firm (which may also be Telefonica) and two US-based companies, are reported to be interested.

However, an Iusacell agreement could be scuppered by Salinas, who owns 50% of Iusacell and said on Wednesday that his stake was not for sale. TV giant Televisa owns the other half of the cellco. If Salinas stands his ground, and Televisa does not sell, that might force Telefonica to focus on the America Movil assets. Either way, it is likely that Mexico will end up with a weakened but still dominant market leader, a strengthened Telefonica, and a third player - either Iusacell or a new entrant.

Salinas wrote on Twitter that Telefonica "wishes to buy Grupo Salinas's stake in Iusacell. It is not for sale. I am optimistic about Iusacell's future. We will keep investing to grow." Of course, he may just be looking to drive a hard bargain, while Televisa is keeping its cards close to its chest. It acquired its 50% stake in 2012, when Iusacell was valued at $3.2bn, and has said it will wait for the results of the current regulatory review before deciding whether to invest further in the mobile operator, or potentially sell its stake.

Mexico accounted for just 2.8% of Telefonica's revenue in 2013, according to Bloomberg, less than Argentina, Chile, Venezuela, Peru and Colombia.