America Movil, the telecoms giant owned by Mexican billionaire Carlos Slim, aims to boost its presence in the U.S. phone market by purchasing California-based firm Simple Mobile, the second acquisition plan the company has unveiled this week.
Fresh from bidding for a bigger stake in Dutch telecoms firm KPN NV, at a cost of around $3.5 billion, America Movil's U.S. unit Tracfone Wireless has set its eyes on Simple Mobile, a mobile virtual network operator (MVNO).
The price tag for Simple Mobile was in the region of $100 million and would not require America Movil to tap debt markets, a person familiar with the deal said.
The move by Slim, the world's richest man, will help his Tracfone business consolidate its presence in the highly competitive U.S. market after showing some contraction in margins and lower client gains in recent quarters.
Between January and March, Tracfone added about 360,000 clients, below the 493,000 clients gained in the fourth quarter of last year and 53 percent less than the subscribers recorded in the first quarter of 2011.
A Barclays report said it considered Simple Mobile a fairly small deal, adding that at the close of March, Tracfone clients were just over 8 percent of America Movil's 246 consolidated wireless subscribers, from the United States to Argentina.
"We estimate that Tracfone's market share on prepaid subscribers in the U.S. is almost 30 percent after this transaction," the Barclay's report said.
The Simple Mobile transaction is subject to approval from authorities but it is expected to close in the second quarter of this year, America Movil said.
Jose Otero, president of Signals Telecom Consulting, said that since the United States has become a crowded mobile virtual network operator market, the deal will allow Tracfone to solidify its base.
"There is an important decline in users, not only at Tracfone but at other operators as well," Otero said. "There are too many carriers betting on pre-pay. (But the deal) consolidates Tracfone as ... the fifth-largest mobile operator."
Mobile virtual network operators buy capacity from larger carriers to resell it to their own customers. The format allowed Slim a quick way of expanding in the United States, where competition and regulation is much tougher than in his home country.
These companies frequently differentiate from each other by targeting particular lifestyles or demographics. While Tracfone is popular among U.S. Hispanics, other groups, for example teenagers, are avid users of its services.
Tracfone is the largest mobile virtual network operator in the United States, where at least 43 such companies operated as of last year, according to the U.S. Federal Communications Commission.
Tracfone, which had more than 20 million subscribers as of March and more than 80,000 retail outlets, offers four brands in the United States: Tracfone, Net10, Straight Talk and SafeLink.
Some analysts dub Slim the "inventor" of the prepaid scheme, which frees customers from binding contracts and allows them to buy air time as they need it.
America Movil, the biggest provider of cellular phone services in Latin America, said on Thursday that Simple Mobile serves more than 1 million active subscribers.
Simple Mobile's website says the company has "over 2.5 million customer activations," suggesting Tracfone may have a shot at luring back those users who are no longer buying air time on a regular basis.
Its business model is also based on prepayment, whereby clients get calls, texts and wireless broadband services.
Otero at Signals Telecom noted that Tracfone's coverage is among the most thorough in the United States, since it buys from the four largest national carriers, plus regional operators, reaching virtually everywhere in the nation.
America Movil's shares slipped 0.41 percent in Mexico and inched up 0.16 percent on Wall Street.
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