Telcel, the main unit of America Movil, added 2 million new users in the last three months of 2001. As Telcel's domination of the wireless market grows, Mexico's smaller mobile telephone companies become targets for ongoing consolidation. With Telcel switching to Global System for Mobile Communications (GSM) technology which allows it to add data services over mobile telephones, its service will improve, making it even tougher for competitors.
Under these conditions it came as no surprise that Spain's Telefonica which acquired Motorola's mobile telephone operations in northern Mexico in 2001, announced the acquisition of 65% of Pegaso, paying $70.5 million and assuming responsibility for Pegaso's accumulated debts. Under the deal, Grupo Burillo will continue to hold 35% in Pegaso, but a future capital expansion will allow Telefónica Móviles to increase its ownership to 92%, with Grupo Burillo holding the balance.
Telefonica Moviles Mexico ended December with 1.2 million clients in the regions in northern Mexico where it operates and hopes to have 2 million by the end of 2002. Telefónica will fold Pegaso's digital network and two-million customers into Telefónica Móviles Mexico, making it the country's second-largest wireless phone operator.
Grupo Iusacell, which is 39.4% owned by U.S. telephone giant Verizon Communications and 34.5% by British company Vodafone Group Plc, is lagging behind both Telcel and Telefónica Móviles Mexico. Iusacell in an attempt to revive growth changed its strategy to focus on prepaid clients. While contract clients are more profitable, Iusacell's previous attempts to capture these higher-quality clients. But the company found it could not compete with Telcel, the dominant player in this segment.
Unefon, a venture started by TV Azteca with a strategy aimed at low-end consumers, is another Telcel competitor that has been rumored to be in talks with international buyers. Unefon ended 2001 with 825,000 subscribers, up from 156,000 at the end of 2000.
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