America Movil and Telefonica have partnered to acquire Chilean market rival WOM after the challenger operator filed for bankruptcy early this year.
In a joint statement, the operator groups said they may not submit an offer depending on bidding procedures and regulatory authorisation required due to WOM undergoing bankruptcy procedure. Authorisation is also required from the e National Economic Prosecutor's Office of the Republic of Chile (Fiscalía Nacional Económica de Chile).
The parties said a potential transaction would “strengthen the telecommunications sector” and increase capability to invest in high-speed networks and coverage.
WOM filed for bankruptcy in April after failing to refinance its debts, blaming macroeconomic conditions. The challenger operator rebranded from Nextel Chile to WOM in 2015 to take on Telefonica’s Movistar, America Movil’s Claro and Entel. It directly challenged its rivals with aggressive marketing, and positioned itself as the affordable alternative mobile operator.
WOM’s former CEO Chris Bannister blasted the operator’s owners after departing from the role which he only served in for six months.
GlobalData Research Director, Jesus Romo told Developing Telecoms: "Chile's mobile market is relatively mature, making it challenging for new entrants to sustain their operations. The potential acquisition of WOM by Claro and Telefonica could be a strategic move to consolidate their positions in a competitive market."
With WOM bankrupt Chile is left with three operators Entel, Movistar and Claro. But the latter two are joining forces to bulk up with WOM's assets. Romo noted "Entel, would see increased competition in its core market" depending on the nature of the eventual agreement.
"Entel and Telefonica have been competing near the top in terms of mobile market share, while Claro and WOM have seen fluctuating market shares and are closer to each other in terms of market shares. The acquisition of WOM by Telefonica and Claro could result in a market nearing equal thirds in distribution, prompting Entel to reassess its competitive strategies," said Romo.
"The movement can present opportunities in terms of spectrum distribution. Both Claro and Telefonica hold spectrum in the 700 MHz band, which is coveted for its coverage and any additional capacity would be supplementary. The mid-band spectrum in the 1.7/2.1GHz and 3.5GHz bands is also appealing for operators looking to enhance their 5G networks, specially in urban areas. However, Chile's spectrum cap regulations would need to be factored in.
"Telefonica has shown interest in reducing its exposure in the "Hispam" region, yet remains open to growth opportunities through strategic alliances that allow for risk diversification. The acquisition would bolster America Movil's presence in a challenging market where it has previously considered joint ventures, such as with VTR, that is now set to be controlled by America Movil."
