Telefónica to Exit Mexican Market After Years of Challenges
Telefónica, a Spanish multinational telecommunications company, is preparing to leave the Mexican market, marking a significant shift in the country’s mobile landscape. The decision follows a strategic pivot in recent years, where the company increasingly relied on AT&T’s mobile network for its “last mile” connectivity – an agreement renewed last year – in an effort to reduce costs and boost profitability. This move effectively transformed Telefónica’s Mexican subsidiary into a virtual mobile operator (OMV), a model also utilized by companies like Virgin Mobile and Walmart’s Bait.
The decline comes despite initial success for Telefónica in Mexico, where it once amassed over 24 million customers by consolidating regional networks in the early 2000s. However, according to Ernesto Piedras, director of The Competitive Intelligence Unit (The CIU), unfavorable regulatory changes ultimately undermined the company’s business model and hindered its potential to foster competition within the Mexican telecommunications sector.
A key weakness identified by The CIU was Telefónica’s focus on customers wiht low data consumption, primarily using their services for receiving calls rather than generating revenue through data usage. The firm’s data indicates that a Movistar customer (Telefónica’s brand in Mexico) spends an average of 74 pesos per month, substantially less than the 146 pesos spent by an AT&T user.This lack of profitability led Telefónica to sell its infrastructure and concessions five years ago, leaving its customer base as its primary remaining asset.
Former Telefónica Mexico President Francisco Gil Díaz publicly criticized the handling of telecommunications regulation, attributing the company’s financial losses to poor management by competition and regulatory bodies like COFETEL and the IFT. He lamented the loss of billions of euros invested due to these issues, and the broader damage to Mexico’s competitiveness.
Telefónica’s diminishing market share coincides with the growth of competitors like AT&T, Bait, and Virgin Mobile. As of June of this year, Telcel leads the Mexican mobile market with 66% of revenues, followed by AT&T with 22%. Telefónica holds a distant third place with 6.7%, with the remaining market share distributed among other OMVs. Piedras suggests Telefónica’s exit highlights failures in regulatory efforts to effectively promote competition.
The company currently holds over 23 million customers in Mexico, and the sale process is underway.Beyond One, the owner of Virgin Mobile Mexico, has been identified as a potential bidder, with the transaction reportedly valued at 500 million euros (approximately 575 million dollars). Once aiming to lead mexico’s mobile boom in the early 2000s,Telefónica is now seeking a favorable offer to finalize its departure from the Mexican market.
