AT&T Mexico CEO outlines long-term plan to take on Carlos Slim

AT&T is going head-to-head with Carlos Slim in Mexico after a $4.3bn spending spree to snap up competitors, with plans for further investment in the next three years as it vies to become the market leader within a decade.

"We certainly have our work cut out," Thaddeus Arroyo, AT&T's Mexico chief executive, told the Financial Times, a week after regulators approved the company's $1.9bn acquisition of Nextel. This followed the company's $2.5bn acquisition of Iusacell, which closed earlier this year.

Mexico's telecoms sector is dominated by Mr Slim's America Movil, whose Telcel unit has seven out of 10 cellphone lines. AT&T is a minnow in the market. The acquisitions gave it about an 11 per cent market share, but it still has only about half the subscribers of second-placed player Telefonica of Spain. Still, they will allow AT&T to overtake Telefonica in terms of income and have the highest average rate per user in the country.

Mr Arroyo sees five years of "considerable" investment - he declined to reveal the amount - to upgrade its network and to offer seamless North American cross-border services that target Latin American expatriates in the US and their families in Mexico.

"We are moving into a heavy investment period. We are investing for the future in a long-term horizon and you'll see that reflected in our results," Mr Arroyo says.

"The first five years are the heavy investment," he says, with particular focus on the first three during which the company hopes to build a much bigger user base on which to establish industry leadership within a decade.

But Mr Arroyo added that "even in the first two years we'll make substantial progress in terms of elevating the experience in Mexico and creating a compelling proposition for customers to increasingly come to AT&T".

The company already owns the most spectrum in Mexico and Mr Arroyo said it intends "to put it to use to bring more competition".

The government launched a reform of the telecoms sector to encourage more competition. These included forcing America Movil to connect calls to its network from rival operators for free. But that squeezed margins, and Mr Slim last year announced he would sell assets to reduce his market share to below 50 per cent.

The company has since backtracked, confirming in a results conference call last month what it had long been hinting: that it may not sell anything after all.

AT&T had initially been seen as a natural acquirer, as it has been a long-time investor in America Movil until it reduced its 8 per cent stake last year to secure regulatory approval for its $48.5bn takeover of DirecTV.

But Mr Arroyo said: "We have our arms full with what we have."

AT&T also has other capital constraints, including the purchase of $18.2bn of spectrum licences from the US government.

It is all part of efforts to evolve from being a company that derives three-quarters of its revenues from mobile customers in the US - a market in the throes of a price war being won by its smaller competitors - to one that generates most of its sales from Mexican wireless, business services and consumer video.

DirecTV has a 41 per cent stake in Sky Mexico, which is majority-owned by Mexico's leading broadcaster, Televisa. But Mr Arroyo sees no need to rush into video. "Our near-term focus is executing our wireless vision," he said. "The focus now is on the foundations."

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