The Latin American telecom operator NII Holdings Inc. (NIHD) has failed to establish its iDEN walkie-talkie based phone service as a potential replacement of other digital technology formats, such as GSM or CDMA, used by mobile-phone giants in Mexico.
The company, which provides telecom services under the Nextel brand, is facing severe competitive threat from America Movil S.A.B. (AMX - Analyst Report) and Telefonica S.A. (TEF - Analyst Report). These companies are aggressively deploying 3G wireless technologies in major Latin American markets, offering faster download speed for smartphones.
Mounting competitive pressure is resulting in substantial subscriber loss for NII Holdings. Despite a $1.5 billion investment in its iDEN network, management estimated that the company is likely to lose around 650,000 subscribers in Mexico in 2013.
Recently, NII Holdings announced that it expects to lose approximately 400,000 subscribers in Mexico during the ensuing fourth quarter. The forecast is based on the modification of its customer deactivation policy for inactive prepaid subscribers.
In the U.S., Sprint Corp. (S - Analyst Report) was the largest provider of iDEN network. However, the company completely abandoned this technology in 2013. NII Holdings is dependent on a single infrastructure supplier, Motorola Solutions. The company confirmed its deal extension with Motorola Solutions for the supply of iDEN handsets and iDEN network infrastructure through Dec 31, 2014.
iDEN technology is not as widely used as other digital wireless networks. As a result, the company’s competitors, which use GSM or CDMA technology, benefit from economies of scale, and lower costs of handsets and infrastructure equipment.
In the third quarter of 2013, NII Holdings’ total revenue was down 21.7% whereas net loss was up a whopping 255.7% year over year. Customer churn was 3.59% compared with 2.54% in the prior-year quarter. Average revenue per user was $31 against $40 in the year-ago quarter.
The company has decided to reduce its headquarter’s workforce by over 25% along with eliminatiion of over 1,400 manpower in market operations. This restructuring process is aimed to streamline management’s structure, which is expected to improve efficiency and reduce costs by $50-$55 million per annum. Currently, NII Holdings carries a Zacks Rank #3 (Hold).