NII Holdings Inc. (NIHD), which offers wireless services through its Nextel brand in Latin America, has agreed to sell its Peruvian business to Chile’s Empresa Nacional de Telecomunicaciones S.A. (or Entel), for around $400 million. NIHD will use the sale proceeds to focus on two of its largest markets, Mexico and Brazil.
Per the agreement, Entel will purchase the shares of Nextel Peru. The deal is expected to close in the second half of 2013, subject to regulatory approvals. Shareholders reacted positively to the news as the stock leaped 7.93% to close at $4.90 in the after market trade on Thursday, in Nasdaq.
Nextel Peru provides wireless services across major business centres in Peru using the W-CDMA (Wideband-Code Division Multiple Access) technology that offers high-speed Internet access. At the end of 2012, Nextel Peru provided services to 1,659,500 handsets and other devices and has contributed only 5.6% to the company’s total revenue.
However, Nextel Peru's 2012 revenue suffered a 2.3% decline as cut-throat competition from larger operators like Telefonica SA (TEF - Analyst Report) and America Movil S.A.B. de C.V. (AMX - Analyst Report) affected its ARPU (Average Revenue per User).
Reston Va.-based NIHD is currently rolling out its 3G service in different parts of Brazil and Mexico. This will allow the company to provide quality wireless services to its high-value customers, thus driving ARPU growth. Last year, in an attempt to improve its network capacity, NIHD won the Brazilian government’s approval to acquire the privately held Unicel do Brazil Telecomunicacoes Ltd.
Offloading the assets will provide NIHD with the much-needed liquidity to continue with its third generation network deployment in Brazil and Mexico. On the other hand, the acquisition will allow Entel to expand its business in foreign countries.
Nevertheless, NIHD remains constrained with its high-leverage position of $5 billion, which we believe might restrict expansion. Thus, despite the sale of one of its loss-making units, we remain sceptical about the success of the company.
NII Holdings currently carries a Zacks Rank #5 (Strong Sell). Among the other companies in the telecom industry, China Telecom Corp Limited (CHA - Snapshot Report), with a Zacks Rank #2 (Buy), is a better option for investors.