Teléfonos de México (Telmex) begins its activities first in Argentina through an alliance with Techtel, the telecommunications company owned by the Techint Group, and it plans to also provide services in Chile, Uruguay, Paraguay and the South of Brazil.

When in early June Telmex announced an agreement with Bell Canada International (BCI), Carlos Slim Helú, Telmex’s president, announced that he intended to become an operator with a presence in the entire continent. One month later, he partners with a company in the South: Techtel, the communications branch of the most important industrial and construction group in Argentina.

Both companies will make a joint capital contribution of US$ 125 million. The contribution ratio of each company has not been disclosed yet, because Techtel’s value is still being discussed, but the final equity ownership will be 60% held by Helú, and 40% held by Techtel.

According to Héctor Masoero, Techtel’s president, “the management of the company will be shared and each company will have four representatives in the board of directors.” Another source added that they will include special clauses pursuant to which certain critical decisions will have to be agreed upon by both parties to become enforceable.

Regarding the Argentine market in particular, Techtel is again encouraging its goal of being ready to provide telephony services on November 9th, the date scheduled for the deregulation of that country’s market. They expect to raise US$ 6 million from the provision of data transmission services in 2000. But they plan to book total sales for US$ 30 million one year later, and 50% of that amount should come from the provision of local, long distance or international telephony services, which licenses are held by the company and would be started up as of the opening date.

Techtel was awarded the 10.5, 28 and 38 Ghz frequencies in the Argentine territory, and they are experts in LMDS technology. They are planning to deploy a fiber optres and goes across the country from East to West, ending in Mendoza, a city located at the foothills of the Andes. They have already built 300 kilometers of a total of 1,500 kilometers intended for communications transport.

At the same time, they started to carry out works to provide wireless distribution services in Buenos Aires, Rosario, Santa Fe, Cordoba, San Luis and Mendoza, an area that is big enough for their infrastructure to be within reach of 80% of the population of the country.

They are targeting corporate clients and the ABC1 residential customers. “We do not need WLL because with the 10.5 Ghz frequency we reach buildings, and country clubs can be reached with 2 Mbps, and there we can slow down if necessary,” explained Oscar Loredo, Techtel’s Technical manager.

Extended Mercosur

But beyond the deployment in Argentina, this country will be the landing strip to disembark in the extended Mercosur. By only going across the Andes and reaching Valparaiso, the alliance will have a connection to the fiber optic cables entering the Pacific Ocean.

Techint’s construction division is the most important company in fiber optic laying activities in that country. It has already crossed the Andes for National Grid’s laying. An agreement with that company is the most likely solution to be adopted to reach Chile.

In turn, going down from Buenos Aires southwards, the network will be linked to the Atlantic Ocean fibers in Las Toninas. The combination of these two factors would give the new consortium an excellent international connectivity.

However, they are also planning to reach Brazil by land, to take advantage of the growing trade between the southern region of that country and its Mercosur neighbors.

Continental player

The Telmex-BCI agreement involves a US$ 3.5 billion capitalization. The Canadian company owns CLECs in Mexico and Brazil, wireless companies in Colombia and Venezuela and provides cable TV services in Bvices in Sao Paulo and Rio de Janeiro; it also holds an interest in Canbras Communications Corp., a provider of cable TV services in the same region; and it is the controlling company of Comunicación Celular, S.A., the largest wireless telephony service provider in Colombia.

By the end of the last year, Telmex teamed with Southern Bell Communications (SBC) to acquire an equity interest in Algar Telecom Leste, S.A., a cellular operator with a service area involving Rio de Janeiro. In addition, it has a presence in Ecuador, Guatemala and is seeking to own Hondutel, the state-owned company of Honduras, with a privatization process underway.

Moreover, SBC, the largest of the “baby bell” companies, could join the American crusade, with which the presence in the largest Northern country would be covered.

There are certain affinities and complementarities between the Carso Group, the controlling company of Telmex, and Techint, which owns Techtel. Both are national conglomerates playing on an equal footing with foreign investors.

But Techint, which is very strong in the construction industry, the steel industry and high technology industry, is short however in experience as a telephony operator, other than its brief involvement in Telefónica during the early stage of its privatization. “We needed a strong product developer, with operation and network management expertise,” said Masoero. “We know what our limitations are”, he explained. “Otherwise, we would have partnered with a bank.”