Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?

Back in late January, I wrote (on my former blog, since handed over to a former colleague) about how Ecuador's struggling state-owned CDMA mobile operator Alegro PCS was the subject of reported offers for prospective strategic partnerships from Uruguay's Antel, and Venezuela's Movilnet, both of which are also owned by the Governments of their respective countries. I noted then that these offers both came from countries which, like Ecuador, have left-of-centre governments. This prompted me to mull over the subject of the possible telecoms sector links between politically sympathetic Latin American countries which I'd learned something about on my own travels in that part of the world. It's a topic I personally find quite interesting, so I took the opportunity to expand on this theme here in March.

Today, thanks to TeleGeography, I received an update on the news item which set this train of thought in motion - the state of play at the ailing Ecuadorean cellco. In January, I'd reported news that Alegro PCS was said to be 60 to 90 days away from reaching an agreement with a foreign strategic investment partner. This has clearly taken a bit longer than anticipated to play out. Today's news from TeleGeography suggests that the cellco is now still "approximately two months away from reaching an agreement" with a partner. The article does not clarify which company this partner is likely to be, simply repeating the ones mentioned at the start of the year, which included Telekomunikasi Indonesia (Telkom) as well as the Venezuelan and Uruguayan parties. The fact that this back on the news wires, however, might suggest that some progress is being made.

If a deal of this sort is not reached, it looks as though the Ecuadorean Government will force the sale of Alegro PCS, according to the country's President, as quoted in the TeleGeograpy article, which also notes that the CDMA operator has had to delay a plan to roll out GSM infrastructure due to a lack of capital and is instead currently using wholesale GSM capacity from larger rival Movistar Ecuador. This move has yet to make a significant impact on the operator's feeble market share. When I first visited this story in January, Alegro PCS had just 1.31% of the country's mobile subscriptions according to December 2008 figures from WCIS. That figure had improved only very slightly to 1.34% by March this year.

With high reported debts and such a tiny share of the market in a country of just 14 million people, I wonder how attractive Alegro PCS is going to look to any prospective buyer if a sale does become necessary in the view of the Government. The toughness of the competitive environment is compounded by the fact that in addition to Telefónica-backed Movistar, the Ecuadorean market is home to an MNO which is part of the powerful América Móvil group, a venture of Mexican multi-billonaire Carlos Slim Helú. It gets worse. The country's 87.15% mobile penetration rate does not leave boundless room for growth, even for the two powerhouse-backed operators currently splitting the bulk of the market between them.

So it remains to be seen what the future holds for struggling Alegro PCS. I can't decide if rescue from a telco owned by the state agencies of some politically sympathetic government will ensure the long term survival of the MNO or just delay, at some cost to the friendly partner, the eventual demise of a company caught between the vastly superior resources of two powerful competitors. I'll have to have a look some time to see if there's a precedent anywhere else in Latin America for a cello successfully competing with both of the region's two dominant telecoms groups in a relatively small market. It sounds like a tough position to be in.

Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?