Nextel faces challenges in Brazil

Liquidity issues hit the company as it struggles to transition to 3G services

NII Holdings, the US company providing wireless services in Latin America under the Nextel brand, is facing major difficulties in Brazil as it attempts to move away from its previous push-to-talk (PTT) offering to focus on the provision of 3G services.

The telco reported widened group-wide net losses of $745.8m in the fourth quarter, from $592.9m a year earlier and operating revenue down 21.7 percent to $1.08bn. Results for the Brazil operations for 2013 include a drop in revenues by 23.5 percent to $2.11bn, while Mexico, the company's other key market, suffered a 9.9 percent hit to $1.83bn.

Overall, NII reported a net loss of 247,000 subscribers during the quarter, bringing its customer base to 9.5 million, down two percent from the previous year. The large drop in PTT subscribers was partly offset by an increase in the company's 3G offering. Churn grew to 3.85 percent for the quarter from 3.4 percent a year ago. NII attributes much of the losses to challenges seen in its Mexico operations.

According to the company's chief financial officer Juan Figuereo, the company's Brazil operations faced financial difficulties due to the delayed launch of its local 3G offer in the fourth quarter, which had a negative impact on its competitive position.

After becoming a massive hit at the start of the decade, Nextel's push-to-talk technology grew less popular in Brazil over recent years, with customers fleeing the network in droves.

The firm then started a restructuring programme In Brazil to compete with the other four local mobile phone operators, which included major marketing campaigns for its 3G networks, better value plans, as well as an improvement in the range of handsets it offers and investment in coverage and capacity.

Improving coverage is a crucial factor in improving Nextel's image and consumer confidence in Brazil in its goal of changing its market focus to a nationwide 3G operator rather than as a regional PTT player, while reversing its financial fortunes.

"We are starting to change the conversation in Brazil by creating a new market perception of who we are, what we offer and what our brand stands for," said Gokul Hemmady, chief operation officer at Nextel Brazil.

"Our network performance statistics have improved, including lower blocked and dropped calls. And today we believe that where we have 3G coverage we have the best network quality in the market," he added.

"However changing the negative customer perception of our service in the market will take time and will not be solved by us saying that our networks and customer service are better. We must prove it."

But NII's urgent need to improve its liquidity position means that despite any future growth plans, all bets are off. During the company's earnings call, chief executive Steven Shindler indicated that selling either the Brazil or the Mexico operations could be an option.

"I think it's fair to say that we will evaluate all alternatives and based on what becomes available to us and its attractiveness and what it might mean for us to address the liquidity situation at the rate at which we need to invest to generate that growth," Shindler said.