Mexico bails out bankrupt shared network operator

Mexico’s telecoms regulator has given the go-ahead for what is effectively a state bailout of Altan Redes, which operates the country’s shared LTE network.

The Instituto Federal de Telecomunicaciones (IFT) said it has approved the financing arrangement Altan Redes announced earlier this month that will see it gain access to a credit agreement worth US$388.1 million. The agreement comes almost a year after Altan Redes filed for bankruptcy protection under Mexican law, before then agreeing a small – relatively speaking – loan of $50 million from shareholders to keep it operating.

This new deal will see Mexico’s state-owned development bank contribute $161 million, or 41% of the total, and suppliers pitching in $166.6 million. Shareholders will provide $50.5 million and clients $10 million, the network operator disclosed.

It’s a Debtor in Possession loan that will, in Altan Redes’ own words, “guarantee the continuity and security of the company’s operations and services, as well as continue with the deployment of the Red Compartida.” That Red Compartida, or shared network, is a wholesale LTE network that covers 79 million people in Mexico, which equates to about 60% of the population, although it is shooting for near-nationwide reach.

The government awarded Altan Redes a 20-year licence to roll out and operate the shared network at the start of 2017, conferring all its available 700 MHz spectrum on the company with a view to improving market competition…which essentially amounted to a bid to curb the dominance of incumbent operator America Movil.

The financial bailout has brought about a number of changes in the T&Cs governing the project, the key one being an increase in the contract term to 40 years with no possibility of extension, from 20 with an extension option.

The IFT also confirmed that the Red Compartida’s deployment timeline us unaffected by the financing deal, however, the goalposts were changed earlier this year from the original plan. The network must now reach 70% of the population by the end of November, 85% by 24 January 2027, and 92.2% a year later. Previously, the network was due to hit that 92% figure by 2024.

It is not just the pace of rollout that has been slower than proponents of the plan envisioned. Uptake has also been an issue.

Altan Redes describes its commercial offer as being “very attractive” for MVNOs and end customers; it has indeed signed up 114 retail providers, but customer take-up is poor. Last month the operator announced it had reached 6 million end users on the network, double the number it had last summer. While that’s a commendable growth rate, Mexico boasts a massive mobile market, the majority of which is not on the shared network. Nonetheless, the company remains bullish.

“This growth is the result of the aggressive business plan that we began to promote at the end of 2019, including the launch of disruptive offers from our MVNOs with plans that are up to four times cheaper than the competition,” said the company’s CEO Salvador Álvarez, in statement accompanying the May customer update.

Competitive pricing is all very well, but if the company cannot sign up retailers with large customer bases – the big MNOs, essentially – no amount of state financing will be enough to save. The shared network needs customers in order to survive.

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