How a Telefónica-América Móvil bid for WOM's assets could change Chile's market

Chile’s telecoms market could change substantially after America Móvil’s Claro and Telefónica announced a deal to explore jointly buying assets of WOM and its affiliates as part of the latter's Chapter 11 bankruptcy process underway in Delaware.

Claro also recently increased its share in VTR to 91%.

Analysts consulted by BNamericas said that while it was too soon to determine any consequences, monopoly regulation will play some role.

Telefónica and America Móvil did not provide details, but in a press release they said that “the interest of both companies in jointly exploring their potential participation in the sale process of the assets of WOM and its affiliates in Chile is based on the potential benefits that the transaction could generate for its clients and Chilean consumers in general, given that it would strengthen the telecommunications sector sustainability, increasing the ability to continue investing and competing in high-speed networks and coverage, which is key to the country's digitization.”

In line with the bankruptcy process rules, bidders must submit an offer before October 18 and a possible auction is planned for November 1. 

An acquisition would shake up the highly competitive market.

“The Chilean market has operated competitively and dynamically for a long time, supporting technologies and practices promptly, where portability has played a role as a catalyst for competition since its inception in the last decade,” Roberto Gurovich, an analyst at G&A Consultores, told BNamericas.

“The problems of the market I attribute mainly to a weakness of the economy to sustain so many operations competing with each other,” he added.

Former telecoms undersecretary Jorge Atton told BNamericas that the competition has led to major decreases in prices but also margins. 

“It was expected that, in the end, there would be consolidation,” he said, adding that Entel may join the bid. A similar scenario emerged in Brazil, where three competitors acquired Oi's assets. 

WOM’s assets include a national 4G network, a 5G network that is 60-70% deployed, fiber optics networks and spectrum. 

In case of consolidation, “I believe that there will be three fairly balanced operators from the point of view of infrastructure and financial strength and that they will be able to compete,” Atton said.

Nevertheless, competition authorities will look into market impacts and spectrum allocation. 

Chile has spectrum caps for 4G technologies, which should be updated, Atton said.

According to the latest figures by regulator Subtel, Entel remained mobile market leader with a 30.8% share in June, followed by Movistar with 28.1%, WOM with 20.5% and Claro with 18.6%. VTR had 1.28% and was followed by Mundo and Virgin Mobile.

A new neutral operator? 

Atton believes that the best model for the Chilean market is to share mobile infrastructure, including towers, fiber optics and sites.

“If there are no entry barriers of any kind and there are service quality requirements for all operators, the truth is that it doesn't matter if there are four or five networks,” Atton said. “What is important is that there are operators that have brand power and financial strength.”

A neutral mobile player could mirror the business of fiber optics operator OnNet, which has a 60% market share and agreements with fixed operators Telefónica, Entel and VTR.

Claro’s VTR acquisition should have only limited impact, as networks and operations were previously combined, Gurovich said. Competition authority FNE is still reviewing the transaction.

Movistar led the fixed market with a 29.3% share, VTR had 23.3%, Mundo 19.4%, Entel 8.1%, Claro 6.8% and GTD 6.7%.

Entel plans to grow its fiber market share at a rate of 5% annually and reach 25% after the approval of its infrastructure deal with OnNet.