Why is Trilogy International pulling out of Bolivia?

Some 18 years after setting foot in Bolivia with the acquisition of NuevaTel, Trilogy International is now pulling out of the Andean nation, and effectively the region.

As announced this week, for a “nominal consideration” Trilogy is selling its 71.5% controlling stake in NuevaTel, which operates under the Viva brand, to the Balesia group. Balesia develops, owns and operates telecom towers, IoT edge and multi-edge computing technologies across Latin America. 

Trilogy did not elaborate on the particular details of the sale. 

Bolivian telecommunications cooperative Comteco owns the other 28.5% of NuevaTel.

In an earnings call with investors on Thursday, executives only highlighted the previously disclosed terms of the agreement with Balesia and stressed that they expect the deal to be closed in the second quarter.

“Upon the closing of this transaction, all assets and all liabilities transition over to Bolivia,” said Brad Horwitz, co-founder and CEO of Trilogy.

The fact is that Trilogy was in talks with potential buyers on the sale of its stake in the Bolivian company prior to the pandemic. But the health crisis, coupled with social unrest and political instability, hampered the possibility of any real progress in discussions with a potential buyer.

Trilogy's woes are not limited to Bolivia. Last December, the group announced a sale agreement for its only other operating telecom business, New Zealand's 2degrees, to Voyage Digital. The sale was approved by shareholders in March. 

Both New Zealand and Bolivia, the former in particular, imposed tight mobility restrictions to fight COVID-19. However, in Bolivia, the consequences of the pandemic and related public restrictions have been more pronounced, and the impact on NuevaTel's financial results was more significant than in New Zealand. 

Over the course of 2020 and 2021, NuevaTel faced reductions in key financial metrics, including revenues, Ebitda and subscribers.

“Amidst the ongoing impact of COVID-19 on the local economy, NuevaTel did not meet management's expectations regarding recovery of its business and financial performance during the third quarter of 2021, particularly considering the sequential quarters of negative Adjusted EBITDA during a period when management expected a return to a positive trajectory,” the company said in its financial statement.

HITTING THE BRAKES

Despite cutting its Bolivian workforce in late 2020 and reducing capex heavily, Trilogy said that the measures were not enough to preserve adequate liquidity, blaming the "prolonged effects" of the health crisis on its business.

Trilogy then started negotiating extended payment terms with suppliers, further controlling costs and limiting capital expenditures. 

In 2019, already pressed by costs, Trilogy announced a deal to sell and lease back its 600 NuevaTel towers to the local subsidiary of Phoenix Tower International (PTI). 

That sale was announced for US$100mn and, under the terms of the agreement, PTI would lease back certain wireless towers for NuevaTel's use over a multi-year period. 

It is not clear how the sale of control of NuevaTel to tower firm Balesia will impact PTI's tower contract with the telco. BNamericas contacted PTI for comment but did not have a response by press time.

Earlier in March, Fitch Ratings said it planned to withdraw its ratings on Trilogy International Partners "for commercial reasons".

Fitch's last action with regards to the long-term notes for Trilogy was in June 2021, when they were affirmed at 'CCC+', one of the lowest for telecom groups with Latin American operations. Only Brazil's Oi, which has been in judicial reorganization since June 2016, has a similar rating.

Fitch said that Trilogy's 'CCC+' rating reflected its “small scale, material exposure to the higher risk operational environment in Bolivia, challenger brand strategy, low profitability and constrained financial profile.”

Fitch also noted that NuevaTel had faced cash flow deterioration for many years, due to the competitive environment from mobile number portability, social unrest due to political instability and aggressive promotional offers, resulting in significant subscriber and ARPU erosion and, more recently, the coronavirus pandemic.

Furthermore, NuevaTel was historically a dividend contributor and had paid out more than US$300mn to Trilogy since 2008. However, due to the deterioration in the Bolivian operations, Trilogy became solely reliant on dividends from the New Zealand operations, said Fitch.

BALESIA

Balesia says it provide towers and related wireless infrastructure, such as small cells and distributed antenna systems (DAS) in different Latin American markets.

The company says its focus is to deploy infrastructure for telecoms on light and other poles on roads, green spaces, buildings and other spaces owned by municipalities, as well as managing the use of fiber for the deployment of value-added services, such as cameras, Wi-Fi, etc.

The group reports having towers in Mexico, Guatemala, Nicaragua, Costa Rica, Ecuador, Peru and Argentina, in addition to Bolivia.

MARKET

In Bolivia, NuevaTel competes against Tigo, a subsidiary of Millicom, which has a much stronger business and financial profile, and with state-run telco and market leader Entel.

Entel leads the Bolivian market with a market share of around 50%, with Tigo coming at 37.6%. NuevaTel-Viva has the remaining 12.9%. The figures were shared by Bolivian daily El Deber and attributed to Pacific Credit Ratings. Local authorities do not provide updated statistics on companies' market shares.

Millicom projects that its investments in Latin America will average US$1bn per year for the next three years, with a significant slice of that going to Bolivia.

In 2021, Millicom surpassed US$1bn in capex, with the figure ending the year at US$1.11bn, an 18% increase over 2020. For the fourth quarter of 2021, Millicom's investments amounted to US$417mn, up 16.4% year-on-year.

Millicom also reported US$157mn service revenues in Bolivia in Q4, up 5.8% year-on-year.

Trilogy, in turn, invested US$11.8mn in Bolivia in 2021, as Horwitz said in the earnings call, and US$1.4mn in Q4. 

NuevaTel's service revenues were US$125mn in the full year, down 17%, and reached US$29.2mn in Q4, down 22%. Trilogy’s total revenues reached US$654mn last year, up 7%, and US$169mn in Q4, which was flat year-on-year.

Trilogy International Partners Inc. was founded by John Stanton, Theresa Gillespie and Horwitz, who the company claims have a track record of “successfully buying, building, launching and operating communication businesses in 15 international markets and the United States.” However, all of them are now gone. 

Trilogy sold Comcel Haiti to Digicel group in 2012 and Trilogy's Dominican Republic operations, Trilogy Dominicana (Viva), to Telemicro Group in 2015.

NuevaTel in Bolivia was the final chapter for the group in the region.