U.S.-based NII Holdings, Inc. (NIHD) - which offers wireless service through its Nextel brand in Latin America - will be launching its first 3G service in Mexico shortly. In the last quarter, the company experienced a massive increase in subscriber churn mainly attributable to delay in 3G service launch across its Latin American markets. Consequently, to gain market traction, NII Holdings is looking forward to continuously expand its 3G footprint by making huge investment in Latin American countries like Peru, Chile, Mexico and Brazil. As a result of its aggressive 3G rollout plan, the company has earmarked a huge investment of $3 billion in the Mexican market, which is mainly dominated by America Movil (AMX), holding nearly 71% of the wireless market.
The new 3G service plan will offer a maximum 21 mbps downloading speed supported by HSPA+ technology and will cover important cities like Mexico City, Guadalajara, Monterrey, Puebla and Cancun. The company will offer its subscribers 3G-based smartphones powered with walkie-talkie technology.
From this year onwards, NII Holdings started offering its unique 3G service plan integrated with new Push to Talk (PTT) technology in Peru and Chile. Moreover, inclusion of Mexico (the largest market for the company after Brazil) under its 3G plan from this month onwards and Brazil by the year end will boost both its subscriber and ARPU growth in the forthcoming quarters. In addition, the company has taken other initiatives to rollout more retail outlets in order to attract wider group of customers apart from providing enhanced back office service to its customers.
Despite such expansive initiatives, NII Holdings will face stiff competition from America Movil and other wireless carriers, which have successfully deployed their 3G network across their footprints. Moreover, America Movil will be launching its first 4G services in Mexico from this year onwards, which will further act as a headwind for NII Holdings going forward. Furthermore, NII Holdings' highly leveraged balance sheet (leveraged ratio increased from 0.51 in 2010 to 0.61 in 2011) will hinder its ambitious growth plans.
We, thus, maintain our long-term Neutral recommendation for NII Holdings, Inc. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.