Not that Pegaso's Mexican counterparts are mere bystanders. Televisa's Tijuana TV station doubles as a base for switching operations. In Mexico City, its strategically placed antennas provide valuable real estate in the difficult search for available rooftop relays. More importantly, as Mexico's most-watched TV network, it serves as a powerful advertising vehicle and an informed source for marketing strategy -- particularly when televising soccer games. Through Burillo's influential ties, the Pegaso logo has made it onto the uniform of the Mexican national soccer team as well as into the country's two largest stadiums.
"Everyone brings a different value-added to the table, and Mr. Burillo has the confidence, know-how, and experience of launching a product in Mexico," says Pegaso's Gutiérrez.
In Tijuana the results are already being felt. Despite the muted traffic at Pegaso's two service centers, the company had garnered 4000 subscribers by mid-year, 30 percent more than forecasted levels, says Daniel Gómez, the company's regional sales director. New customers complain the service is still patchy, but they've been won over by the company's promise to provide better voice quality as well as a new roaming agreement with U.S. telecom Sprint, which will allow them to use their phones across the border in the United States.
Much of the success, says Gómez, is owed to the company's innovative distribution strategy. Through a new product dubbed "Phone in a Box" Pegaso sells its handsets already activated with 100 pesos (about $10) of free time in supermarkets, clothing and convenience stores, and several Televisa subsidiaries, including PayTV outlets and video centers.
Once hooked, the company makes it easy for customers to stay connected. "We're trying to present the telephone business as simply as possible," says CFO Gutiérrez. Unlike other cellular services, which ask for innumerable references before tying subscribers into one of a dozen equally confusing and endless contracts, Pegaso offers three plans: one prepaid and two billing programs. In all cases, no contract is signed, and only a credit card is needed if the client prefers a monthly payment plan. "What the country is looking for right now are new options," says Gómez.
Those new options will eventually include fixed wireless service, currently in the testing stage, and a whole spectrum of data-transmission alternatives ranging from retrieving e-mail to sending short messages by mobile phone. "There is a whole new market opening up," says Ake Persson, president of Ericsson Wireless Communications Inc., a division that the Swedish telecommunications manufacturer recently acquired from Qualcomm.
The acquisition has converted Ericsson into one of Pegaso's two main suppliers and marks the first time the multinational is working with one of its chief industry rivals, Alcatel. On the strength of their experience at Pegaso, the longtime competitors plan to bid jointly on upcoming projects, says Persson, with Alcatel providing the switching and Ericsson, the radio network.
For Ericsson, a traditional supplier to many of the region's wireline monoliths, Pegaso also marks an important new testing ground for its newly acquired CDMA digital technology. The next generation in wireless, "CDMA magic," as it is often referred to in the industry, allows for greater spectrum efficiency, resulting in a higher volume of calls and improved voice quality, thanks to the higher 1.9 MHz PCS frequency.
The combination is increasingly considered the option of the future in Latin America, according to those in the industry. For Ericsson's Persson, it could represent as much as "one-third of the region's future market." Adds Pegg at Leap Wireless, "There is no question wireless is the solution of choice because of the cost factor. There is no digging up of streets or laying wire, and in emerging countries where infrastructure is just beginning, you can put in so much more for the same amount of money at a much faster rate."
In Mexico, the technology is particularly attractive as government authorities aim to double the country's relatively low telephone density to 20 fixed lines per 100 inhabitants by 2005. Their efforts have been somewhat obstructed, however, by Mexico's dubious regulatory climate and the tenacious defense of market leader Telmex.
New entrants like Alestra and Avantel say they have lost millions to unfair practices and outrageous interconnections rates charged by Telmex for outside operators to terminate a call in its network. In the case of calling-party pays, a well-known boon to mobile phone use in several Latin American countries, Telmex successfully blocked for months the introduction of the system, which charges the cost of dialing up to the caller.
When the system was finally launched earlier this year, Telmex added an interconnection fee of six cents per minute compared to a regional average of two to four cents. The high rate made the cost of calling a cellular phone comparable to a national long-distance call.
Regulatory authorities are expected to review rates for calling-party pays by the end of the year, and those at Pegaso are optimistic the system will eventually spark increased mobile-phone use. In the meantime, the company says its strategy is not to steal customers from the competition but to sign on the millions of Mexicans still without a telephone. "Once Telmex realizes there's more business than all of us can say grace over, they will be easier to deal with," says Pegg at Leap Wireless. "Nobody, in all honesty, can tell you how big this market really is."
Reprinted with permission from the Latin Trade magazine.