NII Holdings Remains Neutral - Analyst Blog

We maintain our long-term Neutral recommendation for NII Holdings Inc. (NIHD), which means the stock will perform mostly in line with the broader market. The company reported excellent financial results for the third quarter of 2010.

This was primarily due to higher net subscriber addition and record-breaking operating income before depreciation and amortization. Management also raised the company's future financial outlook.

Supported by strong growth of subscriber and positive operating metrics, NII Holdings now expects its full year 2010 net subscriber addition at around 1.45 million – 1.525 million compared to the previous guidance of 1.275 million – 1.375 million.

In the third quarter of 2010, consolidated OIBDA (Operating income Before Depreciation & Amortization) was a record high $390 million, up 30% over the year-ago quarter. Management  has also raised its future financial guidance.

On August 17, 2010, the Mexican Wireless regulator CoFeTel approved the auction bid submitted by NII Holdings Mexican subsidiary Nextel Mexico for a 30 MHz nationwide block in the 1.7 GHz band of wireless frequency. Nextel Mexico is currently working on building its nationwide 3G wireless networks.

The company has around $2.23 billion of cash that will provide the initial werewithal to deploy the 3G network. NII Holdings has decided to launch high-margin 3G services in certain areas of Mexico in the next 12-18 months. Management is expecting huge revenue from this new service beginning 2012.

Nevertheless, the recent decision of Group Televisa S.A. (TV), the largest cable MSO and media company in the Spanish speaking world, to break its existing partnership with Nextel Mexico is a major blow to NII Holdings.

Last February, Televisa signed an agreement with NII Holdings to acquire a 30% stake in the latter's wireless arm in Mexico for approximately $1.44 billion with an option to further raise its share to 37.5%. Televisa's opting out will deny the company a significant chunk of fund for its future expansion.

Moreover, key competitors are aggressively deploying next-generation wireless technologies in major Latin American markets.  For example, AmericaMovile S.A.B. (AMX) has completed rolling out 3G services in Mexico and the major cities of Brazil. It also has 60% 3G penetration in Argentina, Paraguay and Uruguay.

Telefonica S.A. (TEF) rolled out 3G services in Latin America and currently commands a major share of the Brazilian 3G market. Telefonica has also completed the deployment of 3G networking in 8 Mexican and Venezuelan cities.