Nii Holdings

Business strategy |
NII Holdings |
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Luis Naval |
27/11/2012 |

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Issues
* NII faces increasing competition from local and global telecom competition, thus risking not being able to charge higher prices for its services.
* NII is a latecomer in 3G technologies which could lead to missing out this opportunity to competitors with greater expertise in this area.
*This company is highly dependent on Motorola to develop innovative products; as such it bonds its future to the other company’s performance and risks losing customers to other companies who offer a larger variety of cell phones
* NII Holdings lacks economies of scale, as such it fails to offer lower rates and takes chance of increasing its churn rate and lowering its ARPU levels
* Thequality offered by this company, which has contributed to the differentiation from its competitors, may be compromised through the aggressive expansion
* NII operates in countries with highly volatile currencies, which leads to large fluctuations in Net Income.
* There is not only no Motorola phone among the top 10 best selling Smartphones, but they score only as average on the BusinessWireless Smartphone Customer Satisfaction Study, which is far below the most successful ones from Apple, Blackberry and Samsung
* NII’s continued profitable growth will largely depend on subscriber base growth in Brazil and on new 3G networks in Peru and Chile. Heavy investment in Brazil may be risky for this company, taking into account that its current customer base there is of only 1.8 million.* The company has $0.37 as a long term debt for every dollar it has in assets
* To this point, NII Holdings has been growing through acquisitions in international markets where it held SMR (Specialized Mobile Radio) channels
* Total current liabilities have almost tripled in the last 3 years which resembles the situation that caused our bankruptcy in 2002
Issue 1:
“NII Holdingslacks economies of scale, as such it fails to offer lower rates and takes chance of increasing its churn rate and lowering its ARPU levels”
Why did I pick this Issue?
For starters, the company’s low churn rate is one of its key distinguishers from its competitors. However, this competitive advantage could be at risk if consumers start choosing competitor’s who offer similar services at lower rates.Moreover, NII Holdings has been able to charge premium prices so far due to a lack of competition in the PTT technology segment. With the approaching America Movil´s intentions of improving its PTT platforms, it may not longer be able to do so.
So far, NII’s competitors have been focusing on the prepaid segment; thus allowing this company to benefit from this niche market. Nonetheless, as timegoes by and the postpaid market gains importance, these competitors (namely Telefónica S.A. and America Movil) will increasingly offer this postpaid service as well, which will lead to lower ARPU levels on our company’s side as a price war is likely to occur.
In addition to that, this telecommunication company is the smallest one among its competitors, so it has a clear size disadvantage whenit comes to large investments.
Recommendation:
I recommend that NII Holdings establishes a strategic alliance with America Movil in the whole Latin American postpaid market. By combining our efforts, both our company and this telecom giant would be better off, since they both possess what the other one lacks of.
On the one hand, NII could make use of the other company’s network helping us tobenefit from their economies of scale and being as a consequence able to charge lower rates. In addition to that we would further expand our presence in markets where it had been weak due to our more modest networks. This would lead to maintaining low churn rates and increasing the ARPU levels in the medium to long run.
In exchange, we would supply them with the PTT technology and our postpaid...