Grupo isacell

Harvard Business School

9-395-028
August 5, 1994

Grupo IUSACELL (A)
When a business reaches the fortunate point where demand exceeds supply, there is the risk that quality will become a secondary priority. When a company's reach exceeds its grasp, it fails to target in on the needs of a select consumer group, and it builds a weak foundation for a sustainable profit. So, in periods ofopportunistic growth, it is important to make quality the number one priority. Sustainable competitive advantage and consistent performance are based on a dedication to meeting the expectations of the core consumer. Sr. Guillermo Heredia Cabarga, Chief Operating Officer In his 18-month tenure as the chief operating officer of Grupo IUSACELL, Sr. Guillermo Heredia Cabarga had established IUSACELL as amajor player in the explosive Mexican telecommunications industry. Once a small cellular phone company in one of the largest and fastest growing telecommunication markets in the world, Grupo IUSACELL had ambitious plans to become a full service telecommunications provider in Mexico and throughout Latin America. Riding the wave of the rapid development of the cellular market in Mexico, IUSACELL hadincreased its cellular subscriber base from just 5,000 in 1990 to almost 150,000 in early 1994, and increased its revenues from NPs 367 million in 1991 to NPs 979 million in 1993.1 IUSACELL planned to continue to grow its cellular telephone business, as well as capitalize on its customer base and wireless technology to expand into data transmission and fixed wireless local telephone service. Italso had its sights on long distance service and international ventures. In late 1993, IUSACELL formed a strategic partnership with Bell Atlantic to provide it with the capital, and technical and management expertise to realize its objectives. Heredia acknowledged that IUSACELL was one of only a few communications companies in the world to move into full service communications from a beginning incellular, rather than in basic telephone service. On his early morning horseback ride through Chapultepec Park in Mexico City on a cool day in early spring, 1994, Guillermo reflected on the tremendous opportunities and challenges facing IUSACELL. It was clear that the telecommunications industry in Mexico would continue to experience substantial growth, given the relatively low penetration oftelecommunications services in Mexico, coupled with the expansion of the Mexican economy. While IUSACELL had achieved remarkable growth in the cellular business, it was losing market share, its revenue per subscriber was decreasing, the churn rate (the number of customer deactivations as a percentage of activations) was

13 NPs (new pesos) were approximately equal to U.S. $1.

Research AssociateLinda Carrigan prepared this case under the supervision of Professor Gary Loveman as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1994 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business SchoolPublishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1

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Grupo IUSACELL (A)

increasing, and its operating income hadfallen from NPs 151 million in 1992 to NPs 103 million in 1993. It posted a loss of NPs 93 million in 1993, due to acquisition financing costs. Before launching ahead as a full service telecommunications provider, Guillermo recognized the need to focus on IUSACELL's cellular business. He considered two sets of questions. First, how should IUSACELL define success in the cellular market? What drove...