Telefónica and AT&T team up in Mexico against Carlos Slim’s telecoms emporium

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Spanish telecoms giant Telefónica has struck a deal to use some of U.S. rival AT&T’s infrastructure in Mexico, a move analysts said would better position both to compete with the market’s juggernaut, billionaire Carlos Slim ’s América Móvil .

Under the agreement announced on Thursday , Telefónica will use AT&T’s wireless “ last-mile” equipment – the final link of telecom networks that delivers service to consumers through towers, antennas, and fiber-optic cables.

After a three-year transition period, Telefónica will see savings of €230 million per year , as well as a reduction in net debt of €500 million . Financial terms of the deal with AT&T were not disclosed.

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Analysts framed the deal as a lifeline for Telefónica in Mexico, where the company has long struggled to gain traction. Despite a 2013-14 reform intended to lessen its dominance, América Móvil still holds nearly two-thirds of mobile lines in Mexico, according to data from telecoms regulator IFT .

AT&T, too, has failed to significantly dent América Móvil’s market share since it spent billions to enter the country in 2015 by buying two local carriers.

The agreement will give both Telefónica and AT&T a boost in a brutally competitive market, said Roger Entner , an analyst at Recon Analytics .

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“It’s the two upstarts going up against the big guy,” Entner said. “You need to find all the friends that you can when someone has such a dominant position .”

Telefónica Mexico Chief Executive Officer Camilo Aya

told reporters the deal with AT&T was not exclusive, meaning the Spanish firm remains free to use other companies’ infrastructure. Telefónica will retain control over its operations, and its traffic will remain separate, he added.

Aya said the agreement was part of a global trend to better position companies against rivals.

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“You need a lot of scale to compete in this business,” Aya said at an event in Mexico City.

Telefónica has been outspoken about the difficulties it has faced in Mexico. Miguel Calderón, vice president of regulation at Telefónica Mexico , said the deal would ensure the firm remained in the country.

The Spanish company has also complained about the cost of spectrum in Mexico, lobbying the government for a discount. After the deal with AT&T is complete, Telefónica will no longer need to pay for spectrum, driving down costs.

Mónica Aspe, vice president of external affairs for AT&T Mexico

, described the accord as an innovative agreement between telecommunications companies.

“What this agreement does is strengthen the ability to compete,” she said.

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