Claro VTR, result of Carlos Slim’s worst deal in telecommunications in Chile

America Movil y Liberty Latin America managed after a year to unify the businesses of their Chilean subsidiaries Claro and VTR into a new entity that as of this week is called “Claro VTR”, and with a market served of ten million customers, including cellular accesses, fixed telephony, video and Internet nationwide in Chile.

The goal of the new entity is to integrate the mobile and cable businesses into a 50/50 company owned by its parent companies in just over a semester, to then start with an investment plan for the deployment of fiber optic networks and then be prepared with the offer of products from fifth generation (5G) for mass market and industries.

Clear VTR It had 6.97 million mobile users after the announcement of the union in 2021, of which 58.74% corresponded to the lucrative postpaid market, and with almost four million subscriptions between telephony, Internet and television that VTR in turn provides.

The National Economic Prosecutor of Chile (FNE) validated this week the formation of the new company, because after his investigations he ruled out that risks such as an increase in prices or a decrease in the quality of service to the final consumer by this association may arise.

Among the conditions, the FNE ordered Claro VTR to release 10 MHz of frequencies in the 3.5 GHz band, among the ideal ones to sell 5G services and that mean, in simple parameters, 30% of what Telcel has in Mexico in the same radio band. You also have to get rid of another 10 MHz in the 1.7/2.1 GHz (AWS) band.

The new company began this Thursday to send communications to its consumers that the services will continue to be offered separately by each of the old brands for a few months, because the first commitment is to accelerate the digital transformation in Chile. “We are optimistic about the future,” said an excited Claro VTR to its users in text messages and by email.

In the past, the chilean market was not friendly with Claro, despite this being the local subsidiary of the most important telecommunications group in Latin America, and was on the verge of making Claro the fourth largest mobile operator in the country, while VTR has also suffered from other cable companies that have rushed investment in the reconversion of coaxial and copper cable to fiber network deployments, so a union between the two firms was, to a certain degree, natural to face Wom, Mundo Pacífico, Movistar and the powerful state-owned Entel that in In the last five years they have been subtracting market from both Claro and VTR.

“VTR is a relatively large company with a long history, with a history in the coaxial market in pay television and fixed telephony, and it also had spectrum but was not using it. And Claro has never been able to take off from third place in Chile, although its main focus was on the mobile and satellite telephony segment,” said Pedro Huichalaf, Chilean Undersecretary of Telecommunications between 2014 and 2016.

The logic of the Chilean telecommunications market forced clear y VTR to unite so as not to lose any more money, and followed the path that Movistar and the KKR fund had already traveled some time before to create a new company that has the goal of bringing optical fiber to homes in Chile. And a similar case is Wom’s alliance with Mundo Pacífico to offer mobile services and fixed broadband, which to date exceeds 2.6 million homes passed with state-of-the-art fiber, in both cases, directly impacting Liberty’s VTR.

The effects of these other business strategies are felt too much by Claro, which links five years of financial losses. Only in the year 2021 that company had a operating loss of 76.9 million dollars for its Mexican parent company and during the hard year of the pandemic, 2020, Claro lost around 440,000 mobile phone users and just over half a million in the comparison of that year with the exercise of 2017.

As of the second quarter of 2022, Claro presents revenues of 199.5 million dollars in the period, equivalent to a decrease of 3.7% compared to the same quarter of 2021. And its ARPU is also falling quarterly, of 3.77 dollars at the end of last July compared to with the 4.85 dollars of July 2021. Five years ago, Claro achieved an ARPU of 6.5 dollars in Chile, which by then was already lower than the 8.5 dollars that Telcel reported in Mexico in July 2022.

Claro Chile advances in attracting users, since at the end of last July it was close to 7.23 million mobile clients, but the advanced Wom also reached 7.4 million subscribers in July, after gaining 678,000 new cellular clients, with which Claro Chile becomes in Claro VTR being the fourth local cell phone operator after being displaced by an operator that for some is still a recent entry. Wom apart announced the deployment of its 5G cellular coverage to potentially cover 15 million Chileans, hence the urgency of Claro and VTR to join forces.

Contrary to Claro de América Móvil is the State Entel, which in the second quarter reported a profit of 340 million dollars and 10.1 million cell lines, of which half a million are 5G clients and with an ARPU of 7.9 dollars, synonymous with the fact that state-owned telecommunications companies do not always result in bad business. That is why the first director of Claro VTR is the executive Alfredo Parot, who worked for 16 years in the commercial areas of Entel.

“The market has ordered companies to diversify (…) Before, each one was more of a specialist, such as in the business of fiber deployment or Internet provision, but now the infrastructure sharing logic has changed for new technologies such as 5G (…) So they are not merging, they are creating a joint venture to provide more efficient telecommunications services, and the authority is also establishing mitigations in the mobile segment for all that amount of spectrum that they now have together, but that are not It is reflected in the number of clients,” said former Undersecretary Pedro Huichalaf Roa. “I would now hope that with this action the companies Claro and VTR will make the use of resources more optimal and the management of clients more efficient”.