33958 - VMLA - Mexico

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Summary of Investment Information

Project Number

33958

Company Name

VIRGIN MOBILE MEXICO S. DE R.L. DE C.V.

Date SPI Disclosed

Nov 20, 2013

Country

Mexico

Region

Latin America and the Caribbean

Projected Board Date

Dec 20, 2013

Environmental Category

C - No Impact

Status

Completed

Last Updated Date

Jan 7, 2025

Department

TMT, Venture Capital & Funds

Industry

Telecommunications and Technology

Previous Events

Approved : Mar 19, 2014
Signed : May 30, 2014
Invested : Jul 17, 2014

Sector

Mobile Telephony

Project Description

IFC will be providing a financial package of up to US$25 million to fund VM Mexico (“VMM” or “the Company”). VMM will be offering mobile phone services primarily to the youth segment, with a targeted offering that will expand mobile broadband usage with attractive data packages.

VMLA (the “Sponsor”) has Mobile Virtual Network Operator (“MVNO”) licenses in Chile, Colombia, Mexico and Peru.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	12.50
Equity

Development Impact

1) Innovation/Demonstration Effect: MVNOs are relatively new in LAC. The business model provides tangible benefits to all participants (i.e., MVNOs, Mobile Network Operators ("MNO"), regulators, and most importantly, the consumer). The MVNO model allows for a deeper penetration of services (i.e., including mobile broadband, etc.) as poorly attended client niches (i.e. youth) obtain a well targeted service offering more aligned to its needs and expectations.
2) Broadband / Productivity enhancement: VMM offers a data centric service offering. Broadband directly contributes towards improving productivity. The contributions of broadband connectivity to economic growth, and as a kick-starter of other innovative business models (e-health, e-education, e-commerce, etc.), is widely accepted.
3) Infrastructure Sharing: This is a key theme in IFC''s TMT sector strategy. As such, MVNOs operate over existing telecoms infrastructure, thus maximizing efficiency, while increasing competition and reducing prices. The owner of the core infrastructure (i.e., MNOs) also benefits as it revenues increases by selling additional minutes and data wholesale. This is particularly relevant for an operator such as Movistar, whose network in Mexico is not fully utilized. Also, MVNOs have no substantial infrastructure or facilities, so they are unlikely to create E&S risk.
4) Availability, affordability & inclusion of underserved markets: MVNOs contribute to expanding the reach of underserved population segments, lowering the cost and increasing competition in mobile telephony. This is critical in Mexico, which has one of the least developed telecoms sectors in LAC as a result of a dominant player inhibiting competition and keeping prices very high by regional standards. MVNOs are fully aligned with the regulator''s objective, particularly after the recently enacted telecoms law (June 2013) which has as main objective to reduce America Movil''s (Telcel) grip on this market.
5) Youth: VMM directly targets the youth segment. Youth in general have a lower purchasing power than other population segments, and thus, a targeted and relevant service offer contributes directly to attending this segment''s needs.

1) Long term financing across the region: MVNO greenfields face difficulties in raising non-recourse financing. Traditional financiers do not fully understand the MVNO business model, and the asset light balance sheet does not provide required collateral. Thus, IFC support is critical.
2) Stamp of Approval: Sponsor sees significant value in IFC''s involvement, as a way of further validating the business model across the region, particularly after IFC''s involvement in Chile and Colombia). IFC participation would provide comfort to other investors, which are being mobilized in this investment. Also, IFC''s involvement will act as a catalyst to promote further competition in the Mexican market.
3) Support an existing client to expand across LAC: VMLA has plans to eventually launch a total of 8 operations.
4) Knowledge Sharing: VMLA sees value in a financial partner with deep telecoms experience and who can understand the MVNO business model and recognizes its potential.
5) Mobilization: Funding of Mexico''s operation will require IFC attracting a co-investor.

E&S Category Rationale / Risks and Mitigation

VM Mexico will operate virtual mobile telecom services using leased spaces in an office building and a data center, including basic network and call center equipment but no other infrastructure. Therefore, the main environmental and social risk in this project will be in its management of human resources, and that risk is expected to be low. As a result, the project is classified as Category C according to IFC''s environmental and social review procedure.

Contacts

For Inquiries About the Project, Contact

Peter Macnee
President & CEO VMLA

Lynex Chambers
PO Box 4408
Road Town
Tortola VG1110
British Virgin Islands
Telephone: +1-201-248-4465
Fax: n/a
Email: mailto:peter.macnee@virginmobilelatam.com

Guillermo Mulville (Team Leader)
Principal Investment Officer - IFC
Tel: +54.11.4114.7206
Email: mailto:gmulville@ifc.org

Pablo Piffaretti (Transaction Leader)
Associate Investment Officer - IFC
Tel: +54.11.4114.7221
Email: mailto:ppiffaretti@ifc.org

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