NII Holdings Inc. (NIHD), a provider of wireless services in Latin America, announced fourth-quarter earnings of 35 cents per share, which was well below the Zacks Consensus Estimate of 55 cents. 

Net income for the quarter increased to $59.6 million from $2 million (a penny per share) reported a year ago on account of higher sales. For 2009, net income rose 11.5% to $381 million, or $2.27 per share, beating the Zacks Consensus Estimate of $2.00.
 
Revenue, ARPU & Churn 

Consolidated revenue for the quarter surged 25% year-over-year to $1.24 billion while operating expenses climbed 27% to $1.06 billion. Revenue growth was fueled by the Brazilian operation which posted 85% annualized growth in sales, more than offsetting declines across Mexico and Argentina. Revenue for 2009 increased 3% year-over-year to $4.4 billion. 

Weak local currencies hurt ARPU (average revenue per user) in 2009 which stood at $45 (down from $55 in 2008). NII remains challenged with higher churn (customer switch) due to aggressive deployments of next generation wireless services by larger rivals like America Movil (AMX) and Telefonica (TEF). Reported churn of 2% for 2009 represents an increase from 1.9% in 2008. 

Subscriber Trends 

NII added 347,000 subscribers (down 3.7% year-over-year) during the quarter expanding its customer base to 7.4 million, up 20% year-over-year. Net additions for 2009 were 1.185 million. Operating results at the carrier’s Mexican operation Nextel Mexico exhibited signs of a slowdown with 77,700 net customer additions, significantly lower than 141,500 net additions registered a year ago, largely due to a weak economy. 

On a positive note, Nextel Brazil remains the primary growth engine with 191,700 new subscribers added in the quarter versus 136,800 customers added a year ago. Net subscriber growth at Nextel Argentina and Nextel Peru declined year-over-year. 

Outlook 

NII also released its 2010 guidance with a net subscriber addition target of 1.275-1.375 million for the year. Consolidated revenue is projected in the range of $5.2-$5.4 billion while OIBDA is forecasted between $1.25 billion and $1.35 billion. Consolidated capital expenditure is projected between $850 million and $950 million, including investments on 3G network in Chile and network expansion in Brazil. 

Expansion of network coverage continues in Brazil with an additional 15 million people covered in 2009. The company spent $733 million in capital expenditures in 2009 with a major portion being devoted to network expansion in Brazil. 

NII is currently expanding the geographic coverage of its iDEN wireless network while deploying 3G services in Latin America . The opportunity to offer advanced mobile data services through 3G is boosting the company’s addressable market and enabling it to better compete with larger peers. 

Mexico’s largest media company Grupo Televisa (TV) recently signed a pact to acquire a 30% stake in Nextel Mexico. Televisa and Nextel Mexico have jointly bid for the spectrum auction (expected during first-half 2010) to build a nationwide 3G network. The joint venture will offer quadruple-play services (wireless, video, data and fixed-line voice) in Mexico. 

Nextel Mexico desperately seeks necessary bandwidth frequencies that support its nationwide deployment of 3G services. The carrier is bidding in the auction for the rights to operate frequency blocks in the 1.7 Ghz (gigahertz) and 1.9 Ghz bands, which will provide it a nationwide coverage. 

We believe NII’s respectable growth prospects driven by the 3G service and expansion in Brazil are partly offset by the risk of doing business in Latin America along with concerns over subscriber retention and currency exchange rate fluctuations.
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