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The consolidation that began in the North American market with Cingular's acquisition of AT&T Wireless has moved south. It emerged at the weekend that Telefonica's protracted deal to purchase BellSouth's Latin American wireless assets is set to go ahead, making Telefonica the leading mobile operator in the region.

Telefonica beat off rival bidders Telecom Italia and America Movil to purchase BellSouth's Latin American wireless services in a $9.5bn deal.

The sale values 100 per cent of the companies acquired (firm value) at $5.85bn and will be financed with cash generated by Telefonica Moviles and debt, with both Telefonica and its mobile unit maintaining solid credit ratios, according to a statement by the Spanish company.

Reports of a potential deal emerged late last week, but merger talks have apparently been going on for over a year.

BellSouth insists it does not need the cash from the sale to help pay its $16bn slice of the $41bn purchase price of AT&T Wireless by Cingular, although observers suggest the money will help. BellSouth owns 40 per cent of Cingular.

The BellSouth companies that will now come under Telefonica Moviles' umbrella had 2003 total sales of $2.5bn and cumulated core earnings of $867m.

Telefonica was already the main fixed-line services provider to Latin America, but the acquisition now means it will also become the leading mobile player in the region. Telefonica's mobile unit, Telefonica Moviles ,will take control of all holdings that were owned by BellSouth in operators in countries including Argentina, Chile and Colombia.

As a result, Telefonica Moviles will gain 10.5 million additional customers in a region where it is already a very strong player. The acquisition boosts its customer base to 62.5 million customers in total, 41 million of them in Latin America. It will leapfrog South America's current market leader America Movil, which is owned by Mexican billionaire Carlos Slim, the region's wealthiest tycoon.

The South America region is therefore now dominated by Telefonica and America Movil, and the deal could have severe consequences for the region's third placed operator Telecom Italia Mobile, which faces being squeezed by the sheer size of the market leaders.

Source: Datamonitor/ComputerWire

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