Published On: Sat, Nov 8th, 2014

AT&T buys Mexico’s No. 3 mobile operator IUSACELL

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AT&T Inc. (T) is accelerating a push south of the border with its second acquisition in Mexico this year, solidifying a face-off with former longtime ally Carlos Slim.

The U.S. phone company is paying $2.5 billion for Grupo Iusacell SA, a struggling third-place mobile-phone operator in Mexico that competes with Slim’s America Movil SAB. (AMXL) AT&T is already buying DirecTV, a move that aligns it with one of Slim’s fiercest Mexican rivals, Grupo Televisa SAB. To help win approval for DirecTV, AT&T had to sever ties with America Movil.

AT&T is taking advantage of new Mexican telecommunications laws that are promoting competition in the wireless market. Those same rules are why America Movil is looking to sell parts of its wireless and landline assets to reduce its dominant market share. AT&T was among potential buyers contacted about America Movil’s assets, a deal that would further pit the partners of 24 years against each other.

“They aren’t going into Mexico to be the third-biggest carrier. AT&T generally has bigger aspirations than that,” said Roger Entner, an analyst with Recon Analytics LLC. “It makes a lot of sense to do this in conjunction with American Movil.”

“If you put these two together you get about a 30 percent market share and create a strong No. 2 player and not a weak No. 3,” said Entner, who is based in Dedham, Massachusetts.

 

AT&T is gaining 8.6 million subscribers by buying closely held Iusacell from billionaire Ricardo Salinas. The deal price includes $700 million of net debt, making the equity value $1.8 billion. While AT&T said it plans to expand Iusacell’s footprint beyond the 70 percent of Mexico’s population that it currently reaches, Iusacell currently only has about 8 percent market share in Mexico.

Mexico Breakup

America Movil controls 70 percent of the wireless market in the country. That’s why it’s looking to breakup its operations in Mexico to avoid penalties for controlling too much of the market.

AT&T was among the companies that America Movil reached out to about buying $17.5 billion of Mexican assets, people with knowledge of the matter said in September. America Movil has said the buyer needs to be new to the Mexican market to create more competition.

“They’ve been looking at Latin America, and this deal may be an early sign that AT&T has an interest in the assets of its former partner America Movil,” said Walt Piecyk, an analyst with BTIG LLC.

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AT&T Headquarters USA

Regulatory Question

Asked whether AT&T is still interested in America Movil’s assets, Chief Financial Officer John Stephens said in an interview yesterday that the Iusacell acquisition gives AT&T a good position in Mexico. He declined to comment on America Movil, specifically.

“We have a particular interest in Mexico with its regulatory reforms, strong economy, and growing population,” Stephens said. “There’s been a lot of speculation and commentary out there. We feel real good about what we have.”

A representative for America Movil declined to comment.

The question is whether regulators would be amenable to AT&T being the buyer of America Movil’s assets.

The Mexico City-based company’s suitors will need to prove they’re completely independent beyond just making sure there are no financial ties, president of the Mexico’s telecommunications regulator, Gabriel Contreras, said in an interview last month. Historical relationships and personal ties between the suitor and America Movil will also need to be examined, he said.

 

Severing Ties

To clear regulatory hurdles for the purchase of DirecTV, AT&T sold an 8 percent stake in America Movil.

Contreras said that to determine if true competition can exist between two companies, the regulator would have to rule out overlap between board members or at management levels. While the U.S. phone company’s two representatives stepped down from America Movil’s board when it sold its stake, a former executive at Slim’s companies, Jaime Chico Pardo, currently serves as an AT&T board member.

“We will analyze all the components of the operation, whether it abides by what is established by law and whether it benefits users and competition in the market, and make a decision,” the regulator said in an e-mailed statement yesterday.

DirecTV, which AT&T is still waiting on regulatory approval to buy, has a 41 percent stake in Sky Mexico. Sky Mexico is majority-owned by Mexican television giant Televisa. Slim competes with Televisa for Mexican phone and Internet customers, and he stopped advertising on the broadcaster’s TV channels in 2011.

 

Friend, Competitor

AT&T was willing to sever ties with Slim, the second-richest man in the world, in order to push outside the U.S. for the first time in more than a decade and counter slowing growth in its home market.

When AT&T announced the $48.5 billion acquisition of DirecTV in May, Chief Executive OfficerRandall Stephenson said he talked to Slim first.

“He is a very dear friend, but now he’s going to be a competitor,” Stephenson said on a conference call at the time. “And we recognize that and off we go.”

 

Source: http://www.bloomberg.com/

 

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Patricia Laya in Mexico City at playa2@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net James Callan

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