AT&T Inc's proposed acquisition of DirecTV will give the U.S.
wireless provider a foothold in Latin America, a region that offers major
growth potential in pay television and mobile broadband.
DirecTV,
with its 18 million subscribers in Central and South America, is the biggest
pay TV provider in Latin America where the market for such services is already
growing at a much faster rate than the mature U.S. market.
DirecTV is
"advantaged when compared with cable and telco in Latin America," AT&T said in a press release announcing its
$48.5 billion proposal on Sunday. "Latin America has an under-penetrated
pay TV market, about 40 percent of households subscribe to pay TV, and a growing
middle class, and is DirecTV's fastest-growing customer segment."
Underscoring
the importance of Latin America to the logic of the deal, AT&T said it
would part with its $5 billion stake in billionaire Carlos Slim's America
Movil to smooth the
regulatory process and win DirecTV's business in
the region.
DirecTV's
Latin American operations have been considered its crown jewels for the past
few years, accounting for 95 percent of its subscriber growth, but just 20
percent of its revenues.
DirecTV
expects revenue to be in the $8 billion to $9 billion range, down from a prior
forecast of $10 billion by 2016.
DirecTV owns
about 93 percent of Sky Brasil, the largest satellite provider in the region's
biggest economy. It has 41 percent of Sky Mexico,
controlled by Mexico's Televisa and serving Mexico, Central America and the
Dominican Republic.
It owns 100
percent of PanAmericana, which offers satellite TV services under the DirecTV
brand in countries including Venezuela, Argentina, Chile, Colombia and Puerto Rico.
In December,
DirecTV said it had an annual compound growth rate of 22 percent in Argentina,
16 percent in Venezuela and about 32 percent in the other countries served by
PanAmericana, such as Colombia and Chile.
The combined AT&T-DirecTV might
also take advantage of acquisition opportunities that DirecTV could not make on
its own.
In 2013,
DirecTV was looking to buy Vivendi's GVT, which provides Internet, phone and TV
services in 149 Brazilian cities. The talks unraveled because France's Vivendi
said the bids it received were too low.
One asset
that analysts have mentioned as a potential takeover opportunity is TIM
Participacoes, a cellular service provider that Telecom Italia is widely
expected to sell in 2014. That could give AT&T an opportunity to accelerate
DirecTV's roll-out of high-speed wireless Internet in Brazil and would give the
company access to TIM Brasil's 73 million customers.
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