Yesterday, U.S. telecom behemoth AT&T Inc. (T) received green signal from Mexico’s anti-monopoly regulator, the Federal Competition Commission, for its proposed takeover of Iusacell, the third largest wireless service provider in the country. The sanction came much ahead of the anticipated period which is the first quarter of 2015.
At present Grupo Salinas owns a 50% stake in Iusacell and intends to acquire the remaining 50% share from Grupo Televisa S.A. (TV) for a consideration of $717 million, for which it had already received regulatory permission.
On gaining full control over Iusacell, Grupo Salinas will divest the whole company including Iusacell’s wireless licenses, network assets and retail stores. AT&T will pay a total consideration of $2.5 billion ($1.7 billion in cash + acquisition of $800 million of Iusacell’s outstanding debt).
Notably, Iusacell currently serves approximately 8.6 million subscribers. At present, America Movil SAB (AMX) controls nearly 70% while Telefonica SA (TEF) commands around 20% of the Mexican wireless market.
Expansion in Mexico is not a new strategy for AT&T. In Jun 2014, the company sold its 10% stake in America Movil for $5.57 billion to a real estate company controlled by Carlos Slim, who also owns America Movil.
The government of Mexico has decided to reform its telecommunications sector, which is highly monopolistic with one or two companies dominating the market. The Mexican government, however, intends to increase competition by encouraging the entry of other operators.
As the new reforms open up considerable scope for investment in Mexico, AT&T is trying to capitalize on the opportunity. Mexico is the largest economy in Latin America region with a growing middle class population eager to spend more for high-speed wireless network using smartphones and tablets. Also the wireless penetration rate is relatively lower in the country compared to the U.S.
Meanwhile, AT&T has decided to acquire DIRECTV, the largest satellite TV operators in the U.S. DIRECTV boasts a strong presence in several Latin American countries. The deal, which is valued at $48.5 billion, is currently under regulatory review.
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