| NEW YORK
NEW YORK May 19 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
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
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
Some countries in Latin American however, present smaller
growth opportunities and formidable economic hurdles.
Currency fluctuations and inflation are growing problems in
the region. The Argentine peso has declined 24 percent
year-over-year, while threats of political instability loom over
DirecTV's business in Venezuela, where it is the No.1 TV
provider with a 43 percent market share.
With the currency depreciation in Venezuela and Argentina,
average revenue per subscriber, or ARPU, for DirecTV's
PanAmericana in the first quarter fell to $41.23 from $46.54 a
year earlier. In Brazil, where Sky Brasil has about a 30 percent
market share, the real has also weakened.
Revenue per subscriber in the United States, meanwhile,
climbed to $100.16 in the first quarter from $96.05 a year
In February, MoffettNathanson Research analyst Craig Moffett
said higher churn, lower revenue per subscriber and higher
subscriber acquisition costs in the first quarter were troubling
DirecTV's Latin American business. Even so, he said much of the
decline reflected currency shifts rather than deteriorating
In Latin America, "penetration is still low, incomes are
rising and DirecTV's brand is very, very strong," Moffett added.
In the United States, DirecTV provides only television
services. But in Latin America, the company has slowly ventured
into the wireless broadband market, where weak infrastructure
has hampered adoption of competing high-speed Internet services.
The company has airwave holdings that cover 43 million
households across Argentina, Brazil, Colombia and Peru. It aims
to provide Internet services to more than 5 million homes in
those countries by the end of 2014, according to its website.
AT&T has extensive experience in acquiring and building
wireless spectrum into cellular networks, and Latin America
provides ample opportunities for further growth in Internet
services. Broadband penetration in Brazil, for example, is only
33 percent, according to BTIG Research.
"DirecTV has been very conservative in their Latam approach.
There is an opportunity for a new owner to exploit more growth,
particularly in wireless broadband where they have seen initial
success," said BTIG analyst Walt Piecyk.
(Reporting By Marina Lopes and Liana B. Baker in NEW YORK;
Additional reporting by Anthony Esposito in CHILE and Christine
Murray and Elinor Comlay in MEXICO; Editing by Christian Plumb,
Frank McGurty and Matt Driskill)