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flag.mexicoWhat: AT&T will acquire Mexican wireless company Iusacell , the third largest mobile operator in Mexico, for US$2.5 billion including its’ debts.
Why it matters: This is something AT&T has been attempting to do ever since communication laws were reformed at the beginning of the new president’s Pena Nieto’s mandate. It will not only increase its presence in the country but  create a single network in North America, targeting approximately 400 million consumers.

The transaction is expected to close in the first quarter of 2015.AT&T has entered into an agreement with Grupo Salinas to acquire Mexican wireless company Iusacell, the third largest mobile operator in Mexico, for US$2.5 billion, inclusive of Iusacell debt.
With this agreement, AT&T will acquire all of Iusacell’s wireless properties, including licenses, network assets, retail stores and approximately 8.6 million subscribers.

After the Iusacell acquisition, AT&T will compete with America Movil not only in the Mexican phone market but also in the pay-TV market of several Latin American countries, where AT&T owned DIRECTV Latin America rivals with America Movil’s Claro.

The acquisition will occur after Grupo Salinas, the current owner of 50 percent of Iusacell, closes its announced purchase of the other 50 percent of Iusacell that Grupo Salinas does not own today.

Iusacell offers wireless service under both the Iusacell and Unefón brand names with a network that today covers about 70 percent of Mexico’s approximately 120 million people. AT&T plans to expand Iusacell’s network to cover millions of additional consumers and businesses in Mexico.

“Our acquisition of Iusacell is a direct result of the reforms put in place by President Peña Nieto to encourage more competition and more investment in Mexico. Those reforms together with the country’s strong economic outlook, growing population and growing middle class make Mexico an attractive place to invest,” said Randall Stephenson, AT&T chairman and CEO.

“Iusacell gives us a unique opportunity to create the first-ever North American Mobile Service area covering over 400 million consumers and businesses in Mexico and the United States. It won’t matter which country you’re in or which country you’re calling – it will all be one network, one customer experience,” added Stephenson.

Iusacell will continue to be headquartered in Mexico City following the transaction closing.The transaction is subject to review by Mexico’s telecom regulator IFT (Instituto Federal de Telecomunicaciones) and Mexico’s National Foreign Investments Commission. AT&T expects the transaction to close in the first quarter of 2015.

america movil - presencia latam 265 x 188With this acquisition, AT&T continues expanding in Mexico after the company bought DirectTV for US$ 48.5 billion dollars earlier this year. DirecTV also provides satellite television services in Latin America. After the Iusacell acquisition, AT&T will compete with America Movil not only in the Mexican cell phone market, where America Movil has the Telcel brand, but AT&T owned DirecTV Latin America will also compete in the pay-TV market of several Latin American countries with America Movil owned Claro.

What: Telefónica is trying to merge with Mexican operator Iusacell to fight América Móvil dominance in  Mexico .
Why it matters: Law reforms to fight the lack of competitiveness in the country are about to be implemented. Telefónica is planning to increase its share in Mexico’s mobile sector following the reforms.

telefonicaTelefónica is trying to merge with Mexican operator Iusacell to fight América Móvil Mexico’s dominance .

Lack of investment and competition in the Mexican market are mainly due to América Móvil’s strong market position, as the company controls around 70% of the country’s mobile lines and 80% of the fixed line telephony market. This involves a low penetration of telecommunications services forcing Mexicans to overpay for telecommunications services. Between 2005-09 telecommunications services spending reached over US $13 billion.

Widespread reforms to the telecoms industry were signed last year by President Enrique Peña Nieto so as to fight the lack of competitiveness in Mexico’s telephony and television sectors.

These reforms aim to strengthen regulatory institutions to combat monopolies, among other things.They may also allow investment in the Mexican telecoms market to increase to US $55 billion in 2018 compared to US$35 billion in 2012.

Telefónica is planning to increase its share in Mexico’s mobile sector following the reforms. The company had a share of 18.5% of the country’s mobile market with 19.1mn clients at the end of third quarter 2013, while Iusacell’s had a mobile customer base of around 7.4mn as of the end of 2012.However, telefonica has already started to strenghten  its position in the country by providing data and voice coverage for NII Holdings’ Nextel .

Telefonica-Iusacell merger’s dilemma

Despite América Móvil’s dominant share in Mexico’s telephony market, the company has failed to enter the country’s TV sector.

TV sector is already dominated by Televisa and TV Azteca which have a combined 95% share of the country’s broadcast TV market. In addition, Televisa owns half the pay TV segment and has recently acquired a 50% stake in Iusacell. The remaining 50% stake is retained by TV Azteca owner Grupo Salinas.

A Telefonica and Iusacell merger could result in  a strong player across the mobile and pay TV segment , if Televisa or Grupo Salinas were to retain any minority stake in the telecoms operator.This may cause something of a dilemma, as many investments from competitors will be required to reduce América Móvil’s position on the Mexican market. In this regard, regulators may not be willing to allow further market consolidation, given that the aim of the reforms is to provide more options to consumers, rather than less.

Most players will be looking forward the release of the secondary telecoms reform proposals, which will include details that allow companies to meet the terms of the telecoms reform, such as type of penalties and fines to be faced by companies for monopolistic practices.