AT&T Acquiring Mexico Assets Likely to Be Good for Slim

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AT&T Inc.’s latest acquisition of assets in Mexico from a bankrupt wireless carrier may not be as bad for billionaire Carlos Slim as investors initially thought.

Slim’s America Movil SAB, Mexico’s largest mobile-phone operator, fell as much as 3.5 percent on Monday after AT&T announced its third deal in the country, the purchase of NII Holding Inc.’s Nextel Mexico business for $1.88 billion. The reason for the falling shares? Slim has yet to sell some of his wireless assets in Mexico after six months of trying, and AT&T was one of the main potential buyers contacted for that sale, people familiar with the matter have said.

AT&T has now committed more than $50 billion to acquisitions that help its expansion south of the U.S. border for the first time in more than a decade. That doesn’t mean some of America Movil’s assets are off the takeover menu, according to Walt Piecyk, an analyst at BTIG LLC. The deals show that AT&T is trying to build a sizable business in Mexico, and acquiring a chunk of America Movil would accelerate that plan and help the operations make money, he said.

“Having Nextel and Iusacell gives them a national platform but with a little bit of scale,” Piecyk said in a phone interview. “It would seem likely that AT&T would want to add to that by purchasing any assets that America Movil has to sell on the fixed or wireless end of things.”

Representatives for Dallas-based AT&T and Mexico City-based America Movil declined to comment.

A telecommunications overhaul signed into law by Mexico’s President Enrique Pena Nieto last year is designed to increase competition in an industry that’s been dominated by a handful of the country’s richest people for decades.

Breakup Plan

America Movil announced a breakup of its assets in July because of the new rules, which force dominant phone and broadcast companies to reduce market share below 50 percent, or face antitrust penalties designed to curb profits.

Slim’s company has recently been adjusting its breakup plan to make its assets more attractive to potential suitors, including AT&T, people with knowledge of the matter said earlier this month. America Movil now plans to offer specific segments of customers to buyers, instead of splitting the assets into geographic regions, said the people.

Before buying Iusacell for $1.8 billion, AT&T agreed to pay $48.5 billion for DirecTV, including its Latin American business. It would make sense for AT&T to take interest in landline assets, said Jesus Romo, an analyst at Telconomia, said in an interview from Missouri.

“The attractive thing about America Movil is not just in terms of towers, but also transport infrastructure, wiring and fiber,” Romo said. From AT&T’s perspective, “it would have to be an a la carte plan,” he said.

Nextel Challenges

With Nextel, AT&T will face the challenge of turning around a company that was slow to adapt to newer technologies, losing more than 400,000 subscribers in the first three quarters of 2014. Unlike Nextel, America Movil would be a cash-generating business for AT&T, Piecyk said.

The Nextel purchase gives AT&T the country’s highest-paying customers with an average monthly bill of $34 -- almost three times what competitor America Movil’s subscribers pay for service on a month-to-month basis.

While Nextel comes with high-paying subscribers, it still leaves AT&T piecing together a Mexican phone company that’s dwarfed by America Movil. The purchases of Iusacell and Nextel Mexico will give AT&T about 12 percent of the country’s wireless subscribers, according to Piecyk. That still pales in comparison to America Movil’s almost 70 percent share of the country’s mobile-phone customers and 80 percent of landlines.

Lower Odds

Nextel “is a logical next step after the Iusacell purchase,” said Kevin Roe, an analyst and president of Roe Equity Research LLC. “This makes a much more formidable competitor for America Movil.”

From Roe’s perspective, that lowers the odds of an AT&T deal to buy pieces of America Movil.

“At this point AT&T would only consider a valuation if it were utterly fantastic, and in that situation America Movil probably wouldn’t be a seller,” Roe said.

America Movil shares dropped 2.4 percent to 16.83 pesos at the close in Mexico City.

For now, America Movil is facing a bigger competitor while it copes with government-imposed penalties. Slim’s company will only sell assets if it can unload enough market share to satisfy regulators. Otherwise, it doesn’t make sense to sell a small chunk of subscribers or infrastructure.

Cold Water

AT&T has tried to downplay any interest in America Movil.

“We believe we have found a path here that gets us a very nice, scalable growth platform without the America Movil assets,” AT&T Chief Executive Officer Randall Stephenson told investors at a conference in November. “If things materialize over time and those look attractive, you’d obviously have to look at them. But we really don’t need the America Movil assets to be successful.”

Plus, AT&T’s finances are getting stretched thin. The company had $2.5 billion in cash and $70.5 billion in long-term debt at the end of September. Since then, bidding in the U.S. spectrum auction has escalated, and AT&T entered into a $9.2 billion credit pact. The company plans to report fourth-quarter earnings after U.S. markets close Tuesday.

Despite the financial strain, Piecyk says the Nextel deal doesn’t rule out the purchase of assets from America Movil.

“Those assets would fit nicely on the national backbone and limited scale of Nextel and Iusacell’s business,” he wrote.