Nextel Mexico a “Savvy” Deal for AT&T

Kevin Smithen and Will Clayton, analysts at Macquarie, commented on AT&T’s announcement that they entered into an agreement for purchase Nextel Mexico for $1.875 billion. “While somewhat well telegraphed, we think this is one of the savviest deals T has done in years at a very attractive price for 20MHz of nationwide 800-MHz spectrum and 100MHz of total nationwide spectrum portfolio as well as ~2.8m postpaid and primarily corporate subs with heavy US cross-border activity. While we think T is making all of the right moves in LatAm thus far, we are concerned that additional investments for LTE, which we estimate at $3-4bln over 3 years, are likely to further pressure T’s dividend coverage and financial leverage,” the analysts wrote. They believe AT&T will buy America Movil’s assets to achieve the required scale and marginalize Telefonica as a distant third player in the market. “We feel that if T plays hard ball with AMX, Slim can pull ~$1bln of annual TracFone traffic away from T or sell TracFone to Google. Moreover, we do not think that T wants to provoke Slim into buying T-Mo, which we believe would be very bad for the US wireless industry structure and T over the long-haul.”