The Start of Something Bigger

On Friday, November 7, AT&T announced that they entered into an agreement with Grupo Salinas to acquire Mexican wireless company Iusacell for $2.5 billion, inclusive of the company’s debt. AT&T will acquire all of Iusacell’s wireless properties, including licenses, network assets, retail stores and approximately 8.6 million subscribers, AT&T reported on the company website. “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.” Jonathan Chaplin at New Street Research feels that this acquisition is likely the start of something bigger for AT&T. “Given the investment required to make Iusacell’s network truly competitive, the acquisition wouldn’t make much sense on its own; however, it makes a ton of sense as a precursor to an acquisition of the assets AMX [America Movil] will divest in Mexico,” Chaplin explained in a research note. “We thought AT&T would buy the AMX assets before; the Iusacell deal makes this even more likely. Separately, AT&T guided to capex of $18BN for 2015, which should be received positively by the market given FCF concerns.”