By Thomas Gryta
AT&T took another step in its Mexican expansion Monday
agreeing to buy Nextel Mexico for $1.88 billion, as the company
seeks growth from new markets.
The Dallas-based telephone giant recently became the
third-largest carrier in the country with 9.2 million subscribers
when it closed its $2.5 billion deal to buy Mexican wireless
operator Iusacell earlier this month. The Nextel deal adds another
three million subscribers for AT&T, and will bring its wireless
market share to about 12% once the two are combined, according to a
research report by Citigroup.
The purchase from bankrupt NII Holdings Inc. also includes
airwave licenses, retail stores and a wireless network covering
about 76 million people. The acquisition will need approval of both
the U.S. Bankruptcy Court and Mexican regulators, and will be
conducted through an auction administered by the court.
While both deals give AT&T a foothold in Mexico, the company
has also expressed interest in wireless assets being sold by Carlos
Slim's America Movil. AT&T has said it doesn't need to make
more acquisitions to succeed in Mexico, but a deal with America
Movil would give AT&T a substantial presence in a market long
dominated by Mr. Slim, who is under intense pressure by the
government to loosen his grip on the sector.
So far, AT&T's investment in Mexico is small relative to its
annual revenue of about $130 billion, but the two transactions
raise the question of how much the telecom giant will have to spend
to be successful in a new market.
Added spending there could stretch the company, which already
expects $18 billion in capital spending this year as well as annual
dividend payouts of almost $10 billion. It is also in the process
of buying DirecTV for almost $49 billion and is likely a sizable
participant in the Federal Communications Commission's ongoing $45
billion auction of U.S. airwave licenses.
The move into Mexico comes as the company seeks to find growth
outside of the U.S., where the wireless market is saturated and
price competition is squeezing carriers' margins. Prior to sealing
the deal for DirecTV, AT&T was considering a major acquisition
in Europe.
In Mexico, AT&T expects to expand and upgrade the networks
it has acquired. The company has highlighted the opportunity to
sell mobile service to people who travel back and forth over the
border between the U.S. and Mexico. While its wireless assets will
cover at least 70% of Mexico's population, AT&T will combine
that network with its U.S. operation to cover more than 400 million
people overall.
The carrier also expects to use its Cricket brand--a
lower-priced prepaid service--which the company says is very
popular in U.S. Latino markets. It plans to repurpose smartphones
from its U.S. trade-in programs so it can sell them in Mexico as
low-priced handsets.
Write to Thomas Gryta at thomas.gryta@wsj.com
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