What will be the impact of the AT&T-Time Warner deal in LatAm?

US telco AT&T and media titan Time Warner announced a major deal under which AT&T will acquire Time Warner in a stock-and-cash transaction valued at US$107.50 per share, for a total of nearly US$86bn.

The deal, with which AT&T aims to add content to mobile devices to stand tall against over-the-top (OTT) players, will face intense scrutiny and some challenging regulatory questioning in the US before it can become a reality. 

BNamericas looks into what the impacts of this deal would be in the region from the perspective of the companies' Latin American businesses.

TURNER

Time Warner operates in Latin America mainly via its pay-TV content distributor Turner International, which has established subsidiaries in Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. Turner distributes and sells its channels in more than 40 countries.

In all, Turner Latin America has 18 pay-TV channels, one free-to-air network (Chilevisión) and one news channel JV (CNN Chile).

The pay-TV channels are divided into five groups: children & adolescents (Cartoon Network, Boomerang and Tooncast) movies & series (TNT, Space, TCM, I.Sat and Warner Channel), news (CNN International, CNN en Español, CNN Chile and HLN), trends (TBS, HTV, MuchMusic, Glitz, Infinity and truTV) and sports (Esporte Interativo).

SKY

Meanwhile, AT&T's Latin American footprint comes via the region's leading satellite pay-TV brand, Sky, which it acquired from DirecTV in 2015.

With the DirecTV acquisition, AT&T entered the pay-TV markets in Brazil, Mexico, Argentina, Colombia, Chile, Venezuela, Peru, Ecuador, Uruguay and Puerto Rico, giving it more than 16mn clients. Its two biggest markets in the region are Brazil and Mexico.

In an interview on GSMA's Mobile World Live website earlier this month, DirecTV Latin America head Jeff McElfresh said that being a colossus among the pay-TV groups in Latin America helps the company "discuss with the programmers and content owners' new vehicles for consumers to enjoy the content."

In Brazil, via DirecTV Latin America  AT&T owns 93% of Sky Brasil, while media group Globo Comunicações owns the remainder. According to the latest stats, AT&T's Sky had 28.2% of the local market, or 5.32mn clients in August, trailing América Móvil.

In Mexico, DirecTV Latin America controls 41% of Sky México and Grupo Televisa is the largest shareholder with 59%. The company has over 6mn customers, leading the pay-TV market with a share of nearly 40%.

MEXICO

Mexico is also the sole market in Latin America where AT&T also provides mobile telephony.

In 2015, the company disbursed nearly US$8bn for the acquisition of two Mexican mobile operators – Iusacell and Nextel – after the way for these moves were paved by the telecom reform.

In this sense, the purchase of Time Warner means that AT&T could replicate its convergence plans in Mexico.

In fact, during a call with investors on Monday to discuss the details of the deal, AT&T's CEO Randall Stephenson confirmed the group's plans to distribute content via its mobile business in Mexico as well.

Mexico's AT&T 4G LTE network covered some 74mn Mexicans in September and was expected to become available to 100mn people by the end of 2018. AT&T reported total Q3 revenues of US$1.88bn in Latin America, up from US$1.53bn a year earlier, with US$582mn of that total coming from Mexico.

Latin American pay-TV revenues totaled US$1.3bn in Q3, up from US$945mn inteh same period of last year, but the number of subscribers fell by 48,000 to 12.5mn, driven by drops  in Colombia, Argentina and Brazil. 

HURDLES TO MERGER

In Brazil, the 2011 legislation that opened up the local pay-TV market to foreign capital created certain restrictions, preventing telcos from owning media companies and vice versa (cross ownership), allowing only minor stakes to be purchased.

In the case of telecom operators, they can only own up to 30% of the capital of TV and radio channels and TV and radio producers/programmers based in Brazil. After the approval of the law, América Móvil had to sell its stake in content companies operating in Brazil.

Therefore, if the acquisition goes through, AT&T would likely have to sell Sky Brasil or Time Warner, via Turner, would have to give up its own channels.

In Mexico, despite the perceived benefits of the merger, the move would also probably face some stiff questioning regarding the effects on local competition.