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Why AT&T Might Sell Latin American Pay-TV Assets to Telefonica

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DIRECTV’s Latin American assets

Earlier, we learned about the current stage of a possible sale of Verizon’s (VZ) data center assets. In this part, let’s look at another potential significant transaction from a US telecommunications giant. We will specifically look at the possibility of a deal between AT&T (T) and Telefonica (TEF) pertaining to DIRECTV’s (DTV) Latin American operations, as per a recent Reuters report. Note that AT&T completed the DIRECTV transaction on July 24, 2015.

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According to the Reuters report, on January 15, 2016, “Telefonica SA has expressed interest in buying AT&T Inc’s pay TV assets in Latin America, which could be valued at around $10 billion, according to people familiar with the matter.” The same report also mentioned, “The U.S. telecoms company has yet to decide if it will explore a deal with Telefonica or another company, the people familiar with the matter said.” It added, “Other parties are interested in AT&T’s assets in specific countries, and the company may choose to run several sale processes.”

AT&T’s operations in Latin America

As you can observe in the above bar chart, Brazil was the largest contributor to the company’s revenue from Latin American operations during 3Q15. This component was ~52.2% of the total revenue stream from Latin American operations. Argentina’s revenue contribution was ~28.2% while other countries’ revenue contributions were ~18.1% in 3Q15.

In terms of customers, ~44.1% of AT&T’s video subscribers were from Brazil in 3Q15. Overall, AT&T had ~12.5 million video subscribers in Latin America in that quarter.

For diversified exposure to telecom companies in the US, you may consider investing in the iShares Russell 1000 Value ETF (IWD). The ETF held a total of ~2.5% in some of the US telecom players at the end of December 2015.

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