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Analyzing AT&T’s Aggressive Expansion Into New Markets

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Oct. 19 2016, Updated 10:04 a.m. ET

AT&T’s expansion into Mexico and Latin America

Earlier in this series, we discussed the postpaid churn rate that we could expect from AT&T (T) in 3Q16. Last year, to penetrate the Mexico market, AT&T acquired wireless telecom companies Iusacell and Nextel Mexico for a total transaction value ~$4.4 billion. It acquired DIRECTV for ~$49 billion to penetrate the Latin America market. It operates the wireless business in Mexico and satellite entertainment services in Latin America.

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AT&T’s focus on growing the newly acquired Mexican operations appears to have been successful, helping offset ongoing US weaknesses. In Mexico, AT&T added 742,000 wireless net subscribers in 2Q16, with Mexican wireless subscribers approaching a total of 10 million. In Latin America, DIRECTV added 87,000 video subscribers in the last quarter.

AT&T is a leading player in the US pay-TV market

Through the DIRECTV acquisition, AT&T has become the leading pay-TV player in the United States, as shown in the above chart. After this deal, AT&T’s US pay-TV subscriber base reached 25.3 million, surpassing Comcast’s (CMCSA) subscriber base. Comcast placed second with 22.4 million pay-TV subscribers, and Charter (CHTR) placed third with 16.9 million pay-TV subscribers. Although AT&T gained 342,000 satellite video subscribers, it lost 391,000 U-verse video subscribers last quarter, which highlights the structural decline that the pay-TV market is experiencing.

AT&T has been trying to diversify its US wireless business, mainly due to the low-cost strategies being pursued by Sprint (S) and T-Mobile (TMUS). Verizon (VZ) has taken a different approach to diversifying its wireless business. By acquiring AOL and Yahoo, it aims to be a significant player in the online advertising space. In the next part of this series, we’ll discuss the over-the-top (or OTT) DIRECTV service that AT&T plans to launch by the end of 2016.

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