LatAm_latam 09/07/2014 15:52 Page 1 AdvancedTelevision LatAm Market Briefing 2014 LatAm ‘jewel’ of AT&T/DirecTV deal T&T’s proposed acquisition of DirecTV will give the US telco a foothold in Latin America, a region that offers major growth potential in pay-TV and mobile broadband. DirecTV, with its 18 million subscribers in Central and South America, is the biggest pay TV provider in Latin America where the market for such services is already growing at a much faster rate than the mature US market. In discussing the benefits of the proposed deal, AT&T noted that DirectTV’s Latin American business was the leading pay TV provider in the region. “DirectTV's satellite platform’s broad reach remains advantaged when compared with cable and telco in Latin America. Latin America has an underpenetrated pay TV market (about 40% of households subscribe to pay TV) and a growing middle class, and is DirectTV 's fastest growing customer segment,” it noted. Demonstrating the importance of Latin America to the logic of the deal, AT&T has parted with its $5 billion stake in billionaire Carlos Slim's América Móvil (above) to smooth the regulatory process and win DirecTV's business in the region. DirecTV's A Latin American operation account for 95% of its subscriber growth, but just 20% of its revenues. DirecTV expects revenue to be in the $8 billion to $9 billion range, down from a prior forecast of $10 billion by 2016. DirecTV owns about 93% of Sky Brasil, the largest satellite provider in the region's biggest economy. It has 41% of Sky Mexico, controlled by Mexico's Televisa and serving Mexico, Central America and the Dominican Republic. It owns 100% of PanAmericana, which offers satellite TV services under the DirecTV brand in countries including Venezuela, Argentina, Chile, Colombia and Puerto Rico. In December 2013, DirecTV said it had an annual compound growth rate of 22% in Argentina, 16% in Venezuela and about 32% in the other countries served by PanAmericana, such as Colombia and Chile. In February 2014, MoffettNathanson Research analyst Craig Moffett said higher churn, lower revenue per subscriber and higher subscriber acquisition costs in the first quarter were troubling DirecTV's Latin American business. Notwithstanding that, he said much of the decline reflected currency shifts rather than deteriorating fundamentals noting that, in Latin America, penetration was still low, incomes were rising and DirecTV's brand was “very, very strong”. “DirecTV has been very conservative in their LatAm approach. There is an opportunity for a new owner to exploit more growth, particularly in wireless broadband where they have seen initial success,” said BTIG analyst Walt Piecyk.