CANTO Weekly Newsletter – BNamericas

Spotlight: Why a Liberty LatAm takeover of Millicom would be a perfect fit – Regional

Monday’s news that Liberty Latin America is in talks with competitor Millicom about a potential takeover bid could become one of the biggest stories of the year in the sector and, if it goes ahead, would create a serious third competitor in the regional telecoms market.

The news was leaked to Reuters, forcing both companies to issue separate press releases confirming that talks were indeed underway.

WHY?

A merger of the two companies has probably been on the cards for some time and would also make sense because the two companies have little crossover in the countries where they are present, meaning a JV would be highly complementary.

Millicom has a strong presence in the major Central American countries, as well as Colombia, Paraguay and Bolivia with its Tigo brand.

Liberty Latin America owns Chile’s leading pay-TV company VTR, a cable operator in Puerto Rico and the operations of Cable & Wireless Communications (CWC), which covers most of the Caribbean, as well as Panama. This gives the company a broad spectrum of services from pay-TV to mobile and fixed line telecommunications.

CWC also owns a highly valuable and extensive submarine cable network, which would give a major boost to Millicom’s operations in Central America and Colombia, giving it independence from third-party cable owners such as Telefónica and bringing down wholesale broadband costs.

A combined, larger company would also generate economies of scale, giving the entity more bargaining power when purchasing handsets, thus helping drive down costs in underpenetrated markets like the Caribbean and Central America.

CWC also has a mature corporate ICT business and a merger with Millicom would open up business to multiple new markets.

Millicom, on the other hand, is strong in the area of mobile broadband, having focused heavily in recent years on upgrading its customers to 4G services and postpaid plans, and that will complement Liberty’s operations in the Caribbean, where CWC competes with Digicel.

Millicom is also investing heavily in fiber deployments, anticipating the major demand for backhaul that will come with 5G.

In addition, Millicom brings to the table experience in value-added services with Tigo sports, Tigo OneTV, which provides linear and non-linear TV, Tigo Money mobile financial services, Tigo streaming music, as well as corporate ICT services Tigo Business. Liberty’s international landing points will only help better position the offering of such services.

A merger of the two companies would give them undisputed dominance in Central America and the Caribbean. In the Caribbean, debt-strapped Digicel would be no match for the financial might of a new super competitor.

COLOMBIA

While CWC will give Liberty access to 24 new markets across Latin America and the Caribbean, Liberty’s eyes are most likely on Colombia.

According to José Otero, Latin America and Caribbean president with 5G Americas, Colombia is the third largest telecommunications market in the region after Brazil and Mexico and has a lot of untapped demand for growth, especially in the area of expanding fiber networks. Though there is currently a fiber backbone, it is disjointed, not connecting all areas.

After having struggled for several years in Colombia, Millicom CEO Mauricio Ramos said that in the third quarter of 2018 results showed the company’s strategy of investing in fiber was paying off. The company pointed to a 13.7% year-on-year increase in Ebitda and a 3.2% rise in revenue.

GONE SHOPPING

Liberty Latin America is a new company, spun off from parent company Liberty Global in January 2018 with the express purpose of freeing the company to explore inorganic growth.

Liberty Latin America was launched as a publicly-traded company and is reported to have access to ample credit lines.

Guillermo Ponce, CEO of VTR, was appointed to oversee initial acquisitions, the first of which came with the purchase of 80% of Costa Rican cable operator Cabletica in October for approximately US$250mn.

In December, it was reported that Liberty was in advanced talks with the government of Curaçao to acquire fixed and mobile telecom provider UTS.

If the takeover is successful, Liberty would likely look next to Peru, which after Colombia is the next largest market and is attractive, with four established network operators and several MVNOs. Ecuador is a small market with few market players and so is less alluring. Argentina would be difficult to enter due to a strong and established duopoly, while in Uruguay state telco Antel has a stranglehold on TV and fixed line broadband.

Millicom has also been shopping. In October, the company acquired 80% of Panama’s largest cable operator Cable Onda for US$1bn, thus completing its Central American footprint and connecting it to Colombia. Panama is the only country where Millicom and Liberty compete.

Millicom also has operations in Chad and Tanzania in Africa, but has been progressively selling off its assets on that continent to concentrate on Latin America, which now makes up 90% of revenue. The news of the takeover bid came only a week after the company started trading its shares on the US-based Nasdaq stock exchange in a move to increase the liquidity of the stock.

IN NUMBERS

At the end of Q3, Millicom had 31mn mobile customers compared to Liberty’s 7.8mn mobile subscribers.

Millicom also has 9.9mn homes passed in Latin America compared to Liberty’s 6.6mn.

Millicom has a market value of US$6.6bn, more than twice that of Liberty Latin America (US$2.9bn).

By comparison, América Móvil ended 3Q18 with 279mn mobile subscribers and 83mn fixed line users. The company that uses the Claro brand ended 2017 with revenues of 1.02tn pesos (US$53bn).

Telefónica posted revenues of 52bn euros (US$59bn). The company had 343mn customers in Europe and Latin America, of which 272mn were mobile, 11mn fiber and 8mn pay-TV.

Will AT&T sell its Sky Mexico share? – Regional

AT&T could sell its 41% stake in Sky Mexico, the leading satellite pay TV provider in the country. The US company looks to reduce its net debt to Ebitda ratio following its massive deal to buy Time Warner, AT&T CFO John Stephens told an analyst conference.

In its 2019 guidance, the company expects free cash flow of around US$26bn and a reduction of net debt to Ebitda ratio to 2.5 times by the end of the year. It has also pointed at this year for its Mexican telecommunications unit to start generating profits.

“We’ve got to monetize some assets,” Stephens said during the Citi TMT West Conference this week. “I’ve mentioned in the past Hulu or Sky Mexico or some of these other things, not suggesting any of them is going to happen today,” he added.

Stephens did not elaborate on a date for the potential sale.

Sky Mexico ended 3Q18 with 7.8mn satellite pay TV subscribers in Mexico, the Dominican Republic and Central America. Sky is the biggest contributor to the nearly 14mn subscribers of Grupo Televisa, the company which owns its majority stake. It generated 5.4bn pesos (US$263mn) in revenues during the third quarter last year.

The company recently started to offer high-speed fixed wireless internet services in the country through Blue Telecomm, including a “double play,” offering internet with the satellite pay TV subscription, in a move that could bring it closer to match the appeal of triple play services by cable and fiber optics pay TV providers.

AT&T previously evaluated selling its Latin American pay TV business, which operates through its Vrio unit and has around 14mn subscribers in 11 countries. In April, it decided against a Vrio IPO which could have netted US$653mn.

Liberty approaches Millicom with acquisition bid – report – Regional

Fixed and wireless telco Liberty Latin America has approached regional competitor Millicom with an acquisition bid, according to a report from Reuters, citing sources familiar with the matter.

According to the report, negotiations have been ongoing for several weeks.

Liberty Latin America, since being spun off from Liberty Global last year, has said it is actively seeking to expand in the region through acquisitions.

The company – which consists of VTR Chile, Cable & Wireless Communications and Liberty Puerto Rico – acquired 80% of Costa Rican cable operator Cabletica in October. Then, in December, it was said to be in advanced talks with the government of Curacao to acquire fixed and mobile telecom provider UTS.

With 51mn customers mainly under the Tigo brand, Millicom has a strong presence throughout Central America as well as in Colombia, Bolivia, and Paraguay. The company has also been on a shopping spree acquiring Cable Onda in Panama in October, and began trading on the Nasdaq last week.

If joined, the company would pose a serious challenge to the two main established regional telecoms giants Telefónica and América Móvil.

According to the sources, in addition to borrowing from banks, Liberty is considering rising financing from an investment firm.

When contacted by BNamericas, Millicom and Liberty declined to comment.

Millicom shares jumped 8% to US$72 in New York on the news on Monday. It has a market cap of US$7bn. Liberty’s shares rose 2% to US$16.98 for a market cap of US$3.1bn.

ICT: The week in 10 stories – Regional

BRAZIL

Brazilian chipset and semiconductor manufacturer Ceitec, a public company linked to the ministry of science, technology, innovation and communications (MCTIC), might be shut down as part of President Jair Bolsonaro’s cost-cutting drive.

GRENADA

Liberty Latin America’s Grenada unit Flow is suing both the island’s telecoms regulator NTRC and the regional body, the Eastern Caribbean Telecommunications Authority (ECTEL).

URUGUAY

Nearly 70% of Uruguayan households and enterprises with fixed broadband service had fiber-to the-home (FTTH) connections at the end of last June.

Uruguay will assist Paraguay in the development and improvement of digital government practices, cybersecurity and data protection initiatives.

REGIONAL

Luxembourg-based telecommunications operator Millicom, with close to 31mn mobile subscribers in Latin America under the Tigo brand, started trading its shares on the US-based Nasdaq stock exchange on Wednesday, in a move to increase the liquidity of the stock.

COSTA RICA

Costa Rican MVNO Tuyo Móvil will cease operations in the Central American country by April 15, after stopping to receive recharges and activating new services from January 15, the company said on its website.

MEXICO

The Mexican telephone workers’ union will ask the labor ministry to persuade telecoms regulator IFT to halt the split of leading fixed-line provider Telmex’s wholesale services unit, according to local media.

CHILE

Chile’s senate has approved a commercial agreement with Argentina that includes the elimination of roaming fees.

PERU

Peru’s telecoms regulator Osiptel said that operators will block 1.27mn cell phones with invalid IMEI numbers by January 8.

ARGENTINA

Telecom Argentina joined a group of international cable operators working with the Internet & Television Association (NCTA), CableLabs and Cable Europe to offer speeds of 10Gbps to consumers across the globe.

Netflix hikes prices in select LAC markets – Regional

Video streaming company Netflix has hiked its monthly charge in select Latin American and Caribbean (LAC) markets as well as the US to help finance production of original series and to pay debt, the company said.

In the LAC region, only countries where the company charges in US dollars will be affected, most likely Caribbean nations. Chile, Mexico and Brazil will not be affected.

“Netflix has increased prices in the United States and several markets in Latin America and the Caribbean where billing is charged in US dollars. This does not affect Chile,” the company said in a statement.

“The price hikes are specific to each market and this increase does not reflect a change in any other regions.”

According to reports, users in 40 Latin American and Caribbean countries, primarily the Caribbean, will see hikes of 13-18%, the largest increase since the streaming service was launched 12 years ago. The most basic plan goes up to US$9 from US$8 and the premium 4K plan up to US$16 from US$14.

The company’s most popular subscription service, which offers HD video for multiple devices simultaneously, will see the biggest increase in price, rising to US$13 from US$11 per month.

According to reports, the increase is aimed at helping finance its wide range of trademark original series and pay off debt that the company has accumulated in trying to fend off competition from Hulu, Amazon, Disney and AT&T. Apple is rumored to be planning to launch a streaming service.

It was reported by The Economist last year that the company was spending between US$12bn and US$13bn on original programming in 2018, releasing popular films such as Bird Box and Roma as well as new seasons of TV shows like 13 Reasons Why, Orange is the New Black and Marvel’s Daredevil.

In September, the company said it had 58mn US subscribers.

The information presented and opinions expressed herein are those of the author and do not necessarily represent the views of CANTO and/or its members