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Some might suggest this is a knee-jerk reaction to the intentions of an activist investor, though the vulture fund should not be able to claim credit for this one.
AT&T has announced it will sell its wireless and wireline operations in Puerto Rico and the US Virgin Islands to Liberty LATAM for $1.95 billion. The transaction is expected to close in six to nine months, depending on approvals from the FCC and the Department of Justice.
“I’m especially proud of our network and the recent network enhancements that have helped AT&T rank as the fastest network in Puerto Rico,” said Jose J. Davila, AT&T’s GM for the region. “AT&T also has the most coverage on the island, according to Mosaik.
“Our experienced and committed team members will continue to support these operations as we join Liberty Latin America. Liberty Latin America has expressed its commitment to provide high-quality communications services to the people of Puerto Rico and the U.S. Virgin Islands. And we’re confident that it is equally committed to supporting these communities.”
Although pressure is being applied to the AT&T management team by activist investor Elliott Management, this perhaps not a move which would have been seen as attractive. The vulture fund does often approve of asset divestment in the pursuit of increased dividends and a higher share price, but the intricacies of this deal does not add up.
In an open letter to AT&T investors, Elliott Management did call for divestment but only in pursuit of refocusing the business on core activities. In other words, Elliott Management wants AT&T to focus more acutely on connectivity products and services.
Looking at this deal with Liberty LATAM, AT&T is proposing the sale of core connectivity assets but retaining the service and responsibility of FirstNet and DirecTV assets in the region. What is being released and what is being retained does not make sense if this is the influence of Elliott Management. What is more likely is this transaction would have gone ahead irrelevant of outside influences.
“This transaction is a result of our ongoing strategic review of our balance sheet and assets to identify opportunities for monetization,” said AT&T CFO John Stevens.
“But doing so only made sense if we received a fair value from a buyer that is committed to taking this well-run business, with its skilled employees and loyal customer base, and help it thrive. Liberty Latin America has a strong reputation for quality of service, and we believe they have the experience to build on the success of these operations.”
As of June 2019, AT&T’s debt stood at $158 billion, largely thanks to expensive acquisitions in the pursuit of diversification. The team has said it plans to lower its debt by $20 billion over the course of the year. The team now claims to have completed or announced monetization efforts totalling more than $11 billion.
On the other side of the transaction, Liberty LATAM is continuing its quest to reprioritise the business. Following a number of divestments in the European region, the telco has been attempting to gather momentum in the LATAM markets. This is another deal which will improve the position of the firm.
“The combination of AT&T’s leading mobile and wired businesses with Liberty Puerto Rico’s leading high-speed broadband and TV business will create a strong and competitive integrated communications player,” said Balan Nair, CEO of Liberty Latin America.
“At Liberty Latin America, we are focused on investing in digital infrastructure, innovation and 5G networks and on delivering a friendly customer service experience. This transaction is evidence of that, and we are confident that this new combination will be good for our customers and our employees, including those joining us from AT&T.”
Looking at the Liberty LATAM business, the team is certainly not shying away from investments. Aside from this deal, the team also completed the acquisition of the remaining 12.5% of United Telecommunication Services, increasing the presence across several Caribbean islands. In August, the telco also announced aggressive expansion plans for broadband in Chile and was in discussion to acquire Millicom International earlier this year.
Softbank has announced the launch of yet another investment fund, this time turning its eyes towards the unfulfilled promise of Latin America.
Alongside the fund, the SoftBank Latin America Local Hub will also be created, an operating group which will help companies in the other Softbank portfolios enter Latin America, navigate the local markets and broaden their geographic reach. Yet again, Softbank CEO Masayoshi Son is attempting to prove he wasted decades in the telco space and should have been focusing on investment management.
“Latin America is on the cusp of becoming one of the most important economic regions in the world, and we anticipate significant growth in the decades ahead,” said Son.
“SBG plans to invest in entrepreneurs throughout Latin America and use technology to help address the challenges faced by many emerging economies with the goal of improving the lives of millions of Latin Americans. I am grateful to our Chief Operating Officer Marcelo Claure for leading this initiative, in addition to his other responsibilities at SBG.”
The SoftBank Innovation Fund will aim to raise funds totalling $5 billion, with Softbank contributing the first $2 billion, with a particular focus on e-commerce, digital financial services, healthcare, mobility and insurance.
For years, Latin America has been promised as a land of fortunes. With several economies on the verge of blossoming, the realities of the world have staggered success. Political controversies, violence, poor infrastructure and hostile environments have been some of the reasons this region has yet to properly flourish, however the statistics are on its side.
Since 2000, over 50 million people in the region have entered the middle class, increasing the amount of disposable income flowing around the local economies. Internet and smartphone penetration have grown considerably, to 375 million and 250 million respectively. E-commerce sales have jumped from $29.8 billion in 2015 to $54 billion in 2018, suggesting digital society is bedding in.
Combining all of these factors suggest there are fortunes to be made with the right execution. Many have failed to capitalise on the promise, but there has been renewed enthusiasm in recent years.
Liberty Global is excellent example of a company which seems to think this is a market set to burst. Over the last couple of years, Liberty Global has been trimming back its exposure in Europe, note its recent asset disposals to Vodafone in Germany and Sunrise in Switzerland, as well as spinning off Liberty Latin America as an independent, publicly-traded company. Chairman John Malone has built a successful business over the last few decades, and now he clearly spots something he likes in the Latin American markets.
Another interesting development is over at Telefonica. The Spanish telco is seemingly positioning Aura as a potential competitor to the Google and Amazon digital assistants, fighting to manage the consumer’s digital ecosystem, though initial launches have been focused on its Latin American business units, not its domestic market.
Latin America is a market which has consistently failed to deliver on the promise, but eventually the bubble will burst, and fortunes will be made. Whether this is another false dawn remains to be seen but laying the foundations for the future is not necessarily a bad move.
Q&A with José Gamarski, Independent Telecom Consultant.
What you think that the particular challenges of deploying 5G in Brazil will be?
I think that the major challenges for deploying 5G networks will be about the same for Brazil and the rest of the world. There are some issues and challenges that are typical in every country, for example, spectrum availability, infrastructure availability (finding sites and the costs for rentals), availability of time and cost of user devices, backward compatibility with the legacy networks which is a must to guarantee ROI, adaptation of the regulatory environment for the new proposed 5G services, standardization bodies’ updates and procedures. These are far from all the challenges involved, but are in my opinion the major ones.
You worked on the radio networks deployment for the Olympic Games in Rio in 2016, so how different do you think the Olympic Games in the future will be, when 5G networks are fully operational, for example in 2020 or 2024?
For each new Olympic Games, national organizing committees are responsible for upgrading existing cellular infrastructures, both planing and deploying new sites and expanding the existing infrastructure to ensure the required coverage, capacity and quality. As the new games arrive, networks must get better and better. For example, during Rio 2016, the mobile data traffic was 10 times higher than in London in 2012. I believe that the mobile traffic in Tokyo will be at least 10 times higher than in Rio. This is a default as mobile penetration keeps going up. Tokyo 2020 will experience vídeo 4K/8K transmission for mobiles, and we all know the amount of capacity required to transmit this kind of vídeo. There is no other way to provide the required quality of service, so operators must pay attention to what the market desires.
How can communities around Brazil maximise the 5G opportunity?
One of the big opportunities for 5G is Fixed Wireless Access (FWA) which will be made available by 5G networks, providing the market with higher capacities and better coverage for communities in the country that are still not well served by modern communications. 5G will be the tool permiting the convergence of fixed and mobile services, allowing the country to advance in its communications infrastructure. Another aspect to be considered is that the deployment of this new technology will support so many verticals, and will speed up the creation of many new jobs in different markets, which is very important for the country’s development.
What are you most looking forward to at 5G & LTE Latin America in Rio de Janeiro on April 24-26?
I believe that this will be the most focused event adressing the issues of 5G & LTE in Brazil during 2018. Since I have worked with the designs and deployments of various celullar generations in Brazil, I believe that I can share some understanding of challenges that professionals may face during 5G deployments. I think that this technology deployment will allow creation of a new environment to develop the market as a whole and create new jobs.
With many operators looking at the emerging mobile markets as the new El Dorado, the MVNOs Series team commissioned an exclusive report on the Latam region. ‘Shaping the Latin American MVNO Market’ analysis how the region, which is primed for growth, offers many opportunities and challenges for MVNOs.
Historically, the Latin American mobile telephony market has been dominated by a handful of powerful telecoms players. But in the last decade, government regulations designed to open up the market have presented MVNOs with new opportunities. The result of this has been a flurry of MVNO activity in markets including Mexico, Brazil, Argentina, Colombia and Chile. And, while it is early days, there are also signs that the MVNO revolution will be coming soon to Peru, Venezuela and Ecuador.
That said, the growth of the Latam MVNO sector is not happening as quickly as many expected. In 2016, for example, Mexican business newspaper El Financiero was forecasting that MVNOs would have secured a 2% share of the Mexican mobile market by the end of the year – thanks to the arrival of several new players. However, by mid-2017, a report from The Competitive Intelligence Unit pegged MVNO penetration in Mexico at just 1.1% (equivalent to 1.2 million active MVNO SIMS). Further underlining the slow pace of change, the CIU added that this group accounted for just 0.3% of the market’s revenues – suggesting the sector is currently prioritising aggressive pricing.
So probably the best way to characterise the LatAm MVNO market is as a significant opportunity that is yet to be effectively realised. This assessment chimes with the findings of a September 2017 report from GlobalData, which puts the share of MVNOs across Latin America at 1.3%. While this is low, the potential for growth is clear when you consider that MVNO share is 13.7% in Western Europe and 8.5% in North America. GlobalData’s view is that LatAm MVNOs will achieve CAGR of 18% between now and 2022, leading to 21.1m subscriptions.
In terms of pan-regional factors that have limited MVNO expansion until now, it’s clear that the resilience of legacy operators has been one of the biggest challenges – notwithstanding pro-MVNO regulation. While vulnerable to the high turnover of subscriptions that characterises the mobile market, and sometimes criticised for poor customer service, incumbents are often available at low price points (because of their existing competitors) and can offer consumers triple-play or quad-play service bundles – which gives them an edge over a lot of MVNO challengers. There’s also an impression that some of them have not made it easy for MVNOs to secure capacity at competitive prices. And where MVNOs do get capacity, incumbents employ aggressive tactics to win customers back.
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Q&A with Renato Pasquini, Research Director, Latin America and Managing Director, Brazil, Frost & Sullivan.
How has the 5G landscape in Latin America changed over the past year?
In Latin America there has been significant growth in LTE coverage, and along with this expansion, the rise of fiber-optics-based backhaul connecting the cell sites. Twenty-one operators, including Vivo in Brazil and Entel in Chile, also announced LTE advanced with notable coverage. With LTE advanced the maximum speed can already exceed 1Gbps. This evolution of fiber optics with high capacity will be essential for the 5G implementation in the near future by mobile network operators.
It’s very important that regulators provide enough spectrum availability for mobile network operators to deploy 5G with quality and affordable prices, as well as allow the growth of small cells to complement coverage in urban centers.Last year there was an increase in the use of the 700Mhz frequency in different countries, and also discussions around refarming to allow more spectrum availability, that ultimately will drive higher speeds and lower-latency services.
What use cases do you think will be key drivers for 5G commercialization?
Internet of things will be the key driver for 5G commercialization, including for the Enterprise and Government sectors. Relevant use cases are connected cars, manufacturing 4.0 and smart cities, with several applications that require minimum latency and generate petabytes of data to be processed.In Brazil a public policy study concerning Internet of Things has been published in 2017 and shared with the society, with its 4 pillars around healthcare, manufacturing, smart cities and agriculture. 5G technology is one of the key enablers for the plan to materialize. Other countries in Latin America are likely to expand the discussion over Digital Agendas and Internet of Things in the short term, in order to address this important element for future GDP growth.
What developments do you think we are likely to see to the mobile networks of the Latin America region during 2018?
It’s possible that LTE will surpass 3G in terms of connections in 2018, although the coverage is more limited. LTE will continue to be mainstream, and will be boosted by the 700Mhz frequency adoption, as it allows mobile network operators to cover wider areas with less investment in antennas compared to 2.5Ghz for instance. Mobile network operators will continue to bet on data plans’ penetration increase and value-added services to clients, while also aiming at NB-IoT for serving B2B clients, to complement their current M2M offering based mostly on 2G connections.