AT&T's Stephenson: We're not gunning for América Móvil's assets in Mexico

AT&T (NYSE: T) CEO Randall Stephenson told investors about as clearly as he could that the carrier is not going to snap up assets that América Móvil is going to divest, and will instead focus on growing its business in Mexico via its acquisitions of Iusacell and NII Holdings' Nextel Mexico businesses.

Analysts are divided on whether AT&T will in fact stay away from a deal with América Móvil. Stephenson said that the company has more on its plate than it can handle at this point, considering it is spending $48.5 billion to buy DirecTV (NASDAQ: DTV), a deal he said is likely to close in the first half of 2015.

Thanks to a new antitrust law Mexico instituted in July 2014, América Móvil is seeking to offload some assets as part of an effort to get its market share in Mexico below 50 percent from around 70 percent.

"The América Móvil thing is just too uncertain ... I will say it again, we've got all we can handle right now in Mexico," Stephenson said on AT&T's fourth-quarter earnings conference call, according to a Seeking Alpha transcript of his remarks. "And we're going to be focused on getting Nextel International closed, integrating that network, integrating those customer channels, integrating the distribution channels and getting ourselves scaled in Mexico, so anything else is just kind of speculation and then probably isn't worth conversation at this point."

Stephenson also said that while the América Móvil asset sale "has been one of those things floating out there, nobody really yet knows what that's going to look like." AT&T's deals with Iusacell and Nextel Mexico were "really unique opportunities in front of us."

Combined with the $2.5 billion Iusacell purchase, which closed earlier this month, Stephenson said the Nextel Mexico deal gives AT&T "a set of assets, a spectrum portfolio that is really a robust spectrum portfolio, a nice cell site grid that will be a very nice place to start in a nice customer base." Combined the two Mexican wireless carriers have around 12.2 million total subscribers.

"We've bitten off more than we can chew right now and you'll see us focused on what we've consummated to date," Stephenson added.

Analysts were divided on how AT&T would proceed. "While we continue to believe AT&T could be interested in assets that may be divested by América Móvil, the company has its hands full in 2015 with the integration of three companies," Credit Suisse analyst Joseph Mastrogiovanni wrote in a research note. "We believe AT&T's Mexican acquisitions increase its leverage to negotiate a deal with América Móvil but with expected spectrum purchases, AT&T's balance sheet will be stretched for a while, likely shaking out in the mid-2x range."

Other analysts think AT&T is more likely to just stay focused on integrating Iusacell and Nextel Mexico, deploying LTE and expanding its network footprint south of the border.

"Previously we thought AT&T would likely buy assets and/or subs divested by [América Móvil]; we now think this is less likely," New Street Research analysts Jonathan Chaplin, Spencer Kurn, Zach Monsma and Vivek Stalam wrote in a research note. "The addition of Nextel will give AT&T a strong spectrum position in Mexico, with over 100 MHz of low- and mid-band spectrum nationwide; however, the market opportunity is too small to materially impact AT&T's [free cash flow], even if they are wildly successful."

Nextel Mexico has around 20 MHz of nationwide 800 MHz SMR spectrum and 30 MHz of nationwide AWS spectrum. Iusacell controlled between 20 and 25 MHz of 800 MHz spectrum, primarily in the southern half of the country, including Mexico City and Guadalajara, and an average of 39 MHz of PCS spectrum nationwide.

"If we are correct in our view that the Nextel deal signals that a large acquisition is less likely, then it is a modest positive," they wrote. "If AT&T can effectively capitalize on their spectrum position and ability to offer an integrated service across the U.S. and Mexico, this market could be accretive to [free cash flow] over time; however, the market is too small in the context of AT&T's existing business to materially impact the value of AT&T positively or negatively."

Stephenson said AT&T is looking to bring mobile broadband to Mexico and capitalize on consumers using more data around the world. "We've always believed the demand for the mobile Internet and economic benefit experienced in the U.S. would be repeated throughout the world," he said. "And so with that we have been looking for opportunities to gain a wireless foothold in key market where the regulatory and the investment climate is right."

For more:
- see this Seeking Alpha transcript

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