AT&T to nab Nextel Mexico for $1.88B from bankrupt NII Holdings

AT&T (NYSE: T) said it will acquire the Mexican wireless assets of bankrupt NII Holdings for $1.875 billion, less outstanding net debt. The deal marks AT&T's latest expansion south of the U.S border following its $2.5 billion purchase of Mexican carrier Iusacell, which closed earlier this month.

Exactly 10 days after it announced the closing of the Iusacell deal, AT&T said it will purchase the Nextel Mexico companies, as well as all of NII's wireless properties in Mexico, including spectrum licenses, network assets, retail stores and around 3 million subscribers. Nextel Mexico's network covers around 76 million people, a little less than Iusacell's network.

The Nextel transaction is subject to a bankruptcy auction and approvals by the U.S. Bankruptcy Court for the Southern District of New York, which is overseeing the restructuring of NII Holdings. The deal is also subject to regulatory approval by Mexico's telecom regulator IFT. AT&T said that it expects the Nextel deal to close in mid-2015. It took a little more than two months for AT&T's Iusacell deal to close.

The Iusacell deal netted AT&T all of Iusacell's wireless properties, including spectrum licenses, network assets, retail stores and around 9.2 million subscribers. Iusacell's wireless network currently covers around 70 percent of Mexico's approximately 120 million citizens, or 84 million POPs.

According to a research note by Wells Fargo analyst Jennifer Fritzsche, who spoke with AT&T's investor relations team, the deal was primarily about AT&T obtaining NII's spectrum holdings. Nextel Mexico controls 30 MHz of AWS spectrum nationwide, 25 MHz of 800 MHz, spectrum and some iDEN/SMR spectrum. "We note that when combined with its Iusacell acquisition, [AT&T] has +70 MHz nationwide, with upwards of 90 MHz in select markets," she wrote. "Of note, [AT&T] has 800MHz (low-band) spectrum in southern Mexico." Fritzsche views the deal as positive since the spectrum holdings complement what AT&T acquired via Iusacell and the combined holdings will allow AT&T "to build a competitive and high-quality network." 

Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote in a research note that the Nextel deal could also bring AT&T 50 MHz of nationwide 3.5 GHz spectrum. They noted that the band is "typically used for fixed wireless applications, but is capable of mobile support should regulations permit."

"Combining Nextel Mexico with Iusacell will allow AT&T to more quickly improve and expand its mobile Internet service to the benefit of millions of Mexicans, particularly those who live outside major metropolitan areas, than it could otherwise do without the transaction," AT&T said in a statement.

AT&T said the acquisition of Nextel Mexico will support AT&T's plans to boost competition and bring faster mobile Internet speeds to the Mexican wireless market, likely through the deployment of LTE, perhaps through refarming spectrum. AT&T plans to create what it has dubbed the first-ever "North American Mobile Service area" covering more than 400 million consumers and businesses in Mexico and the United States.

"Similar to the Iusacell transaction, we believe Nextel Mexico's assets/spectrum are complementary to those of AT&T and should support relatively seamless roaming, while providing modest handset and network synergies; most newer AT&T handsets (i.e. iPhone 6) are compatible with most of Nextel Mexico's spectrum," the Jefferies analysts wrote. "We would expect AT&T to invest in upgrading the HSPA+ networks to LTE to improve network quality and operational efficiencies, while providing for a more competitive platform. We expect AT&T to repurpose the 800 MHz SMR spectrum, currently used for iDEN, to LTE over time."

AT&T CEO Randall Stephenson has said he is "very enthusiastic" about the Mexican market and the government's rules for opening up the telecommunications sector--AT&T has clearly taken advantage of that regulatory liberalization. For example, the country's new rules require market leader América Móvil to offload assets as part of an effort to get its market share in Mexico below 50 percent from around 70 percent. Stephenson has said that the rules "make it very, very attractive for companies to come in and invest" in expanding network coverage and capacity. 

Fritzsche wrote that she does not think AT&T will make further acquisitions in Mexico, such as buying assets América Móvil may divest. 

"In our view, while there are logical roaming savings [AT&T] will see by having a presence in Mexico, we believe the bigger driver is the longer runway it sees for Mexico to follow the U.S. in terms of smartphone penetration and mobile data growth," Fritzsche added. "We also note more wireless investment in Mexico bodes well for those tower companies with a foothold there--American Tower tops this list."

Macquarie Capital analyst Kevin Smithen agreed with that last assessment and wrote in a research note that AT&T "is going to need a lot of help in building out LTE in Mexico, and [American Tower], as the leading tower vendor, should benefit."

For more:
- see this AT&T release
- see this NII Holdings release
- see this Bloomberg article
- see this Reuters article

Related Articles:
AT&T closes $2.5B deal for Mexican operator Iusacell
AT&T gets approval for $2.5B Iusacell deal from Mexican antitrust regulator
AT&T's Stephenson: Iusacell deal will create synergies with Cricket prepaid biz
AT&T kills plan to use LTE in WCS C, D Block for in-flight Wi-Fi services
Analysts: AT&T's $2.5B Iusacell deal could lead to a bigger Latin American push
AT&T to expand wireless network to Mexico with $2.5B purchase of Iusacell

Article updated Jan. 26 at 10:45 a.m. ET with additional analyst commentary.

Suggested Articles

Global Data principal analyst Ed Gubbins thinks more real-world activity like this could help Nokia get skeptical operators on board with vRAN.

Keysight Technologies recently announced that it has joined the multi-party 6G Flagship Program supported by the Academy of Finland and led by the University…

A new investigative study by the Chicago Tribune found some models of smartphones tested above the legal limit for RF radiation exposure. Device makers,…