Grupo Televisa S.A. (TV), the largest media company in the Spanish speaking world, is once again dreaming of wireless opportunities. Recently, Televisa announced that the company is negotiating with Mexican wireless operator Grupo Iusacell for a possible venture. Some industry watcher predicted that Televisa may buy a large chunk of outstanding debt of Iusacell, which is at present under creditor protection. However, it is still not clear whether Televisa will directly form a wireless venture with Iusacell or become a reseller of the latter.
In February 2010, Televisa signed an agreement with NII Holdings Inc. (NIHD) to acquire a 30% stake in the latter’s wireless arm in Mexico, Nextel for approximately $1.44 billion with an option to further raise its share to 37.5%. In August 17, 2010, the Mexican wireless regulator CoFeTel approved the auction bid submitted by the Televisa-Nextel venture for a 30 MHz nationwide block in the 1.7 GHz band of wireless frequency.
The bid has raised several eyebrows as theTelevisa-Nextel bid size for 30 MHz spectrum block is for just $14 million. This is far behind the $400 million bid size quoted by the two largest Mexican wireless operators, viz, America Movil SAB (AMX) and Telefonica S.A. (TEF), for another block of wireless spectrum.
Even after the government’s decision to award the radio spectrum, the Televisa-Nextel venture faced more than 70 lawsuits in several Mexican courts and some of the courts granted injunctions to its competitors. Interestingly, Iusacell, with whom Televisa now wants to form a wireless business, argued that it will be unfair to allow a large firm like Televisa to enter the mobile market for such a small amount of investment. Televisa controls 70% share of the Mexican pay-TV and satellite TV market. Consequently, on October 18, 2010, both Televisa and Nextel decided to terminate their joint venture.
Undoubtedly, a foothold in the lucrative Mexican wireless market will open up a strong revenue stream for Televisa. Alternatively, the company may still offer mobile services and its highly appreciated Spanish contents using the network of any third party mobile operator.
Nevertheless, we remain skeptical that the new wireless initiative of Televisa may also face legal hurdles. Grupo Iusacell is a part of Grupo Salinas, which also controls, TV Azteca. After Televisa, TV Azteca is the second largest pay-TV operator in Mexico. In fact, these two entities will control approximately 100% of the Mexican TV broadcasting market together.
We maintain our long-term Neutral recommendation for Televisa. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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