AT&T's DIRECTV Merger Signals International Growth Focus

By Markets Fool.com

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Source: AT&T

Although most reports point to a hospitable reception for a proposed merger betweenAT&T and DIRECTV,it appears the companies are continuing their charm offensive. On Wednesday, the companies posted a full-page ad in the print edition ofPolitico,a Washington, D.C. publication that is highly influential among members of Congress and others in the Capitol Hill set.

While specifically targeting lawmakers won't directly benefit the merger's chances, as the Federal Communications Communication and Department of Justice have final say on the deal, currying goodwill among legislators can't hurt.

TheWall Street Journal reported last week that the FCC and DOJ havenearly wrapped up their reviews and could issue their (likely affirmative) decision in a matter of weeks. AT&T CEO Randall Stephenson said Monday he did not anticipate a regulatory decision on the merger this week.

While the focus here has been on markets and merger approval in the U.S., for AT&T the real value in this deal might be south of the border.

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AT&T's North American strategy
AT&T is looking outside of the United States to grow itswireless business. Early this year the company completed the $2.5 billion acquisition of Mexican wireless company Iusacell, which has 9.2 million subscribers.. The company then purchased Nextel Mexico for $1.875 billion, debt inclusive, for its assets and subscribers.

AT&T's goal has been communicated, clearly, since the Iusacell bid is to create the "first-ever North American Mobile Service area" in order to cover 400 million Mexican and U.S. consumers and businesses. In doing so, the company challenges the major player in the Mexican telecommunications business.

Early in Mexican President Enrique Pea Nieto's term, he took on the entrenched monopolies within the Mexican economy. In the private sector, those included the telecommunications industry, mostly controlled byAmerican Movil's Carlos Slim -- the second-richest man in the world.

A 2012 study from the Organization for Cooperation and Development found that Slim's monopoly in phone and Internet services resulted in $13.4 billion in excess costs to Mexican consumers over a four-year period. Lack of competition led to high prices. AT&T's presence in Mexico should provide competition while enriching shareholders through this market.

How does DIRECTV play into this?
Nieto is also looking to bust up the Mexican TV monopoly. Grupo Televisa commands roughly 65% of all Mexican cable and satellite subscribersand could face more demands to divest certain holdings or allow more competition.

As reported by TheWall Street Journal, the company's free-to-air broadcast television business was declared dominant and forced to additional regulations.However, the cable and satellite TV operations were excluded from that ruling. More recently, however, Mexican regulators are looking intoGrupo Televisa's operations in those markets as well -- and that's where DIRECTV enters AT&T's Mexican strategy.

The satellite service specialist's high-growth Latin America operations have a small foothold in the country and could benefit from President Nieto's push for more competition. The company already owns a 41% stake in Mexican TV provider Sky Mexico's (the rest is owned by Grupo Televisa). The combined AT&T/DIRECTV would have enough money to buy up assets that Grupo Televisa might be forced to divest.

Even if Televisa doesn't have to divest, AT&T/DIRECTV are likely to face a welcoming regulatory climate in Mexico to encourage competition. In the end, while the focus has been on the United States, a growing middle class, a reform-oriented government, and overpriced competitors could make Mexico a true growth market for the combined entity.

The article AT&T's DIRECTV Merger Signals International Growth Focus originally appeared on Fool.com.

Jamal Carnette owns shares of Apple and AT&T.; The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.