The U.S. wireless industry today is defined by two distinct competitions. Sprint and T-Mobile are locked in a bitter battle for third place, while AT&T and Verizon fight for the top spot.
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Now, AT&T might havefired the latest shot in its bid to unseat Verizonas the No. 1 wireless provider.
Last week, the Dallas-based telecomclosed its $2.5 billion purchase of Mexican wireless provider Iusacell, gaining approximately 9.2 million Mexican subscribers and a wireless network that covers nearly 70% of the nation's 120 million citizens, per an AT&T press release. As a part of new Mexican President Enrique Pena Nieto's reforms to address monopolies, particularly when it comes toAmerican Movil's Carlos Slim (the world's second-richest man),AT&T was allowed entrance into the country.
Addressing the purchase, AT&T CEO Randall Stephenson commented on a "North American Mobile Service area," and on Monday the company further defined its CEO's vision by announcing unlimited calling to Mexico at no additional charge as a part of its $5 monthly World Connect Value package.This is a much better deal than Verizon's $0.99 per minute rate through its Global Services package. Sprint and T-Mobile also offer international mobile-to-mobile calling packages, but both services cost $15 per month. Sprint provides unlimited minutes, while T-Mobile provides 1,000 minutes of talk.
The U.S.has over 30 million self-identified Hispanics of Mexican origin, many with family members in Mexico, so AT&T's acquisition is a big deal and could result in U.S. subscriber growthat the expense of the other three telcos.
A win-win north and south of the borderAccording to research firm Strategy Analytics, Verizon as of the third quarter of 2014 hadroughly 7 million more U.S. wireless subscribers than AT&T.. So AT&T's latest acquisition couldbe a game changer for subscriber growth, on both sides of the Rio Grande.AT&T could pull subscribers from Verizon, Sprint, and T-Mobile with its Mexico-focused World Connect Value package, and it could win subscribers from American Movil's Telcel with an upgraded network and .
This is an interesting play for subscriber growth in the U.S. wireless market. Led by T-Mobile -- and recently a resurgent Sprint with its "Cut Your Bill in Half" promotion -- the focus has been on lowering the monthly bill in order to provide value to would-be subscribers. AT&T's unlimited calling to Mexico deal is a demographic twist on this value proposition.
There's more for AT&T in Mexico and Latin AmericaAT&T is also in the midst of acquiring DIRECTV in order to enter the pay-TV market in a meaningful way. While nobody knows what the Federal Communications Commission will decide, the merged companywould command less market power than the Comcast/Time Warner Cable merger -- for shareholders, this points toward an easier path to approval.
When it comes to DIRECTV's growth, Latin America is the clear driver. Taking advantage of the growing middle class in the region (including its 41% ownership in pay-TV provider Sky Mexico), it has grown subscriptions at a 26% annualized clip and revenue at a 24% rate over the past three annual reports. While an FCC rejection would not necessarily doom AT&T's chances to own this high-growth business segment,it would make the process significantly more difficult.
AT&T investors have been focusing on the U.S. wireless business for revenue and earnings growth. While that will always remain an important part of AT&T's business, it is entirely possible growth will come from Mexico and Latin America. With that in mind, AT&T investors should follow its moves in those markets accordingly.
The article Will AT&T Overtake Verizon Wireless With Its Newest Move? originally appeared on Fool.com.
Jamal Carnette owns shares of Apple, AT&T, and Verizon Communications. He also wouldn't mind Carlos Slim's wealth. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Netflix, Verizon Communications, and Visa. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Netflix, and Visa. 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.
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