Grupo Televisa S.A. (TV - Analyst Report), the largest media company in the Spanish speaking world, is finally on the verge of entering into the lucrative Mexican wireless market. Recently, the company won conditional approval from the Mexican regulator CoFeCo (CFC) to acquire 50% stake of Grupo Iusacell, a small wireless operator of Mexico.
Yesterday, in a filing with the Mexican stock exchange, Televisa declared that the company accepted all the conditions imposed by CFC and thereby converted its $1.6 billion investment in the low-interest bearing notes of GSF Telecom Holdings, the holding company of Grupo Iusacell, into 50% shares of it.
CFC was initially reluctant about this merger. The main concern of CFC was that although Televisa-Iusacell venture will create a formidable player in the highly concentrated Mexican wireless market, the merger will indeed create a virtual monopoly in the Mexican TV market. WhileTelevisa controls 70% share of the Mexican pay-TV and satellite TV market, Grupo Iusacell is a part of Grupo Salinas, which also controls TV Azteca, the second largest pay-TV operator in Mexico. In fact, these two entities control approximately 100% of the Mexican TV broadcasting market together.
To solve the monopolistic concentration, CFC imposed several restrictive conditions on the Televisa-Iusacell merger including (1) the deal will depend on the success of the proposed government auction of the TV frequency. The Mexican government wants at least a new TV broadcaster in addition to incumbent Televisa and TV Azteca (2) both Televisa and TV Azteca should refrain from forcing any TV advertiser to become a Iusacell client (3) Televisa must offer new pay TV package that includes all four of its free public channels for which the company currently charges a fee to cable operators and (4) Televisa must offer the sale of advertising time to all incumbent telecom operators.
The situation is just the opposite in the wireless market. Here, Telcel, a unit of America Movil S.A.B. (AMX - Analyst Report), controls over 70% of the market, Telefonica S.A. (TEF - Analyst Report) controls more than 22%, and Iusacell controls hardly 5% of market share. Interestingly, Iusacell has an existing agreement with Telefonica for network sharing in order to improve both the entities coverage and service quality.
Televisa currently holds four free-to-air broadcast channels, the largest of the two satellite TV channels, and three cable units offering triple-play TV, phone and Internet services. Undoubtedly, a foothold in the lucrative wireless market will make it a complete and powerful telecom operator in Mexico.