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Televisa-Iusacell Merger Delayed

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Grupo Televisa S.A. (TV - Free Report) , the largest media company in the Spanish speaking world, has to wait till the end of 2011 to know whether its long awaited dream to get a foothold in the lucrative Mexican market will actually become a reality or not. Recently, the head of Mexican telecom regulator “Cofeco” declared that their final decision regarding Televisa’s proposed acquisition of 50% stake of Mexican wireless operator Grupo Iusacell will take longer time than expected.

In April 2011, Televisa decided to purchase half of Iusacell for approximately $1.6 billion. Initially, the deal was expected to get regulatory decision by October 2011. However, Cofeco stated the two entities failed to provide all the technical requirements in proper manner and thus the regulatory decision will be delayed.

After its failed wireless venture in 2010 with NII Holdings Inc. (NIHD - Free Report) , Televisa is once again eyeing Mexican wireless market through Iusacell. Undoubtedly, an entry into the lucrative Mexican wireless market will open up a strong revenue stream for Televisa. If the deal clears regulatory hurdles, then Televisa-Iusacell combination will become the largest quadruple-play service provider in that country. The merged entity will provide pay-TV (both cable TV and satellite TV), Internet, fixed-line telephony, and wireless communications services. 

Nevertheless, we remain skeptical that the new wireless initiative of Televisa may also face stiff legal hurdles. Televisa controls 70% share of the Mexican pay-TV and satellite TV market, which was primarily attributable to its highly appreciated Spanish language TV contents. 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.

Earlier in this year, we have seen that the Mexican regulatory authority denied permission to the largest indigenous wireline operator Telefonos de Mexico , controlled by telecom tycoon Carlos Slim, to enter into pay-TV market.

We maintain our long-term Underperform recommendation on Televisa. Currently, it holds a short-term Zacks #5 (Strong Sell) Rank on the stock.

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