América Móvil's Claro (NYSE:AMX) has been granted a 15 year license to sell cable television with the option to renew it for another decade if they actually turn a profit. The contract was signed last October but they could not start selling the new service until now.
I want my HBO
This is bad news for DirecTV (NASDAQ:DTV) and Televisa (NYSE:TV) which have been selling satellite TV for decades in Costa Rica with the Sky brand. Unlike other regions of the world, in Latin America there has been a satellite TV monopoly since the only two companies, Sky and DirecTV, merged.
This had been extremely profitable for shareholders of DirecTV and Televisa for decades until Dish (NASDAQ:DISH) decided to enter the Latin American market a few years ago with a little help from América Móvil (NASDAQ:AMOV) which is commanded by the world's richest man, Carlos Slim Helú from Mexico.
With revenues of over $27 billion, DirecTV is currently the sixth largest broadcaster in the world. With revenues of over $4 billion, Televisa is not too far behind at 20th in the same category. With profits of $2.6 billion DirecTV is currently the sixth most profitable broadcaster in the world. With profits of $500 million Televisa is again at 20th in the same category. With assets of $18.4 billion DirecTV is currently the tenth largest broadcaster in the world by assets. Televisa is also big in this category at 17th.
You don't want to go to war with enemies as big as those two. Unless of course, you are in charge of increasing América Móvil profits from $5.9 billion to $7.6 billion. Which is what Portugal Telecom currently makes. The task is simple: Bite $1.7 billion from DirecTV and Televisa's lunch.
This strategy is global, complicated and it will take a few years to be completed but in the end they will succeed. It's not a bad idea to invest in América Móvil for your retirement. You will make millions in the future when these obsolete monopolies are destroyed worldwide. Today it's Costa Rica, tomorrow Nigeria.
The basic cable package includes 61 channels. People from Costa Rica will now be able to subscribe to HBO for less which is good news for Time Warner (NYSE:TWX). They now have over 100,000,000 subscribers worldwide and this will only increase that number by a few million in a few years.
In Costa Rica the cable TV market has several big players like Millicom of the Netherlands which has almost a 40% market share. Teletica comes second with almost 30%. Sky is third with over 10% and finally Cablevision (not related to Cablevision in the United States of America) comes last with over 7%.
América Móvil has a lot of experience in the cable TV business and they have been very successful in over a dozen countries already. Their plan is simple: They go to where Televisa is and try to crush them. POTS (Plain Old Telephone Services) are obsolete since the invention of the cell phone and they know it. This is why they decided to move into the TV business decades ago.
The cable TV business is now in jeopardy in Latin America, especially the PPV market, because Netflix (NASDAQ:NFLX) entered the market in 2011. Netflix is currently losing money in Latin America and they are now focused on Europe. They are not an an imminent threat to América Móvil.
How do I make money?
Buy América Móvil (Including KPN and Telekom Austria) and hold them for a very long time.
DirecTV and Televisa are making billions in Latin America. In Mexico they are buying some of the largest cable companies to reduce competition now that Dish has entered the market. América Móvil cannot compete with them in Mexico by law. However, they can compete in the rest of the world.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.