DTV Eyes Brazil's 4G Wireless Market - Analyst Blog
June 08 2012 - 1:37PM
Zacks
DirecTV (DTV), the largest satellite TV
provider in the U.S., is planning to take part in Brazil’s 4G
wireless broadband spectrum auctions, expected to be held in
mid-June. We believe that by offering a by-product bundled service,
DirecTV wants to exploit the under-penetrated pay-TV and wireless
broadband market in Brazil.
DirecTV, which operates under the brand SKY Brazil, is among the
six companies that have submitted bids for the auction. The other
bidders include America Movil’s (AMX) Claro,
Telefornica’s (TEF) Vivo, Oi S.A.
ADS (OIBR), TIM Participacoes S.A. (TSU)
and Sunrise Telecomunicacoes. DirecTV – already selling 4G wireless
broadband services in the country’s capital, Brasilia – could bid
for the spectrum in Sao Paulo, Rio de Janeiro (two biggest cities
of Brazil) and other small cities where fixed line internet service
is unavailable.
Brazil is a key market for DirecTV with the South American
nation’s rising household income and an increased standard of
living creating demand for pay-TV – one of the biggest growth
drivers for the company. Brazil has nearly 14 million pay-TV
customers, covering only 22% of the population, representing a
widely under-penetrated market. The company wants to cash on to
this opportunity to gain market share from cable TV
rivals.
Quality and quantity of fixed-line internet is not very high in
the smaller cities of Brazil. Furthermore, poor terrestrial
landscape and high build-out cost act as hindrances for internet
service providers.
DirecTV wants to grab this opportunity by providing high speed
internet service at affordable price. According to IDC, Brazil will
have 4.7% of the world’s total smartphone market share, thereby
providing growth opportunity for wireless services.
We believe that DirecTV can improve its ARPU and reduce its
churn rate by offering both wireless and pay-TV services
simultaneously. Moreover, the company’s failed bid with
Verizon Communication Inc (VZ) to
launch 4G wireless broadband service in the U.S. is another prime
reason to bid for the spectrum in Brazil. However, deepening
economic uncertainty may act as a downside for the company,
reducing the demand for 4G service in Brazil.
Recommendation
We are maintaining our long-term Neutral recommendation on
DirecTV. Currently, DirecTV has a Zacks #3 Rank, implying a
short-term Hold rating on the stock.
AMER MOVIL-ADR (AMX): Free Stock Analysis Report
DIRECTV (DTV): Free Stock Analysis Report
OI SA (OIBR): Free Stock Analysis Report
TELEFONICA S.A. (TEF): Free Stock Analysis Report
TIM PARTICP-ADR (TSU): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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