AT&T faces Brazil hurdles in Time Warner deal

AT&T has received approval from the European Union and some Latin American markets for its acquisition of media titan Time Warner, with approval in the US expected in the coming weeks. But the company still needs the thumbs up in some key markets, such as Brazil, for the deal to go global in June.

AT& announced in October the deal to acquire Time Warner in a stock-and-cash transaction valued at US$107.50 per share for a total of nearly US$86bn.

In Brazil, antitrust watchdog Cade is awaiting the position of telecom regulator Anatel to evaluate the deal.

Time Warner operates in Latin America mainly via its pay-TV content distributor Turner International, which has established subsidiaries in Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. Turner distributes and sells channels in more than 40 countries.

AT&T has Latin America's leading satellite pay-TV brand, Sky, which it acquired from DirecTV in 2015. In Mexico, the company also operates in the mobile telephony market.

In Brazil, via DirecTV Latin America, AT&T owns 93% of Sky Brasil, while media group Globo Comunicações owns the remainder. According to the latest stats, Sky had 28.5% of the local market in March, trailing América Móvil.

The problem is that the legislation that opened up the local pay-TV market to foreign capital in 2011 created restrictions preventing telcos from owning the majority stakes at media companies and vice versa (cross ownership).

In the case of telecom operators, they are entitled to only hold up to 30% of the capital of TV and radio channels and TV and radio broadcasters and producers based in Brazil. After the approval of the law, América Móvil had to sell its stake in content companies operating in Brazil.

Therefore, if the acquisition goes through, AT&T would likely have to sell Sky Brasil, or Time Warner would have to give up its own channels. But the "based in Brazil" rule lends itself to different interpretations, with the text mentioning companies whose programming is based in the country.

AT&T argues it is not a content producer based in Brazil. The Brazil offices of Turner is a commercial operation, and the content is produced abroad, so there would be no conflict with the law, the company argues.

ROAMING

Another issue facing the company in Brazil is the so-called permanent roaming for machine-to-machine communications (M2M).

In Brazil, Anatel does not allow zero-roaming SIM cards. The Brazilian regulator has an understanding that international roaming must be temporary in nature, or non-permanent. Zero-roaming allows an automobile manufacturer, for example, to produce a car with a SIM card embedded, and market it globally without the need to have a local SIM country-by-country.

But permanent roaming is important for AT&T's M2M and IoT plans.

The company just completed the deployment of a nationwide LTE-M network in the US. According to the carrier, this technology enables a new generation of IoT devices and applications, and is a step closer to 5G technology.

The carrier plans to deploy LTE-M across Mexico by the end of the year to create a broad North American LTE-M footprint covering 400mn people. According to AT&T, carriers throughout Latin America have reportedly expressed interest in the technology. But in Brazil, the non-permanent roaming poses a hurdle.

AT&T's IoT president Chris Penrose told BNamericas on the sidelines of the Internet of Things World Forum in London that this is a "the biggest obstacle" for the group's operations as a B2B provider in the country, and that it hopes to see the end of roaming charges in Brazil soon.