Argentina TV, Telco interests, merge to face external domination

After what seems to be an unduly long courtship, the incumbent Telco in the Northern part of Argentina, and the strongest cable operator Cablevisión, seem set to take their marriage vows.

There are a whole bunch of regimes around the world which have never allowed Telcos to take what now seems their natural place in IPTV deployments or online video of any type. It was true in Korea for many years, where the telcos there focused purely on VoD, rather than live channels, under an obscure law, and also in Mexico, where the dominant Telmex has been kept for many years away from owning TV, despite owning it in other parts of Latin America.

In Argentina the rules are supposed to be changed come 2018, after more than 30 years of under-investment in local networks, and that looks set to trigger a spate of telecom consolidation.

Now we know that one of the main problems with such legislation is that rampant consolidation in telecoms has been held at bay, which in Argentina has led to a starvation of telecoms investment. There seems to be no point in merging a pay TV operator with a Telco, if that Telco is banned from offering TV.

But ahead of the Argentinian legislation change, the local regulator confirmed late last year that a merged Telecom Argentina and Cablevisión, would be allowed to offer pay TV, including linear channels, even if the merger goes ahead prior to the 2018 legislation, which will allow all types of telcos to offer TV. This will result amounts to a head start for two of the most powerful operators in Argentina, and likely something approaching a monopoly in fixed broadband, fixed lines and pay TV. Cablevisión has something like 3.2 million pay TV homes, and close to 50% of the pay TV market there, against the nearest rival DirecTV, estimated to have just over 1 million pay TV homes in Argentina, out of the 13.6 million it holds throughout Latin America. Cablevisión is owned by Grupo Clarin, originally a newspaper group which has the strongest newspaper in all of Latin America, which has diversified into TV stations and pay TV.

But the real battle here is about holding some kind of parity in cellular, where America Movil brand Claro is the number one cellular player, closely chased by Telefonica’s Moviestar, both on around 20 million customers, with the Personal brand of Telecom Argentina, lagging by about 1 million customers behind them both. But it just so happens that Cablevisión owns the old Sprint Nextel subsidiary which has over a million cellphone customers there. Argentina is already saturated in cellular customers with every adult having at least one mobile phone across the 43 million population, with about a third of them on modern smartphones.

This deal comes at the same time that SVoD services are starting to hold sway in Argentina, whether delivered by fixed line broadband or cellular, and not only has Netflix already grabbed some 600,000 customers there, but America Movil’s Claro Video and Televisa’s Blim, are also fighting it out across Latin America with Netflix, and they account for another 500,000 SVoD subscribers between them in Argentina.

So this merger is as much about giving Cablevisión access to a larger cellular arm, and an OTT video route to market, as it is about giving Telecom Argentina access to fixed lines for backhaul, and general convergence. In truth the 1.1 million DirecTV customers here are less of a problem than the SVoD players, who are getting bundled into cellphone subscriptions.

Telecom Argentina and Cablevisión said they have a Preliminary Merger Agreement back by both boards, targeting a triple play and the two say they will build out fiber, and strengthen cellular investment.

The deal will leave Cablevisión shareholders with 55% of the combined company, which will continue to operate as Telecom Argentina, dropping the Cablevisión brand which has confused us for so long, given that there are not one, but three others of that name, one in the US and two in Mexico, owned by Televisa. The current shareholders of Telecom Argentina will retain the remaining 45% of the capital stock of the combined Company as a result of the merger.

The transaction is subject to the approval of the shareholders of each of the companies at their respective shareholders’ meetings and by the relevant regulatory authorities. Given that this represents the entire local investor interest in telecom, it is likely that the regulator will grant its blessing.