Will Liberty LatAm ditch Millicom mobile biz for cable push?

Liberty Latin America has tired of lurking in the shadows of Telefónica and América Móvil, as the operator this week entered discussions to acquire Millicom International Cellular and its 53 million mobile subscribers, primarily in Latin America but with a smattering in North Africa. The two firms aren’t talking prices just yet, but we’re certainly not talking about a small fry deal here.

With Balan Nair at the helm of the newly spun off Liberty Latin America, the legendary CTO of Liberty Global who was responsible for Horizon TV, we had expected video to be part and parcel of the company’s vision and therefore expected any M&A activity to fit these plans accordingly. Millicom doesn’t appear to fit the bill on first glance given its mobile emphasis, although the group’s more recent activities put pay TV expansion high on the agenda, and under new ownership the mobile business could be put on the backburner or even sold off.

Millicom debuted the Tigo ONEtv service built on TiVo technology in Colombia in 2017, before expanding it to the rest of its Latin America markets in 2018. Millicom says the integrated linear and non-linear TV choice is bringing next generation TV to Latin America and the advanced personalization and content recommendation features are aiding momentum.

This would be the biggest bit of business for Liberty Latin America since operating as a separate business from John Malone’s empire last year, when a month later it bought an 80% stake in Televisora’s Costa Rican cable operator Cabletica for approximately $250 million, inheriting 207,000 customers on analog and digital TV, broadband and fixed line telephony.

Millicom has 450,000 DTH subscribers in Latin America, losing 5,000 subs in Q3 2018 but a year on year growth of 83,000, and it has 2.64 million homes connected to its HFC network. Liberty Latin America didn’t get off to a particularly good start with life on its own, reporting widespread pay TV losses for Q4 2017, although the operator recovered somewhat during the most recent quarter, ending the Q3 2018 with 1.7 million video subscribers, gaining 12,600, and 2.2 million broadband internet subs, via the brands Cable & Wireless, VTR and Liberty Puerto Rico.

Increasing pay TV ARPU remains a fundamental priority for operators in Latin America and one way to do that is add TV Everywhere services and either hike the overall package price or charge an additional fee. Liberty’s VTR launched VTR Play in July last year, offering 80 channels on the go and it claimed to have picked up 1 million active users already by Q3.

Surprisingly, Millicom is the larger of the two in terms of revenues, with Liberty Latin America reporting 2017 revenue of $3.6 billion compared to Millicom’s $4.1 billion. While in Q3 2018, Liberty Latin America reported revenue of $925.2 million, in comparison to Millicom’s $1.5 billion quarter.

“There is no certainty that a transaction will materialize nor as to the terms, timing or form of any possible transaction,” warned a statement from Millicom, responding to reports that discussions with Liberty Latin America have been ongoing for a number of weeks.

Millicom’s Tigo brand serves Guatemala, El Salvador, Honduras, Paraguay, Nicaragua, Costa Rica, Bolivia and Colombia in Latin America, as well as Chad, Congo, Ghana, Rwanda, Senegal and Tanzania across Africa.

A merger would certainly create a new superpower in the Latin America region to potentially rival Telefónica and América Móvil, and indeed Millicom has been hot on the heels of Telefónica in mobile for over a decade now. Although, as we know all too well, Liberty Global is an expert at buying assets and selling them years later for a hefty profit.