DirecTV (NASDAQ:DTV) is going to evaluate Global Village Telecom (GVT) for a potential purchase. {1} GVT, owned by Vivendi, is a telecom company in Brazil and offers phone, broadband and pay-TV services. Brazil is a critical market for DirecTV, accounting a large portion of its revenues. DirecTV’s intentions could be to strengthen its presence in Brazil and brace itself as the market gets more competitive in the future. It could use GVT’s service and bundle them with satellite TV to stay competitive.
GVT is Expanding Fast
GVT has been expanding quickly in Brazil. The company’s revenues in 2011 stood at around $1.94 billion, implying growth of close to 40% over 2010. [2] This year, the company’s management expects GVT to grow its revenues by 35%. [2] Broadband has been one of the prime drivers of growth followed by phone services. GVT’s broadband subscribers increased by 40% in 2011 compared to 2010, amounting to 1.53 million by the year end. [2] This fast paced growth continued in 2012 when GVT crossed 2 million broadband subscribers in August 2012. [3] GVT also recently started a pay-TV service and is seeing traction for the same.
Brazil Is Important, Bundling Will Help
The fast expansion of GVT makes it a potential target. Brazil is an important market for DirecTV as majority of its Latin American revenues can be attributed to this market.
Latin America itself is quite critical to DirecTV, especially as the growth in the U.S. market stalls. We estimate that Latina American pay-TV business constitutes close to 30% to DirecTV’s value. This value estimate involves assumption that fast paced subscriber growth will continue and the capital expenditures (as % of profits) will come down. To ensure this happens, DirecTV will need to stay competitive and the acquisition of GVT can help with that.
DirecTV is primarily offering satellite-based pay-TV service in Brazil and has just recently started offering broadband. However, combining its satellite TV with GVT’s broadband and phone service will help DirecTV in offering a very compelling bundle. This bundle could help Brazilian customers save money while offering more which is a growing trend in Latin America.
Notes:
- DirecTV Said to Contemplate Bid for Vivendi’s GVT Unit, Bloomberg, Sept 19 2012 [↩]
- Vivendi’s Philippe Capron forecasts 35% rise in GVT revenue this year, telegeography.com, Mar 8 2012 [↩] [↩] [↩]
- Vivendi’s GVT reaches 2mn broadband clients, doubles base in two years, bnamericas.com, Sept 7 2012 [↩]
