Dividends4Life: Great Dividends, But Telecoms Desperation Is Showing

Rumors flew over the weekend that AT&T (T) had made an offer to buy Spain’s Telefonica (TEF) for $93 billion — a roughly 50% premium to today’s market cap. Telefonica was quick to dispel the rumor, and AT&T had no comment as of Monday afternoon. My gut reaction that this rumor is exactly that: a rumor. The sheer size of the deal makes it unlikely that it would ever make it past the assorted national telecom regulators without provoking antitrust hysteria. AT&T is the largest telecom firm in North America, and Telefonica is a dominant player in Europe and Latin America.

But while I don’t see a deal happening, the prospect does raise a few questions. Given that mobile phones are ubiquitous in the United States, smartphones are not far from the saturation point, fixed-line telecom is in terminal decline and broadband internet and paid TV are well past the saturation point, where does a behemoth like AT&T go for growth? One obvious answer is emerging markets, which is why Telefonica was allegedly on AT&T’s radar screen. Telefonica gets roughly half its revenues from Latin America, where fast Internet and smartphone subscriptions are both still growth businesses.

Source: InvestorPlace

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