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AT&T to buy Mexican carrier Iusacell for $2.5B

The deal gets AT&T into the emerging Mexico market with a business that brings 8.5 million subscribers.

AT&T is entering the Mexican market in a big way.

AT&T CEO Randall Stephenson believes he can tap into the growth in Mexico. Stephen Shankland/CNET

The Dallas-based telecommunications provider said on Friday that it had entered into an agreement to acquire Mexican wireless provider Iusacell for $2.5 billion.

The deal is just the latest acquisition for AT&T, which has been steadily expanding both its businesses and now geographic reach, and marks the first time a US carrier will directly offer service outside of its home country. Iusacell gives AT&T 8.6 million subscribers, and covers 70 percent of Mexico's population of 120 million people. More importantly, it gives the company a new source of growth with the maturing US smartphone market. AT&T is already in the process of acquiring DirecTV for $48.5 billion in a deal that would garner it a nationwide satellite TV business.

"Iusacell gives us a unique opportunity to create the first-ever North American Mobile Service area covering over 400 million consumers and businesses in Mexico and the United States," AT&T CEO Randall Stephenson said in a statement. "It won't matter which country you're in or which country you're calling -- it will all be one network, one customer experience."

AT&T shares rose 0.5 percent to $35.10 in after-hours trading. It closed up 0.6 percent to $34.91 on regular trading on Friday.

AT&T said it expects the deal to close in the first quarter of next year. It is awaiting parent Group Salinas, which owns 50 percent of Iusacell, to close its own acquisition of the remaining half before completing its sale to AT&T.

The company said it plans to expand Iusacell's network to cover millions of additional customers and businesses. The Mexican carrier runs on a 3G network based on the same GSM technology that AT&T employs for its slower network.

AT&T is entering a market dominated by Telcel, which is owned by billionaire telecommunications tycoon Carlos Slim Helu. While Telcel owns 70 percent of the market, recent legislation and a planned construction of a new broadband network by the government is expected to boost wireless competition in the country.

AT&T had previously had a presence in Mexico, but sold its 49 percent stake in Alestra to Alfa S.A.B. de C.V. in 2011.

The US carriers have traditionally preferred to stay focused on the homefront, although AT&T and Verizon had reportedly eyed assets abroad. The expansion into Mexico makes for an easier integration over a carrier in Europe or elsewhere overseas. Also, there are a number of customer ties between US and Mexican consumers that would play well with a carrier that ran a single service across both countries.

AT&T said smartphone penetration is half that of the US. The looming smartphone growth and the build-out of faster mobile networks could yield the company significant growth over the next few years.

Iusacell's Total Play division, which includes network assets to support pay TV and wireline broadband services, will be spun out to Grupo Salinas' existing shareholders prior to the close of the AT&T deal.

AT&T also provided an update to its capital expenditure plans, saying it would spend $18 billion in 2015, or roughly $2 billion less than this year. The company said its Project VIP network infrastructure improvement project was ahead of schedule, with its 4G LTE network essentially completed.

"The cut to capital spending guidance is much more material," said Craig Moffett, an analyst at MoffettNathanson.