DirecTV (NASDAQ:DTV) is participating in a radio spectrum auction in Brazil, which is its biggest market in Latin America accounting for around 60% of its revenues in the region.  Interestingly, DirecTV hasn’t been following rival Dish Network (NASDAQ:DISH) which has been buying 4G spectrum in the U.S. The company is instead choosing to invest in wireless broadband in Latin America. The result could be higher ARPU, lower churn and expansion by capitalizing on local market demand for wireless broadband.
Demand For Wireless Broadband
Unlike the U.S. where competition from wireline broadband is immense and wireless broadband offered by satellite companies captures very little market share, Brazil has more demand for wireless broadband. This is due to underdeveloped wireline infrastructure and presence of a large number of remote pockets. Wireline is mainly developed in major urban areas and it is economically not viable to lay down huge infrastructure for less developed areas which promise low returns on invested capital. DirecTV has the opportunity to market its wireless broadband to these areas, provided it gets the spectrum.
The growth rate of broadband subscribers for wireless is higher than that for wireline which is also indicative of demand for the service. While wireline broadband connections in Brazil grew by 20% in 2010, wireless broadband connection grew by about 77%. 
DirecTV’s Latin American Business
We estimate that the Latin American business constitutes about 30% to DirecTV’s value owing to our expectations of high growth accompanied by a decline in capital expenditure over time. We estimate the average revenue per user (ARPU) for this region is currently around $62 per month, and this could get a further lift if DirecTV expands 4G wireless broadband. Further, the bundling of broadband with pay-TV will result in more stable subscriber trends and lower churn.
Our price estimate for DirecTV stands at $54.55, implying a premium of more than 20% to the market price.Notes:
- DirecTV Eyes Bid For Brazil 4G Wireless Airwaves, Investors.com, June 7 2012 [↩]
- Brazil’s broadband market increased 51 percent in 2010, FierceTelecom, Apr 20, 2011 [↩]