Telmex Gains as Ruling Is Seen Hastening Resolution of Slim Pay-TV Dispute

Telefonos de Mexico SAB gained the most in almost a year in Mexico City trading after a federal court ruling that may open a new era of competition in the country’s media industry.

The court ruled Telmex must receive an answer in 15 days on its request for government permission to offer TV service. An approval would allow Mexico City-based Telmex, controlled by billionaire Carlos Slim’s America Movil SAB, to compete with Grupo Televisa SA (TLEVICPO) and other rivals that have captured market share by bundling cable with phone and Internet.

The Communications and Transportation Ministry has the option to deny or allow Telmex to offer video services, or grant permission with conditions, the agency’s legal affairs chief, Gerardo Sanchez Henkel, said yesterday in an interview broadcast on Radio Formula after Telmex announced the ruling.

“This news is positive for Telmex, as it appears to be a significant step toward obtaining the much-awaited license,” Gregorio Tomassi, an analyst at Banco Santander SA in Mexico City, said today in a research note. “These actions would probably represent a new growth driver for Telmex.” He maintained his “underperform” rating on the shares.

Telmex rose 53 centavos, or 5.1 percent, to 10.95 pesos at 4 p.m. New York time in Mexico City trading, the biggest gain since May 31. The shares have climbed 9.4 percent this year.

Lost Lines

“This decision puts the ministry between a rock and a hard place,” Jose Otero, an analyst at Signals Telecom Consulting, said in a phone interview from Montevideo, Uruguay. “If its answer is no, it will have to explain painstakingly what aspects of the regulations Telmex hasn’t fulfilled, and it will have to prove it.”

If the ministry allows Telmex to offer TV, there could be legal repercussions over how it acquires content from competitors, and smaller rivals might team up or begin offering their own video services to compete, Otero said.

Telmex lost 29,000 lines last quarter for a total of 15.6 million as customers switched to its cable rivals. Telmex controls about 80 percent of the nation’s fixed phone lines and about 70 percent of Internet lines.

The company will await the ministry’s approval before it starts offering a pay-TV plan, said an official who can’t be named under company policy.

Chief Financial Officer Adolfo Cerezo said last month Telmex has an option to buy a controlling stake in satellite provider Dish Mexico if it gets approval for video service. The company may also offer TV over its phone lines, he said.

Waiting for Years

Telmex has waited for a video license from the government since 2006, when the communications ministry announced regulations to allow companies to provide video, voice and Internet services. In 2008, regulators issued rules to allow consumers to switch telephone providers while keeping the same phone number, and Telmex complied with the guidelines, a requirement to get the video license.

Televisa has about 5 million pay-TV subscribers, including about 3 million for its Sky satellite service and 2 million for three cable operators. Dish Mexico, controlled by MVS Comunicaciones SA and EchoStar Corp. (SATS), is the nation’s second- biggest TV provider, with about 2.2 million users as of the end of last year. The biggest individual cable company is Megacable Holdings SAB, with 1.7 million.

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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