America Movil SAB (AMXL), the wireless carrier controlled by billionaire Carlos Slim, is adopting rather than resisting a Mexican regulator’s model to determine phone fees, giving up a legal battle over the charges.
America Movil is offering all competitors a fee this year of 39 centavos (3 cents) a minute to connect calls to its network, less than half what it had sought, general counsel Alejandro Cantu said yesterday. That would fall to 31 centavos by 2014 under the plan, which used the rate method developed by the Federal Telecommunications Commission, he said.
The offer, already accepted by NII Holdings Inc. (NIHD), Marcatel SA and America Movil’s Telefonos de Mexico SAB unit, helps America Movil more accurately plan investments for the next few years, Cantu said. The lower rate may also make wireless calls more affordable for more Mexicans, he said.
“We’re seeking legal certainty to be able to project and budget our business plans and investments,” Cantu said in an interview. “With this we can move forward.”
The telecommunications agency announced its new model in March, setting the 39-centavo rate for this year in the resolution of a dispute between America Movil and Alestra SA.
“The interconnection tariff agreement adheres to best practices, makes the sector less litigious and, most importantly, passes the benefit to the user,” Mony de Swaan, president of the Federal Telecommunications Commission, said yesterday in a post on Twitter.
An April Supreme Court decision requiring carriers to abide by the regulator’s rate decisions even while they are under appeal may have convinced America Movil its legal challenges would fail, said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore.
“The Supreme Court ruling really put them in a tough bind,” King said in a telephone interview. “They certainly had a significant uphill climb to get those rate cuts reduced.” He rates shares of Mexico City-based America Movil “hold.”
While the rate cut has trimmed profit, the company may have decided the long-term effect wouldn’t be as bad as it feared and might encourage customers to use more phone minutes, King said. America Movil reported a profit margin in Mexico, its largest unit, of 50.4 percent in the third quarter, down from 53.1 percent a year earlier.
Owning Telefonos de Mexico, which benefits from paying a lower tariff to connect calls to its wireless parent, helps reduce the impact of the rate cuts on the overall company, King said. America Movil is spending $4.6 billion to boost its stake in Telmex to 93 percent from 60 percent, based on the results of a tender offer that closed last week.
America Movil fell 0.1 percent to 16.59 pesos at 9:12 a.m. Mexico City time. The shares had dropped 6.3 percent this year before today.
While America Movil had argued that lower connection fees would hurt its ability to invest in network improvements, the new proposal will at least let the carrier plan with certainty, Cantu said.
The agreements are “very good news,” said Gustavo Cantu, vice president of NII’s Mexico unit. He isn’t related to the America Movil general counsel.
“It provides a lot of certainty to the sector,” NII’s Cantu said in a phone interview. “We’re not going to have disputes anymore, at least among those of us who signed the agreements.”
America Movil’s Cantu said the company will continue its lawsuits over interconnection disputes for fees charged before this year, including those with fixed-line carrier Axtel SAB.
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