Billionaire Carlos Slim’s America Movil SAB (AMXL) struck a deal with Mexican regulators to avoid paying a fine of almost $1 billion, in exchange for cutting wireless fees and offering calls to competitors for no extra charge.
The agency voted unanimously to overturn the fine it assessed in April 2011, the Federal Competition Commission said today in a statement. The commission will be able to fine Mexico City-based America Movil, the largest wireless carrier in the Americas, as much as 8 percent of its annual Mexican wireless revenue if it violates the pledges.
With governments worldwide moving to trim phone-connection fees to boost competition, Slim calculated that dropping his fight against reductions in Mexico would keep regulators at bay, said Christopher King, a Stifel Nicolaus & Co. analyst. America Movil announced in November it would cut fees, without tying the decision to its antitrust case.
“As long as he held rates as high as they were, it did not bode well for him in the long run,” the Baltimore-based analyst said today in a phone interview. “The negative headlines associated with a billion-dollar fine would not have been good for the company.” King advises holding the shares.
America Movil, which has 70 percent of Mexico’s mobile-phone lines and 80 percent of land lines, rose 1.5 percent to 17.88 pesos in Mexico City, the highest close since Jan. 10, 2011. The shares have gained 13 percent this year.
Mexican officials have sought to contain Slim’s market power. The nation’s phone industry overcharged customers $13.4 billion a year from 2005 to 2009, hurting Mexico’s economy, the Organization for Economic Cooperation & Development said in a January report commissioned by the country’s government.
Slim disputed that report in a Jan. 31 press conference, saying its figures had been “pulled out of thin air.” He gets about 60 percent of his $74.9 billion net worth from his shares in America Movil, according to data compiled by Bloomberg. Mexico is America Movil’s most important market. The company is getting about 40 percent of sales and two-thirds of operating income from the country, Latin America’s second-largest economy.
Slim’s company will gradually reduce interconnection fees, which are charged to competitors to complete calls to its users, the company said in November. The rate will fall to 31 centavos (2.4 cents) a minute in 2014 from 39 centavos in 2011. It had been charging 95 centavos before agreeing to use the cost model used by the Federal Telecommunications Commission.
A Supreme Court decision last year made it harder to challenge the phone regulator’s rulings on fees, influencing America Movil’s decision to accede to the government’s rate plan.
The competition commission said it would rather strike a compromise to more closely monitor America Movil than engage in a lengthy legal battle with Slim, 72, who according to the Bloomberg Billionaires Index is the world’s richest person. America Movil had said it would sue to block the fine if it was upheld and said in its April 30 annual report it was “not probable” it would end up paying the penalty.
“It’s clearly preferable to ensure immediate and direct benefits for consumers for as much as $6 billion a year than to enter years of litigation to eventually charge one-fifth of that amount,” the agency said in its statement.
While the government won concessions from Slim, it will be difficult for the agency to claim victory against America Movil after backing away from such a large fine, King said.
America Movil may still face lawsuits for damages by the companies that filed the antitrust complaint, the competition commission said. Those parties included Telefonica SA (TEF) and Axtel (AXTELCPO) SAB, said an antitrust official who asked not to be named under the agency’s policy.
Axtel, the second-largest land-line phone carrier in Mexico, after America Movil’s Telmex unit, will probably take legal action on the antitrust agency’s decision, said Ermilo Vazquez, director of interconnection and regulatory affairs. The San Pedro Garza Garcia, Mexico-based company’s lawyers are studying how to proceed, he said.
An official at Madrid-based Telefonica didn’t return phone and e-mail messages today.
America Movil lawyers spent a year battling the antitrust fine, which the company first disclosed on April 15, 2011. America Movil won a decision in June to get Eduardo Perez Motta, president of the antitrust commission, recused from the vote because of public comments he made about the case.
The victory follows a year in which America Movil has come under tightening regulation in Mexico. In 2011, the Federal Telecommunications Commission overruled the objections of Slim’s company and cut by more than half the fees mobile-phone carriers could charge rivals to connect calls.
Regulators are still pressing Slim on other fronts. In March, the competition commission upheld a ruling that America Movil was dominant in the market for completing phone calls, a decision that could lead to tighter regulations. The telecommunications commission approved rules the same month implementing price and quality controls for fixed lines America Movil leases to competitors.
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