Mexican lawmakers announced legislation yesterday that threatens to rein in the country’s telecommunications monopolies, raising the possibility of a Ma Bell-style breakup for Carlos Slim’s dominant America Movil SAB.
The bill, which will be presented in Mexico’s congress, would create an agency with the power to regulate competition in the phone and broadcasting industries, Communications and Transportation Minister Gerardo Ruiz Esparza said yesterday. The proposal took a toll on shares of America Movil (AMXL), which has 70 percent of mobile-phone subscribers and 80 percent of landlines. The stock plunged to its lowest price in almost four years.
The goal of the legislation is to create more competition in the $30 billion Mexican communications industry, which is dominated by a handful of the nation’s wealthiest people. Smaller carriers that have struggled to compete against America Movil (AMXL), for instance, could seek takeovers from non-Mexican companies for the first time. Depending on how the bill is crafted, Grupo Televisa SAB (TLEVICPO), which has 70 percent of Mexico’s broadcast-TV audience, could also be affected.
“This is one of the bigger threats we’ve seen for America Movil from a regulatory standpoint,” said Chris King, an analyst at Stifel Nicolaus & Co. in Baltimore, who has the equivalent of a neutral rating on the shares. “It certainly could be the beginning of some type of significant change for the industry itself, particularly if you get regulators with real teeth.”
America Movil fell 3.3 percent to 13.15 pesos yesterday in Mexico City, the lowest price since July 13, 2009. It dropped an additional 2.4 percent today after Credit Suisse Group AG downgraded the stock to neutral from the equivalent of a buy.
President Enrique Pena Nieto pledged to support the bill at an event yesterday.
Lack of competition in the telecommunications industry “reduces productivity in Mexico, limiting its capacity to grow and generate better-paying jobs,” he said. “This reform allows growth possibilities. But to achieve this, companies will have to invest and innovate, offer better prices and improve their quality of service.”
The new telecommunications agency, called the Federal Telecommunications Institute, “will be able to mandate the divestiture of assets of market participants to the extent necessary to eliminate anticompetitive effects,” Ruiz Esparza said.
In a statement, Mexico City-based America Movil (AMXL) said it welcomed “the opening of a new stage in the development of the sector” that it hoped would be “focused on greater investments and innovation.” The company didn’t discuss the breakup idea.
While the proposal will create “big challenges” in the broadcasting business, Televisa will continue its investments there while also taking advantage of a “more level playing field” in telecommunications, that company said in a statement.
The U.S. faced its own telecommunications breakup in 1984, when AT&T Corp. -- then known as Ma Bell -- was split into regional carriers after a Justice Department antitrust suit. Many of those so-called Baby Bells later merged again as the growth of mobile-phone industry shook up the industry.
The Mexican legislation would also eliminate limits on foreign investment in landline and satellite providers and allow non-Mexicans to take stakes in broadcasters for the first time, with a maximum of 49 percent, according to a copy of the proposal on the government’s website.
In addition, it defines the way cable and satellite companies should work with broadcasters and provides regulators with greater recourse against providers that break the rules, according to the document.
“We support the opening of foreign investment in telecommunications services,” America Movil said in an e-mailed statement before the proposal’s official announcement. “We compete in 18 countries where we benefit from this type of policy of openness to investment, and we’ve always supported such openness.”
America Movil turned Slim into the world’s richest person, and yesterday’s stock decline eroded his wealth. His net worth fell $756 million to $72.1 billion, according to the Bloomberg Billionaires Index. His fortune has dropped a total of 4.1 percent this year.
“America Movil and Televisa are the most affected, as a possible divestiture of assets and further regulation to incentivize competition would affect their current operations and margins,” Corporativo GBM SAB said in a research note.
Regulators have been pushing for the changes to usher in lower prices for consumers. Mexico has 85.7 mobile-phone subscriptions for every 100 people, according to government statistics. It trails Brazil and Argentina, which both have penetration rates above 100, in part because consumers in those countries rely on multiple subscriptions to pay lower fees.
The leadership of the Democratic Revolution Party, Pena Nieto’s Institutional Revolutionary Party and the National Action Party will still need to get their proposal approved by both houses of Congress. At least parts of the bill will also need constitutional changes, which require the approval of two- thirds of Congress and of a majority of legislatures from 31 Mexican states and the capital.
The three parties together control more than three quarters of the seats in each house of Congress.
The parties in December agreed to the Pact for Mexico, which set a goal of presenting a bill to increase telecommunications competition in the first half of this year. The pact didn’t establish the bill’s details.
If the law prohibiting foreigners from owning more than 49 percent of a telecommunications network is lifted, outsiders could buy companies such as Axtel SAB to get control of fiber- optic cables that extend throughout Mexico’s largest cities, Stifel’s King said. Maxcom Telecomunicaciones SAB is another smaller Mexican phone carrier that competes with America Movil.
Foreign companies like Madrid-based Telefonica SA (TEF), whose Movistar unit in Mexico has struggled against America Movil in the mobile-phone business, may find such networks attractive as a target, he said in an e-mail.
“It certainly gives companies like Axtel and Maxcom some hope” to be acquired, King said. “Somebody like Telefonica could step in and try to use one of the fixed-line companies to help Movistar.”
Telefonica isn’t currently interested in buying Axtel or Maxcom, according to a person familiar with the company’s strategy who asked not to be named because its plans are private. A Telefonica press official declined to comment.
A Maxcom representative also declined to comment, and an Axtel spokesman didn’t respond to telephone and e-mail messages.
While removing the foreign-investment cap would open Mexican telecommunications networks to more potential buyers, it wouldn’t guarantee more intense competition or increased efforts by foreign companies to take on America Movil, King said.
“The fixed-line market in any country remains challenging these days,” he said. “It remains to be seen whether any foreign company will really want to step forward in Mexico with America Movil in a dominant position already.”
Televisa, controlled by Azcarraga, was the single dominant broadcaster until Salinas, a retail magnate, acquired control of a state-run TV network in 1993 to create TV Azteca. Azteca now gets most of the remaining 30 percent of the broadcast audience that isn’t watching Televisa.
Televisa fell 0.2 percent to 67.56 pesos today, while TV Azteca dropped 0.8 percent to 9 pesos.
Both companies broadcast over the air for free to viewers with antennas on their TVs. They charge cable and satellite providers to carry a package of their over-the-air channels and additional cable channels, such as 24-hour sports and movie networks.
Dish Mexico, the nation’s second-largest satellite-TV carrier, has argued that it should be able to acquire only the over-the-air channels for its lineup, since they’re the most popular. Dish, a joint venture of EchoStar Corp. (SATS) and Mexico’s MVS Comunicaciones SA, has a marketing alliance with America Movil. The biggest satellite carrier, Sky, is owned by Televisa.
The new proposal would address that dispute through regulations known as “must carry” and “must offer.” The intent is to require broadcasters to offer their signals to all pay-TV carriers and to make pay-TV companies include all broadcasters on their programming menus, Ruiz Esparza said.
A Dish spokesman and Dan McCosh, a spokesman for TV Azteca, declined to comment on the legislation.
The bill would replace the current phone-industry regulator, the Federal Telecommunications Commission, and the antitrust agency, the Federal Competition Commission, with new authorities with more power.
In an interview, Mony de Swaan, president of the current phone regulator, said the proposal “is laudable and welcome, especially if this process results in a stronger institution.”