America Movil Faces Fee Cuts in Follow-Up Mexico Telecom Law

America Movil SAB (AMXL) and other Mexican phone companies would have to phase out long-distance charges and other fees under a bill proposed by President Enrique Pena Nieto, who is pushing ahead with a plan to boost competition.

Violating the law would be punishable by fines of as much as 5 percent of Mexican sales -- or double for repeat offenses. Congress is scheduled today to take up the measure, which is a follow-up to last year’s constitutional amendment on telecommunications. In addition to phone companies, the proposal affects television broadcasters such as Grupo Televisa SAB (TLEVICPO) by regulating advertising fees and airtime.

Mexico’s Federal Telecommunications Institute, created last year, has already declared America Movil and Televisa dominant in their industries because of their proportion of users. The new law would give the agency legal backing as it prepares measures to cut down on the companies’ market power.

“With this law we will have more competition,” Deputy Communications Minister Jose Ignacio Peralta told reporters yesterday in Mexico City. “The concentration we find in this market will be more balanced among competitors. It will give clarity to our laws, and it will incentivize new entrants.”

Bank of America Corp. downgraded America Movil shares to neutral from buy, saying the law will hurt profits.

America Movil slid 3.4 percent 13.17 pesos at 8:18 a.m. in Mexico City. It fell as much as 3.6 percent earlier, the biggest intraday decline since Oct. 25. The company had sales last year in Mexico of about $22 billion. Televisa, with $5.8 billion in revenue last year, mostly in Mexico, rose 0.4 percent to 82.49 pesos.

‘Deficient Development’

America Movil. controlled by billionaire Carlos Slim, has about 70 percent of mobile-phone users in Mexico, and 80 percent of landlines. Televisa, owned by another billionaire, Emilio Azcarraga, gets about 70 percent of broadcast viewers. Press officials for both companies didn’t immediately return messages seeking comment.

“In our country the telecommunications sector has been characterized by high prices, generating low penetration of services and a deficient development of infrastructure necessary to provide them,” Pena Nieto said in a preface to the bill sent to Congress yesterday.

The bill will be approved in the current legislative session, Communications and Transportation Minister Gerardo Ruiz Esparza said yesterday. The law requires a simple majority to pass, giving Pena Nieto almost enough votes through his political coalition. The main opposition parties, the National Action Party and the Democratic Revolution Party, said yesterday the bill has "unacceptable" differences from last year’s constitutional amendment and must be changed.

No Fees

As long as America Movil has more than 50 percent of subscribers, it won’t be able to charge fees to competitors when it gets incoming calls, Pena Nieto’s bill says. Its rivals, such as Telefonica SA and Grupo Iusacell SA, will still be able to charge America Movil when its users call their customers. Eventually, when the telecommunications institute determines that competition has improved, it will phase out the interconnection fees altogether.

Domestic long-distance charges must be eliminated within three years under Pena Nieto’s proposal.

The changes will cut America Movil’s profit margin to 36 percent in 2020 from 44 percent last year, leaving out interest, tax, depreciation and amortization, Bank of America said today in a research note. Wireless market share will fall to 63 percent by 2020, it said.

Fining Companies

Television broadcasters, meanwhile, will have to publish their advertising rates and stand by them regardless of who the customer is.

The IFT, as the regulator is known, can fine companies as much as 5 percent of Mexican sales if they offer services without authorization or shut down services in locations where they’re the only provider. Smaller fines can be assessed for violating interconnection requirements or blocking advertisers.

Previously, regulators could only fine as much as $500,000 for rules violations, or $1 million for repeat offenses. Antitrust fines were as high as 10 percent of sales.

TV broadcasters are limited to using 18 percent of their airtime for advertising, though they may increase that number if they use local production for programming. Each network must have an ombudsman to handle viewer complaints, and political propaganda can’t be presented as news, the bill says.

Legal Monopoly

Last year’s constitutional amendment created the IFT and gave it powers to assess fines, set prices and even force asset sales if companies don’t comply with the law. The amendment also made it harder to battle regulatory decisions in court, saying the IFT’s decisions can’t be suspended while they’re being challenged.

Mexico has been trying to improve telecommunications competition for 20 years. Slim, the world’s second-richest person, took control of the industry through the 1990 privatization of the state phone monopoly.

The government let Slim operate a legal monopoly after the transaction before gradually introducing competition over the following decade. Rivals weren’t able to match the reach of his network infrastructure with their investments, and regulators were then much weaker, assuring Slim’s dominance was never seriously threatened.

Televisa is run by Azcarraga, its founder’s grandson, and the company has loomed over Mexico’s media landscape for half a century. Azcarraga’s father, also named Emilio, was known as “The Tiger” for his combative style and built Televisa into a powerhouse by aligning his interests with the government during its period of one-party rule, famously declaring himself a “soldier of the president.” The company faced little competition until 1993, when the government auctioned off a state-run channel to create TV Azteca SAB.

To contact the reporter on this story: Patricia Laya in Mexico City at playa2@bloomberg.net

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net John Lear

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