Mexico Advances Telecom Law to Challenge Slim’s Dominance

An overhaul of Mexico’s telecommunications industry is one step closer to becoming law and may force billionaire Carlos Slim’s America Movil SAB to break up or face penalties for dominating the phone business.

Mexico’s lower house is set to debate the bill that was passed by the Senate over the weekend after more than six months of delays and legal challenges. An extraordinary session to discuss and approve the bill will start tomorrow, according to a statement today from Congress. If approved, it would then require the endorsement of President Enrique Pena Nieto, who has spearheaded the push for the sweeping legislation.

After 17 hours of debate, the Senate on July 5 passed the bill that supporters say will help spark new competitors to take on America Movil along with billionaire Emilio Azcarraga’s Grupo Televisa SAB (TLEVICPO), which has dominated the broadcast industry for decades. In addition to restrictions on prices and requirements to share infrastructure, the law also lets such dominant companies propose their own breakups to reduce their market share.

“With more investment we will have more competition, more quality and options of service and accessible prices for users,” Manlio Fabio Beltrones, head of the ruling Institutional Revolutionary Party in the lower house, said in a statement. “It’s urgent that we approve this reform.”

Photographer: Susana Gonzalez/Bloomberg

Customers look at mobile phones on display at an America Movil SAB Telcel store in Mexico City. America Movil currently has 70 percent of Mexico’s mobile-phone subscribers and about 80 percent of its landlines. Close

Customers look at mobile phones on display at an America Movil SAB Telcel store in... Read More

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Photographer: Susana Gonzalez/Bloomberg

Customers look at mobile phones on display at an America Movil SAB Telcel store in Mexico City. America Movil currently has 70 percent of Mexico’s mobile-phone subscribers and about 80 percent of its landlines.

The companies will face the harshest penalties they’ve ever encountered if they violate the new rules. The bill calls for fines of as much as 10 percent of Mexican annual sales -- and double for repeat offenses. America Movil got 299 billion pesos ($23 billion) in Mexican revenue last year, while Televisa had about 70 billion pesos.

Slim’s Restrictions

America Movil has lost almost $17 billion in market value since Pena Nieto became president in 2012 after a campaign built on the promise of sparking competition to aid Mexico’s economy.

The law forces America Movil, Slim’s $73 billion carrier, to share parts of its network and cut the fees it charges other operators to connect calls to its customers. Under the bill, the company can loosen those restrictions by presenting a plan to regulators to reduce its market share below 50 percent. America Movil currently has 70 percent of Mexico’s mobile-phone subscribers and about 80 percent of its landlines.

America Movil (AMXL) said last month it has created a committee to evaluate structural options in light of Mexico’s regulatory changes. It hasn’t specified whether it’s considering a breakup. A press official for the company didn’t respond to requests for comment over the weekend.

The bill would force America Movil and other carriers to stop charging long-distance fees starting next year, an amendment to a three-year phase-out period initially proposed last year. All operators are banned from calling users with service promotions unless they have authorization to do so.

Televisa’s Requirements

Televisa gained less than 1 percent to 92.32 pesos at the close in Mexico City, while America Movil rose less than 1 percent to 13.50 pesos.

Televisa, which gets 70 percent of Mexico’s broadcast viewers, must publish its advertising rates and stand by them regardless of who the customer is. Based on an amendment passed in the Senate, Televisa would also need to provide access to its network infrastructure to the winners of an auction next year to create two new broadcast-TV channels.

If Slim wants to participate in that auction, the IFT will have to review whether he’ll be allowed, said Humberto Castillejos, a legal adviser to Pena Nieto.

The bill being taken up by the lower house is a follow-up to a broader law last year that established new regulatory agencies to create more competition in some of Mexico’s most concentrated industries. Lawmakers have said that the new telecommunications law will be followed by a bill to boost growth in the energy business.

‘Substantial Power’

Earlier this year, Mexico’s newly created regulator, the Federal Telecommunications Institute, or IFT, declared America Movil and Televisa as dominant in the telecommunications and broadcast industries, respectively. It didn’t rule on the pay-TV market, in which Televisa controls about 8.7 million of subscribers through cable and satellite units -- the most in the nation.

The new law requires the IFT to determine within 30 days whether any companies have “substantial power” in the pay-TV market -- a less severe legal term than outright dominance. Another provision lets companies acquire competitors without prior regulatory approval as long as their combined market share doesn’t exceed 20 percent of the telecommunications industry.

That will let Televisa continue acquiring pay-TV companies without the regulator’s authorization, strengthening its influence over programming and pricing, Javier Corral, a lawmaker for the opposition National Action Party, said in the Senate last week.

Record Close

Corral has long sought to tie Pena Nieto to Televisa, criticizing the broadcaster for promoting the candidate during his presidential campaign. In a 2012 column in online political magazine La Silla Rota, he called Pena Nieto “the Televisa candidate.” A press official for the broadcaster didn’t respond to requests for comment.

While the law isn’t meant to favor any specific provider, the 20 percent rule will help create stronger competitors against America Movil in the market for services such as high-speed Internet and phone service, Castillejos said in a briefing today with reporters.

Cablecom Deal?

The rule could let Televisa use convertible debt it already owns to acquire a majority stake in Cablecom, one of the few large, independent pay-TV providers left in Mexico, without seeking regulatory approval. While the transaction would give Televisa 840,000 new video customers, further extending its lead as the nation’s largest pay-TV provider, it would still be a smaller provider of phone and Internet connections, with about 3 million, compared with America Movil’s 22 million.

The new bill provides more specifics about broadcasters’ obligations to let cable and satellite companies carry some of their networks free of charge. Televisa and TV Azteca SAB have already been required to offer their most popular broadcast channels to other pay-TV operators for free since September.

Under the new proposal, cable operators would have to retransmit the networks with the highest audience for free, while satellite operators, such as Dish Mexico, are only obligated to retransmit content that is broadcast in more than 50 percent or more of country.

Investors have been betting that the new law will hurt Slim’s company more than Azcarraga’s. Through last week, America Movil shares had fallen 12 percent this year, while Televisa’s had climbed 17 percent, hitting a record close of 92.68 pesos on July 3.

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

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Crayton Harrison

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