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Tycoon Clash Means Less Cash for Slim as Consumers Win

Emilio Azcarraga
Emilio Azcarraga Jean, seen here as president, chief executive officer and chairman of the board, Grupo Televisa SA. Photographer:Adrian Moser/Bloomberg

An escalating confrontation between Carlos Slim and two fellow billionaires is driving prices lower for phone, Internet and TV services in Mexico, a boon for consumers that could boost the nation’s economy.

TV and mobile-phone carriers controlled by Ricardo Salinas and Emilio Azcarraga are pushing into Slim’s turf, and he is responding with better deals for consumers. Slim’s Telefonos de Mexico SAB teamed up in April with a satellite carrier to offer services for a discount, and his America Movil SAB doubled the amount of numbers wireless users can call at no extra charge.

The intensifying competition and authorities’ efforts to end monopolistic practices means consumers are benefiting from the most competitive market in Mexico in decades, said Roger Noll, professor emeritus of economics at Stanford University, near Palo Alto, California. The billionaires’ companies, including America Movil with 70 percent of Mexico’s wireless lines, have been left with slumping stock prices.

“I’m the most hopeful I’ve ever been,” said Noll, a senior fellow at the American Antitrust Institute who has tracked the Mexican phone industry for two decades. “Conditions in the industry are the best they’ve been in 20 years.”

The economy may benefit as consumers are left with more money to save, invest or spend on other products. Mexico ranked 66th out of 139 countries on the World Economic Forum’s 2010-2011 Global Competitiveness Index, which measures countries by the rules their governments use to boost productivity. That ranking was down from 60th a year earlier and trailed Brazil, Panama, Costa Rica and Uruguay among Latin American countries.

No Animosity

Mexican President Felipe Calderon introduced legislation this month aimed at ending anticompetitive behavior by large companies. Mexico has many industries dominated by one or two players, including beer, TV broadcasting, cement and corn flour.

“I really respect Carlos Slim, or any other Mexican enterprise,” Calderon said in an interview. “But at the same time, I am the authority and I need to regulate the market in order to avoid monopolistic practices.”

Slim’s competitors have offered cheaper rates and bundled phone, Internet and TV services. The rivalry has pushed America Movil’s shares down 15 percent this year, compared with an 8.2 percent drop in Mexico’s benchmark IPC index, of which the mobile carrier has a 23 percent weight.

Slim, 71, the world’s richest man, and his two billionaire rivals all live in Mexico City and have said publicly there is no personal animus among them. Azcarraga showed up at the gala opening of Slim’s art museum, Museo Soumaya, in March.

‘Very Disruptive’

“We have different points of view,” Azcarraga, 43, said in an interview last month. “We want to achieve a better opportunity for our investors and users, and I believe they’re looking for the same.”

Grupo Televisa SA, Azcarraga’s broadcaster that also owns cable and satellite-TV carriers in Mexico, has fallen 16 percent this year, and TV Azteca SAB, Salinas’s broadcaster, has dropped 9 percent. Both have lost revenue after Slim’s companies stopped advertising with them this year.

The more intense competition and regulatory scrutiny may mean the stocks of the larger service providers will continue to suffer as they lose pricing power, said Frederick Searby, Latin America equity strategist at Deutsche Bank AG. In addition to consumers, winners may include smaller rivals such as NII Holdings Inc., Mexico’s No. 4 mobile carrier, he said.

“It’s a fear for the market and a blessing, sort of like when you move from a closed to an open economy,” Searby said in a phone interview from New York. “It’s very disruptive.”

Showing Teeth

The biggest jolt to Slim’s empire, according to Searby, came last month when the Mexican antitrust agency fined America Movil $1 billion for anticompetitive practices in the market for fees phone carriers charge each other to connect calls.

The fine, which America Movil is appealing, put the carrier on notice that Mexico’s government was “showing it has teeth” when enforcing antitrust law, Searby said. The legislation introduced by Calderon this month increases penalties for antitrust violations, including jail time.

America Movil Chief Financial Officer Carlos Garcia Moreno said regulators play a “marginal” role in reducing prices.

“What lowers prices is sustained investment,” Garcia Moreno said in an interview. Spending on network infrastructure and capacity lowers prices by increasing the supply of airtime, he said. Between 2005 and 2011, Telcel’s price per minute of phone airtime dropped 54 percent in nominal terms, he said.

Amassing Fortunes

Salinas, whose companies include Grupo Iusacell SA, Mexico’s third-largest wireless carrier, told reporters this month that Telmex’s dominance had kept better offerings from coming to consumers.

Televisa’s cable units have offered packages of phone, Web and TV service that have helped reduce the price of Internet access in the country, Javier Tejado, the company’s information director, said in an interview.

Azcarraga’s family has controlled Televisa’s broadcast-TV business and its radio predecessor for three generations. Since becoming Televisa’s CEO 14 years ago, when his father Emilio died, Azcarraga has amassed stakes in a satellite-TV operator, three cable-TV carriers and a nationwide phone network.

Salinas, 55, made his fortune in retail after taking over as chief executive officer of Grupo Elektra SA, the chain his grandfather founded, in 1987. In 1993, Salinas created TV Azteca after heading an investor group that purchased television stations from the Mexican government for $643 million.

Slim’s TV Plans

Slim acquired Telmex in a government privatization sale in 1990 after building a fortune by buying companies and property during dips in Mexico’s economy. America Movil spun off from Telmex in 1990 and acquired networks across Latin America, eventually becoming the controlling shareholder in its former parent. Slim also has mining, banking and construction assets.

America Movil represents about 62 percent of Slim’s $71.2 billion in public holdings, according to data compiled by Bloomberg. America Movil owns about 60 percent of Telmex, with the rest publicly traded.

Telmex represents a part of Slim’s empire that may benefit from regulators’ drive to increase competition. Telmex has risen 9.6 percent this year as investors predict Mexico’s government will let it offer TV service, helping it compete against cable carriers’ packages of video, phone and Internet, according to Gregorio Tomassi, a Banco Santander SA analyst in Mexico City.

Telmex has sought that approval since at least 2006, and the company has dealt with the government’s refusal to grant it by striking up an alliance with Dish Mexico, the nation’s second-largest satellite-TV company. Since 2009, Telmex has allowed its customers to pay for Dish service through their phone bills and has hosted Dish kiosks in its stores.

‘Real Competition’

Last month, for the first time, Telmex and Dish made a joint offer, a plan with 32 TV channels and a phone line with 100 local calls and 50 national long-distance minutes for 299 pesos ($26) a month. That compared with a plan by Televisa’s Empresas Cablevision SAB unit with 70 channels and unlimited home-phone calls for 359 pesos.

America Movil’s Mexican wireless unit, Telcel, began allowing users to pick 20 phone numbers to call without paying for additional airtime, up from 10 previously. Telefonica SA, which has 22 percent of Mexico’s wireless market compared with Telcel’s 70 percent, has begun offering plans that allow users to call any other Telefonica client for no additional cost.

Competition in the wireless market may intensify further after Azcarraga’s Televisa completes a $1.6 billion investment in Salinas’s Iusacell, an agreement reached last month.

“We’re going to create a competition, a real competition, that can provide a better product, a better service and a cheaper price for the user, at the same time making money out of it,” Azcarraga said in the interview, referring to Iusacell.

‘Age-Old Story’

Iusacell is also starting a service called Totalplay that provides phone, Internet and TV plans to home users over fiber-optic lines, with prices that are often cheaper than Telmex’s plans for Web and phone alone. Telmex is building a network this year to extend fiber-optic cables to 1 million homes this year in 40 cities, mainly in places where Totalplay is being installed, a person with knowledge of the plan said this month.

Mexico’s phone regulator is also proving a tough adversary to Slim, slashing by more than half the fees Telcel wanted to charge rivals to connect calls from their users to its own clients. Mexico’s Supreme Court ruled last month that while Telcel can appeal the regulator’s decision, it must abide by the prices set by the government while it challenges them in court.

While the rulings are encouraging, Slim’s competitors haven’t done enough to pass lower prices on to consumers, said Alejandro Calvillo, president of Consumer Power, a not-for-profit advocacy group in Mexico.

He said regulators also have done little to address concentrations of power in other markets such as TV, where Televisa and TV Azteca share almost all of the broadcast market.

“This is the age-old story on Mexico, right?” said Searby of Deutsche Bank. “To increase competition, you have to go after duopolies and go after the basic costs and services. To get a faster growth rate and become a more competitive country, you have to do that.”

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