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America Movil Drops on Brazil Pay-TV Tax Plan: Mexico City Mover

Sept. 20 (Bloomberg) -- America Movil SAB, the biggest pay-television provider in Brazil, fell the most in more than three months on a plan by the country’s state governments to more than double a sales tax on video services.

America Movil, controlled by billionaire Carlos Slim, slid 2 percent to 16.17 pesos at the close in Mexico City, the biggest decline since June 1. DirecTV fell in New York, and Telefonica Brasil SA and Oi SA declined in Sao Paulo trading.

The so-called ICMS tax for cable and satellite TV may be increased to 25 percent from 10 percent in a meeting scheduled for Sept. 28, said Claudio Trinchao Santos, coordinator of Confaz, the board that brings together state finance secretaries. The rate increase, which has already been recommended by Confaz’s technical board, would bring it to the same level charged for telephone services, he said yesterday in a phone interview.

Slim is counting on demand for cable and satellite services to boost America Movil’s growth in Brazil, its second-largest market behind Mexico, as the expansion of the mobile-phone market subsides. The company’s Brazilian pay-TV revenue climbed 26.6 percent last quarter from a year earlier, compared with a 2.4 percent decline in the wireless business.

“The Brazilian pay-TV market has been the one bright spot in America Movil’s Brazilian operations,” said Kevin Smithen, an analyst at Macquarie Capital USA Inc. in New York. “Increased regulation and taxation could have an impact on the growth trajectory in that business.” He has the equivalent of a buy rating on America Movil shares.

Hurting Industry

Brazil’s federal government will seek to convince the state finance secretaries to drop the tax-increase plan, which would hurt the industry’s growth, Communications Minister Paulo Bernardo said today in an interview in Brasilia.

Increasing the pay-TV tax will be a way for governments to take advantage of the growth expected in the market, Trinchao said. Brazilian pay-TV subscriptions will jump to 17 million by the end of the year from 12.7 million in 2011, according to estimates from the nation’s telecommunications regulator. By 2018, Anatel, as the agency is known, expects 35 million subscribers.

America Movil, through its Embratel and Net Servicos units, has 55 percent of Brazilian pay-TV subscribers, followed by El Segundo, California-based DirecTV, with 30 percent, according to data from Anatel. DirecTV fell 2.4 percent to $52.35 in New York, its worst decline since Aug. 2.

Preventing Argument

States are considering the increase in part to prevent telephone companies such as Telefonica Brasil and Oi from arguing that they should pay only a 10 percent tax when they sell a combination of services that includes voice, Internet and pay TV, said Trinchao, who is the finance secretary for the state of Maranhao.

Telefonica Brasil, a unit of Madrid-based Telefonica SA, held about 4.3 percent of the pay-TV market at the end of last year through its satellite business. The company acquired control of cable provider TVA in June. Oi, based in Rio de Janeiro, had 2.8 percent of the pay-TV market.

The companies, which have begun offering television packages to add to their phone and Internet plans, both fell in Sao Paulo while the benchmark Bovespa index was little changed. Telefonica Brasil slid 1 percent to 44.57 reais, while Oi fell 1.3 percent to 8.40 reais.

“If you increase taxes on these companies, they can internalize it or pass it on to the consumer,” said Nevio Costa, an analyst at Banco BNP Paribas Brasil SA, by phone from Sao Paulo. “If they pass it on, it shouldn’t impact their profitability, but if they have to internalize, you cut down on their profits.”

Representatives of Telefonica Brasil and Anatel declined to comment, while officials at Oi and America Movil didn’t return phone and e-mail messages.

To contact the reporter on this story: Carla Simoes in Brasilia Newsroom at csimoes1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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