Slim May Face New Competitors in Mexico Telecom Reform Law
Lawmakers from Mexico’s three biggest parties plan today to present a wide-ranging telecommunications bill that ends a longstanding limit on foreign investment, one of the proposal’s architects said.
The legislation, to be backed by President Enrique Pena Nieto, also will define the way cable and satellite companies should work with broadcasters, said Guadalupe Acosta Naranjo, an official with the opposition Democratic Revolution Party who has helped draft the bill. In addition, it will provide regulators with greater recourse against providers that break the rules.
The goal is to create more competition in the $30 billion- a-year Mexican communications industry, which is dominated by a handful of the country’s richest people. Smaller carriers that have struggled to compete against billionaire Carlos Slim’s America Movil SAB, for instance, could seek takeovers from non- Mexican companies for the first time.
“We support the opening of foreign investment in telecommunications services,” America Movil (AMXL), which has about 80 percent of Mexico’s land lines, said in an e-mailed statement. “We compete in 18 countries where we benefit from this type of policy of openness to investment, and we’ve always supported such openness.”
Pena Nieto will appear at noon local time at an event in Mexico City for the presentation of the telecommunications reform, according to his official agenda.
America Movil fell 2.2 percent to 13.30 pesos at 8:07 a.m. in Mexico City. The shares had dropped 8.7 percent this year through last week, compared with a 1.4 percent increase for the benchmark IPC index.
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, trailing Brazil and Argentina, which have more contracts than people, in part because some consumers in those countries use multiple subscriptions in order to pay lower fees.
In a March 8 interview, Acosta Naranjo said the bill remained in development, and last-minute changes could occur. Opening land-line phone networks to unrestricted foreign investment has “already been agreed to,” he said. Pena Nieto’s press office didn’t respond to a message seeking comment this past weekend.
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. 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.
The legislation also would give regulators the power to break up phone and TV providers who control more than 50 percent of the national market, Mexico City-based newspaper Reforma reported yesterday. It would create “asymmetric rules” allowing the government to single out dominant companies in an industry for special regulation, Reforma reported, without saying where it got the information.
Mexican law prohibits foreigners from owning more than 49 percent of a telecommunications network, such as phone or cable. If that limit is lifted, outsiders could buy companies such as Axtel SAB (AXTELCPO) or Maxcom Telecomunicaciones SAB (MAXCOMCP) to get control of fiber-optic cables that extend throughout Mexico’s largest cities, said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore.
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 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 left over the weekend.
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, said King, who has the equivalent of a neutral rating on America Movil.
“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 (TLEVICPO), 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 (AZTECACP). Televisa still gets about 70 percent of the audience, while Azteca gets most of the remaining 30 percent.
Televisa fell 1.4 percent to 67.31 pesos, while TV Azteca was little changed at 9.07 pesos.
Both companies, based in Mexico City, broadcast over the air for free to viewers with antennas on their TVs and 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, Acosta Naranjo said, declining to provide further details.
The reforms should be good for Televisa, on balance, since they will open more competition in areas where it’s investing more, such as cable-TV and mobile phones, Executive Vice President Alfonso de Angoitia said last month on a conference call.
“Competition has always been good for Televisa,” he said.
A Televisa spokeswoman, a Dish spokesman and Dan McCosh, a spokesman for TV Azteca, declined to comment on the legislation.
The overhaul proposal also includes a stronger regulator for the industry that would have the power to issue fines, Acosta Naranjo said. Under current law, the Federal Telecommunications Commission can only recommend sanctions, which then must be approved by a cabinet-level agency, the Communications and Transportation Ministry.
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