Carlos Slim’s America Movil May Face Breakup Pressure in New Law

Mexico may gain the power to break apart telecommunications companies that control more than half the market, potentially crimping carriers such as Carlos Slim’s America Movil SAB.

The new Federal Telecommunications Institute would be able to regulate competition in the phone and broadcasting industries, under a bill to be presented to Mexico’s congress, Communications and Transportation Minister Gerardo Ruiz Esparza said today in Mexico City. America Movil, which has 70 percent of mobile-phone subscribers and 80 percent of land lines, plunged to its lowest price in almost four years.

The goal is to create more competition in the $30 billion-a-year Mexican communications industry, dominated until now by a handful of the nation’s wealthiest people. Smaller carriers that have struggled to compete against America Movil, for instance, could seek takeovers from non-Mexican companies for the first time.

Lack of competition in the telecommunications industry “reduces productivity in Mexico, limiting its capacity to grow and generate better-paying jobs,” President Enrique Pena Nieto said today at the event, pledging to support the bill. “This reform allows growth possibilities, but to achieve this companies will have to invest and innovate, offer better prices and improve their quality of service.”

Mandated Divestitures

The new telecommunications agency “will be able to mandate the divestiture of assets of market participants to the extent necessary to eliminate anticompetitive effects,” Ruiz Esparza said.

A press official for America Movil, based in Mexico City, said the company is awaiting the publication of the proposal before commenting on specific aspects.

Depending on which markets are defined, a company such as Grupo Televisa SAB, which has 70 percent of Mexico’s broadcast-TV audience, could also be affected.

While the proposal will create “big challenges” in the broadcasting business, Televisa will continue its investments there while also taking advantage of a “more level playing field” in telecommunications, it said in a statement today.

The legislation would also eliminate limits on foreign investment in landline and satellite providers and allow non-Mexicans to take stakes in broadcasters for the first time, with a maximum of 49 percent, Ruiz Esparza said.

In addition, it defines the way cable and satellite companies should work with broadcasters and provides regulators with greater recourse against providers that break the rules, he said.

More Competition

“We support the opening of foreign investment in telecommunications services,” America Movil said in an e-mailed statement before the proposal’s official announcement. “We compete in 18 countries where we benefit from this type of policy of openness to investment, and we’ve always supported such openness.”

America Movil fell 3.3 percent to 13.15 pesos at the close in Mexico City, the cheapest price since July 13, 2009. The stock has dropped 12 percent this year, compared with a 0.7 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.

Constitutional Changes

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. At least some of the parts of the bill will also need constitutional changes, which require the approval of two-thirds of Congress and of a majority of legislatures from 31 Mexican states and the capital.

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.

Mexican law prohibits foreigners from owning more than 49 percent of a telecommunications network, such as landline phone or cable. If that limit is lifted, outsiders could buy companies such as Axtel SAB or Maxcom Telecomunicaciones SAB 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.

Landline Target

Foreign companies like Madrid-based Telefonica SA, 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 currently 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.

No Guarantee

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.”

Slim’s fellow moguls, Emilio Azcarraga and Ricardo Salinas, will confront new rules that govern how their Televisa and TV Azteca SAB deal with pay-TV providers.

Televisa, 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. Azteca now gets most of the remaining 30 percent of the broadcast audience that isn’t watching Televisa.

Televisa fell 0.9 percent to 67.70 pesos, while TV Azteca was little changed at 9.07 pesos.

Both companies 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

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. 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, Ruiz Esparza said.

A Dish spokesman and Dan McCosh, a spokesman for TV Azteca, declined to comment on the legislation.

The bill would replace the current phone-industry regulator, the Federal Telecommunications Commission, and the antitrust agency, the Federal Competition Commission, with new authorities with more power.

In an interview, Mony de Swaan, president of the current phone regulator, said the proposal “is laudable and welcome, especially if this process results in a stronger institution.”

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