Pena Nieto Seen as Victor Over Billionaire Carlos Slim

Billionaire Carlos Slim’s decision to break up his Mexico phone operations under threat of government sanctions is strengthening President Enrique Pena Nieto’s hand as he pushes to end an even bigger monopoly in the energy industry.

Slim announced plans to sell some of America Movil SAB’s assets yesterday as the Mexican Senate and lower house passed a bill pushed by Pena Nieto that would impose the harshest penalties the company has ever encountered. The rules build on constitutional changes he signed into law last year.

Pena Nieto is trying to bolster economic growth by spurring competition in telecommunications and luring more private investment to the oil industry. Congress is debating rules this week to implement the most sweeping transformation to the nation’s energy policies in seven decades, which the government says would increase long-term annual economic growth by 1 percentage point and draw as much as $30 billion a year in foreign direct investment.

“Political leaders strengthen their hand through success,” said Eric Farnsworth, head of the Washington office of the Council of the Americas, a group representing U.S. businesses. “Clearly, if you’ve taken on some of the icons of Mexico’s private sector, you’re building a record here that people have to take pretty seriously. It will strengthen his hand in terms of energy reform.”

America Movil, the Americas’ largest operator with 272 million wireless subscribers, is seeking to appease regulators and reduce its market share below 50 percent by divesting some of its Mexican assets to an independent company, the company said yesterday in a filing.

Next Steps

Slim’s carrier will also separate its wireless towers from the rest of the business and will renounce its rights to acquire control of satellite-TV provider Dish Mexico. Slim and his family hold 57 percent of America Movil.

The carrier currently has 70 percent of Mexico’s mobile-phone subscribers and about 80 percent of landlines. The bill passed by congress says Slim can loosen the restrictions he would face by presenting a plan to regulators to reduce America Movil’s market share below 50 percent.

The company’s breakup decision requires regulatory approval and may need the endorsement of shareholders, America Movil said. Federal Telecommunications Institute, or IFT, the regulator which was created by last year’s constitutional overhaul and has declared America Movil dominant in Mexico’s phone market, has yet to receive a concrete plan for the breakup, IFT said in a statement.

Secondary Laws

Slim’s Mexican asset sale will burnish Pena Nieto’s image as someone “who won’t bow down” to the world’s second-richest man, according to Jorge Chabat, an analyst at the Center for Economic Research and Teaching, a Mexico City-based university.

It’s also a strong signal of the president’s commitment to boosting investment by changing laws in major industries, according to Gabriel Casillas, chief economist at Grupo Financiero Banorte SAB. That may spark a rally in financial assets, he said in a research report published today.

The energy laws needed to implement last year’s constitutional overhaul may come to a vote in early August, he said in the report.

“All eyes are set on the approval of the secondary laws derived from the energy reform,” he said. “Market participants should be more confident that this will be just a matter of time, particularly given what happened yesterday.”

Pena Nieto’s approval rating has fallen to less than 40 percent from 55 percent in the first quarter of last year, polling agency GEA-ISA said last month. Fifty-four percent said the economy was “bad” after growth missed analyst estimates in seven of the past eight quarters.

Opposing Views

The advance of Pena Nieto’s telecom and energy proposals “is certainly a big success for him, and that’s the way it’s being seen outside Mexico much more than in Mexico,” Andres Rozental, chairman of ArcelorMittal’s Mexico unit and a former deputy foreign minister, said in a telephone interview. “There’s much more skepticism inside Mexico about how all of this is going to work.”

Congress missed an April goal for approving the energy regulations. Talks broke down last month as the opposition National Action Party complained that Pena Nieto’s Institutional Revolutionary Party wasn’t moving fast enough to get states to ratify changes designed to crack down on alleged election abuses.

Tax Burden

That process may be getting back on track following this week’s passage of the telecom legislation by both houses of congress. In energy, the government is seeking to reduce Petroleos Mexicanos’s tax burden, the highest among the world’s top integrated oil companies, and open the industry to more foreign investment in order to reverse nine years of output declines.

“What America Movil is doing strikes me as shrewd -- get out in front of the legislation and, to the extent possible, be both pro-active and manage your environment,” Tony Garza, a former U.S. ambassador to Mexico under President George W. Bush who’s now counsel in law firm White & Case LLP’s Mexico City office, said in an e-mail.

“An interesting sub-text is what this says about how major players in the country have assessed the president’s commitment to reform,” Garza said. “Clearly they see him as dead-set on getting what he wants.”

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