Mexico's Unanswered Message for Carlos Slim
Carlos Slim didn't become the world's second-richest man by being an easy target. So it's probably a mistake to think the Mexican telecommunications mogul and controlling shareholder of America Movil SAB won't try to sidestep Mexico's ambitious reforms meant to bring monopolists to heel.
Consider America Movil's refusal to obey an order by Mexican regulators to share its network with rivals and sell unblocked mobile phones to consumers. Denying competitors access to its fixed-line network and making it hard for consumers to switch carriers is one of many tactics the company uses to protect its dominance.
Then there are the legal challenges America Movil continues to file to contest its designation as a "market dominant" player in the industry. The label makes America Movil subject to all sorts of rules -- even forcing the company to sell assets -- meant to make life easier for its competitors.
Slim has a lot at stake. America Movil has 70 percent of Mexico's mobile phone subscribers and its Telmex unit serves 80 percent of the country's landlines. The company has a $69 billion market value and is a cash cow, with a fat 32.5 percent pretax profit margin, according to Bloomberg. More than a third of its revenue comes from Mexico.
Spain's Telefonica SA, which has 20 percent of Mexico's wireless subscribers, has asked the nation's Federal Telecommunications Commission to force America Movil to sell assets if it fails to comply. But a regulator told Reforma newspaper on Monday that it probably can't punish America Movil that way. In other words, don't get your hopes up.
On the surface, the future looks tough for Slim. If regulators have their way, smaller phone companies will no longer pay interconnection fees to America Movil. More importantly, when Mexico's secondary telecom law proposal passes it may delay Slim's entry into the pay-TV business by two years. That may be a setback for a company that already bundles pay-TV with its phone services elsewhere in Latin America.
The company's shareholders may not like how things seem to be unfolding, though their pessimism might be overdone. Shares of America Movil are down 16 percent this year on speculation that Mexican regulators will hurt the company's competitiveness. America Movil now has a 12-month projected price-earnings ratio of 10.4, according to data compiled by Bloomberg, less than the 13.4 times estimated earnings for Telefonica Brasil SA, a less-profitable company.
It is true that taking away America Movil's interconnection fees would deprive the company of a steady revenue stream. But the fees make up no more than 2.5 percent of total revenue. More competition will no doubt squeeze America Movil's margins, but it will take rivals years to really threaten its dominance in a meaningful way. Plus politicians may yet give Slim access to the pay-TV business sooner than some anticipate.
And even if regulators act with more force they will surely run into considerable and effective resistance. Slim's army of lawyers is already fighting every regulatory step and they will likely get more aggressive if regulators ever try to force America Movil to sell some of its assets.
If there is a lesson in any of this for Mexico it may be that creating a telecom monopolist is a lot easier than getting rid of one.
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