Mexico’s leading MNO, America Móvil, has formed a committee of senior leaders charged with evaluating the “various structural, commercial, technological and other options available to it, as well as the opportunities offered by the new Mexican regulatory framework,” according to a company release. America Móvil currently controls an estimated 70 percent of the Mexican mobile market, and its landline unit, Telmex, has 80 percent of the country’s fixed line subscribers. Studies from the OECD have estimated that this position costs the Mexican economy as much as US $25 billion per year (2 percent of the country’s GDP). The Federal Telecommunications Institute found America Móvil to be dominant last year; the company is contesting this finding in court. Politicians, including Mexican president Enrique Peña Nieto, have spoken out against the company and won approval in the legislature for harsher penalties for dominant companies.
The formation of this committee likely serves a twofold purpose. First, it is a publicity-generating play (virtually all of the senior leadership from both America Móvil and Telmex are represented on the committee) aimed at reassuring skittish investors. America Móvil has seen its shares fall 15 percent in the year since the company was declared dominant. By forming the committee, America Móvil gives stakeholders the impression that it is taking its fate into its own hands. This announcement was paired with a larger move aimed at assuaging investors when the company’s chairman and chief executive, Carlos Slim, used his holding vehicle to purchase AT&T’s 8.3 percent stake in the company for US $5.7 billion, signaling faith in the company’s future and avoiding a dilution of company value on the market.
Second, it is almost a certainty that America Móvil will lose its appeal of the dominant ruling, and it appears to be only a matter of time before Mexican authorities impose further strictures on the company, extending as far as forcing a breakup. To preempt such an outcome, we expect America Móvil to try and spin off some of the less profitable elements of its business—particularly those that serve rural and poorer areas—to reduce the company’s market share to below 50 percent without significantly affecting revenues. Telmex attempted a similar measure in 2011 with Telmex Social, but the move was rejected by regulators. America Móvil is likely considering whether it can include the right package of concessions to make a reprise palatable to mobile regulators in the near future.
“The ultimate consequences of America Móvil will echo far beyond Mexico: the company has extensiveoperations across Latin America and has been expanding in Europe. If it is squeezed in Mexico, which in 2013 accounted for almost half of the company’s profits, expect America Móvil to aggressively pursue expansion opportunities in other areas of the world.”
Will Watts, Program Manager at Tarifica
The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues: http://www.tarifica.com/TarificaAlert.aspx