Howard
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What does this mean to you and I? Long article
Billionaire Carlos Slim is bowing to imminent antitrust legislation by planning a breakup of America Movil SAB (AMXL)’s phone operations in Mexico
rather than risk profit-crushing restrictions if his company did nothing to curb its dominance.
America Movil, the Americas’ largest operator with 272 million wireless subscribers, decided to divest some assets to an independent company, reducing
its market share in Mexican landlines and mobile phones to below 50 percent to appease regulators, America Movil said yesterday in a filing. 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.
Slim, the world’s second-richest man and the son of a Lebanese immigrant to Mexico, had been weighing options for America Movil as Congress considered
a bill that would impose the harshest penalties the company has ever encountered, as long as its subscribers represent more than half of the Mexican
market. The carrier currently has 70 percent of Mexico’s mobile-phone subscribers and about 80 percent of landlines. America Movil has lost about $17
billion in market value since President Enrique Pena Nieto took office in 2012 on promises to spark more competition to boost the Mexican economy.
“The message is clear: They’re reacting to the regulatory pressure,” said Julio Zetina, an analyst at Vector Casa de Bolsa SA in Mexico City. “I’m
surprised they have made a decision like this, and so quickly.”
Regulatory Approval
America Movil rose 5.1 percent to 14.16 pesos at 10:52 a.m. in Mexico City, on track for the biggest gain in more than five years on a closing basis.
America Movil didn’t specify which assets would be sold to the new independent operator. It said they would have to fetch market prices.
In a radio interview today, America Movil Vice President Arturo Elias said the company won’t just sell rural, money-losing phone lines. America Movil
is still analyzing which assets to sell and prefers a single buyer to create a strong competitor, he said. He also said that the assets for sale will
“require much investment.”
Sale Estimates
America Movil may fetch about $8.6 billion by selling assets and will need to divest about 21 million wireless users and 4 million landlines to reduce
its market share below 50 percent, Martin Lara, an analyst with Corp. Actinver SAB, estimated in a note today. Grupo Televisa SAB (TLEVICPO) may be a
potential buyer for some of the assets, Lara wrote.
America Movil brought a special committee of board members together to study its options after the newly created Federal Telecommunications Institute,
or IFT, declared it the dominant company in Mexico’s phone market. Last year, lawmakers made constitutional changes to let regulators force companies
to divest assets if they have too much control over the industry.
The board made the breakup decision based on the committee’s recommendations, America Movil said yesterday. The measures require regulatory approval
and may need the endorsement of shareholders, the company said.
America Movil contacted the IFT with its plans to restructure, which will be subject to approval, the regulator said in a statement. The IFT said it
has yet to receive a concrete plan.
‘Direct Consequence’
“This decision is a direct consequence of the regulatory framework created by the telecommunications reform,” the Communications and Transportation
Ministry, which reports to Pena Nieto, said in a statement yesterday. “This decision may transform the conditions of effective competition in the
telecommunications sector, with greater quality and better prices for services to end users.”
Pena Nieto’s press office declined to comment.
“The mere announcement by America Movil that it will divest assets to stop being dominant is already a major success of the telecom reform,” Javier
Lozano, head of the Senate’s communications and transportation committee, said in a Twitter post.
Selling Towers
Selling the Mexican wireless towers, and leasing them to serve mobile-phone customers, would give America Movil cash to pursue new investments. Phone
companies from Dallas-based AT&T Inc. to Rio de Janeiro-based Oi SA have sold towers in the past year to raise funds. If America Movil sold all of
its 40,000 towers across Latin America, not just Mexico, it could raise $10 billion, Macquarie Group Ltd. said in a note last week.
Today, Mexican lawmakers approved the bill that will force America Movil to share parts of its network and eliminate the fees it charges other
operators to connect calls to its customers. All operators are banned from charging long-distance fees starting next year and have to stop making
unauthorized promotional calls to users. America Movil would have to abide by the rules for 18 months before it can request a license to offer TV
service in Mexico.
Mexico’s lower house voted 318 to 107 today in favor of the bill, which was passed by the Senate over the weekend after more than six months of delays
and legal challenges. The law will need the endorsement of Pena Nieto.
The bill says Slim can loosen the restrictions by presenting a plan to regulators to reduce America Movil’s market share below 50 percent.
Proposed Law
Under the proposed law, the company would have 365 days to implement a breakup plan, after which the regulator would review whether it has worked.
During that span, America Movil would still be subject to its restrictions as the dominant carrier.
America Movil was valued at $73 billion at yesterday’s close, making it Latin America’s fourth-largest public company. Its operations in Mexico, the
largest of its units in 18 different countries, make up almost half its profits and about one-third of its sales.
Slim, 74, and his family hold a 57 percent America Movil stake, representing more than half of his $71.5 billion fortune, according to the Bloomberg
Billionaires Index. His holdings include an 8.3 percent stake acquired from AT&T last month for $5.6 billion.
Depending on the assets it sells, an America Movil breakup may mimic previous efforts around the world to dismantle dominant phone carriers to create
more competition -- a goal that has proven difficult to accomplish.
Past Breakups
To settle an antitrust suit in the U.S., AT&T Corp. agreed in 1982 to split with its regional phone networks, which would provide local telephone
service while the national company focused on long distance, manufacturing and research. Many of those units are now part of the same company again,
called AT&T Inc., while Verizon Communications Inc. owns most of the rest.
In Brazil, the government broke its telephone monopoly into 12 holding companies in 1998, including three regional landline carriers, eight
mobile-phone companies and one long-distance carrier. They have since joined forces to create four major telecommunications providers in Brazil.
A breakup of America Movil may not immediately lead to other companies filling the infrastructure investment gap left by Slim’s carrier, said Duncan
Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington.
“What is the incentive for any smaller companies to actually invest? Will they have the economies of scale to make it worthwhile?” Wood said. “This in
the short and medium term may actually slow down the transformation of the telecom sector in Mexico because there’s no actor big enough now to make
investment decisions in infrastructure.”
America Movil has gone through various configurations since Slim acquired Telefonos de Mexico, the state phone monopoly, in a 1990 privatization sale.
Telmex, as the landline carrier is known, spun off its wireless unit a decade later to create America Movil. Both companies grew internationally with
acquisitions throughout Latin America, and America Movil acquired full control of Telmex, its former parent, in 2012.
To contact the reporter on this story: Patricia Laya in Mexico City at playa2@bloomberg.net
To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Crayton Harrison
Copyright 2014 BLOOMBERG L.P. ALL RIGHTS RESERVED.
We don't stop playing because we grow old;
we grow old because we stop playing
George Bernard Shaw
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BajaGringo
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If he holds his current position, Carlos Slim is set to lose over 2 billion USD alone with the the loss of long distance charges within Mexico, to be
enforced by Jan 1 2015 under the just approved Telecom Reform bill. Looks like he prefers to bail first.
If the analysts are correct, it should open up the market to more competition with lower rates and better services.
Stay tuned...
[Edited on 7-9-2014 by BajaGringo]
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greengoes
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Mood: Today I slay the Red Dot.
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Pobrecito Carlos.
ANUNCIATE AQUI
DISPONIBLE
INFORMES LLAMA SNOWBALL - 646-115-7754
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Marc
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I have a feeling he will come out smelling like a rose.
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