Slim's Mexico telecoms sale opens doors to competitors

After a generation of enjoying a near-monopoly that allowed Slim to become the world's richest man, he plans to sell parts of America Movil to a competitor to avoid new penalty measures to curb the company's dominance.

 

Companies like AT&T, Telefonica, Virgin Mobile and Grupo Televisa which have varying degrees of interest in Mexico, could benefit from buying parts of America Movil, which has some 70 percent of Mexico's mobile market and is the strongest force in fixed line and Internet.

 

To avoid penalties, the company must arrive at a share below 50 percent of the overall Mexican telecoms market, as calculated by regulator Federal Telecommunications Institute (IFT) using subscriber numbers and network capacity.

 

"The trick will be in how they present the plan," Miguel Flores, a former Mexican competition regulator, told Reuters. "They could frame this in a way that they don't lose much share of the market by revenue."

 

To reach less than half of Mexico's mobile subscribers, America Movil would have to cut ties with around 20 million customers in Mexico, according to a Reuters calculation.

 

So-called mobile virtual network operators (MVNO) like Virgin, which piggyback on existing telecoms infrastructure to provide services, could be interested in these mobile clients.

 

Arturo Elias, a spokesman for Slim, told Mexican radio on Wednesday that he thought the company would have to sell around 15-17 percent of the overall phone market to get below 50 percent. America Movil aims to sell to a single buyer, he said.

 

Newcomers to Mexico may not find the assets attractive, given America Movil will still control close to half the telecoms market.

 

Major wireless companies like Vodafone and Verizon turned their back on the country a decade ago after failing to break the hold the 74-year-old billionaire has on the industry.

 

Increased competition

 

One company with the heft to compete with Slim that has been expanding in Latin America is his former partner AT&T.

 

Slim purchased Mexican state telephone company Telmex in 1990 with the forerunner of what is now AT&T, a deal that helped make him the world's richest man by 2010.

 

Slim repaid the favor last month when he bought AT&T's 8 percent stake in America Movil for around $5.6 billion when the U.S. firm sold to get regulatory approval for its decision to buy U.S. satellite provider DirecTV.

 

That deal makes AT&T a partner of Slim's rival, broadcaster Televisa through joint ownership of satellite firm Sky Mexico. On a conference call this week Televisa said that it was looking forward to exploring joint opportunities with AT&T in Mexico.

 

AT&T's CEO acknowledged he was now competing with Slim just after the company announced the DirectTV deal.

 

AT&T declined to comment on a possible purchase of assets.

 

To lure a company not currently in Mexico, what Slim sells would have to amount to a real platform to launch nationally, one telecoms banker told Reuters on condition of anonymity. "I think that's unlikely," the banker said. "You'd need things like spectrum, customers, some sort of national roaming accord."

 

Industry experts believe America Movil's move could open the door to MVNO operators buying up blocks of subscribers from Slim, possibly in auctions. Among them are Richard Branson's Virgin, which launched in Mexico this year.

 

Spain's Telefonica, number two in Mexico's mobile market, may also seek to extend its roughly 20 percent market share, and recently made a deal to let Virgin use its network.

 

Telefonica also has an infrastructure-sharing deal with Iusacell, Mexico's no. 3 telecoms operator by subscribers, which is owned by Televisa and TV Azteca, the no. 2 broadcaster.

 

Slim may put infrastructure up for grabs, which could let companies forge alliances in Mexico to compete. Infrastructure would generate lots of interest from companies such as America Tower, Jose Otero, President of Signals Telecom said.

 

Macquarie analyst Kevin Smithen estimated that in 85,000 of 185,000 villages in Mexico, rural customers linked by copper cables and pre-paid mobile subscriptions are served only by America Movil, generating very low free cash flow.

 

They make up the 20 to 30 percent reduction in market share needed to get the company below 50, Smithen said in a note.

 

The sale does not just help competitors, however.

 

Hiving off assets could allow Slim to expand his operations in Brazil and Europe, as well as gain approval to enter into pay television at home, a market with low penetration in Mexico, where he would compete with Televisa.  — Reuters