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Regulators target Carlos Slim's telecom empire in Latin America

Several countries are moving to rein in America Movil, the world's richest person's largest company.

December 06, 2012|Bloomberg News

Carlos Slim, the world's richest person, is confronting a mounting backlash that's coming from the same parts of Latin American that made him wealthy. Authorities in several countries are moving to rein in his telecommunications empire.

A wave of telecommunications regulation has swept the area in the last four months. Mexico's new president pledged last week to stimulate competition against Slim. In Brazil, institutions that monitor the phone industry are also gaining teeth, while populist politicians in countries such as Argentina and Colombia are spurring rule changes.

The result has been a series of rulings and orders that have cut into profitability at America Movil, Slim's biggest company and the most widely used wireless carrier in the Western Hemisphere. Slim, 72, has fought back against the trend, saying it will hurt his ability to invest in new technology — an argument that's holding less sway with government officials in light of his company's controlling more than a third of the market.

"We've barely had any regulation in this sector in this region for the past 10 years," said Richard Dineen, an analyst at HSBC Securities Inc. in New York. "There's probably only one way for it to go, and it's going to get tougher."

America Movil, which operates in 18 countries across Latin America, the U.S. and the Caribbean, has seen its stock slump since July, when Brazil's government barred the company from selling new wireless plans in some states, signifying it was taking a more aggressive regulatory approach.

In his inauguration speech on Saturday, Mexican President Enrique Pena Nieto said there should be more competition in the nation's telephone industry, in which America Movil has 80% of landlines and 70% of mobile-phone subscriptions.

On Sunday, Mexico's three major political parties signed a pact to introduce legislation next year to strengthen antitrust and telecommunications regulations, and to regulate the dominant carrier's network and prices "according to international best practices." The parties also agreed to auction airwaves in the 700-megahertz band to a wholesaler that could resell capacity to create more competition in wireless services.

Some of the new regulatory moves in Latin America unfairly target America Movil, said Carlos Slim Domit, the billionaire's eldest son and co-chairman of the company.

"We need regulations that stimulate investment, that promote coverage, that promote competition in all services," Slim Domit said in an interview before the inauguration. "We don't need regulations that just penalize companies for their size."

The wireless carrier, based in Mexico City, represents about 53% of Slim's $73-billion net worth, according to the Bloomberg Billionaires Index. The new regulatory fervor in Latin America has also squeezed margins for the Spanish firm Telefonica, the region's second-largest carrier, and Telecom Italia, the third-biggest.

America Movil is outpacing competitors on investments that will provide faster Internet speeds and better coverage, Slim Domit said in the interview. The company has been spending about $10 billion a year on network infrastructure improvements. In contrast, Telefonica spent 5.3 billion euros ($6.9 billion) last year in Latin America, including wireless airwave purchases.

America Movil holds about 38.6% of wireless subscribers in Latin America and the Caribbean, according to Signals Telecom Consulting. In addition to its Mexican dominance, the company has 70% of the market in Ecuador, 61% in Colombia, 25% in Brazil and about a third of Argentina.

Anatel, the phone regulatory agency established by Brazil in 1997, followed its eight-day sales ban with a plan to more quickly cut the fees that mobile-phone companies can charge to connect calls from competitors. Mexico's Federal Telecommunications Commission, which more than halved the connection rates last year, will review in January whether to get rid of the fees altogether.

The 16-year-old Mexican agency, known as Cofetel, has won rulings by the nation's Supreme Court this year. That's helped confirm that it has the power to regulate the industry, solidifying its authority after years of court battles.

The regulatory actions in Mexico and Brazil, which together make up 65% of America Movil's revenue, have compressed profitability for Slim's company. In Brazil, the carrier's profit margin through the first three quarters of this year was 24.6%, down from 26.2% in 2011. The figure in Mexico fell to 45.6% from 48.6%.

Regulations and mounting competition are forcing the company to provide more service for less money. In Mexico last quarter, the average America Movil wireless customer's monthly minutes of use shot up 22% from a year earlier, while the average bill rose only 10%. In Brazil, monthly bills fell 16%, even as minutes of use rose 14%.

Even as margins shrink, a stronger peso in Mexico will probably contribute to a 29% boost in net income this year, according to analyst estimates compiled by Bloomberg. Leaving out the effect of currency changes, interest, taxes, depreciation and amortization, analysts predict that profit will rise just 7% this year, followed by a 5% gain in 2013 and 4% in 2014.

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