America Movil: Death of a Mexican Monopoly Foretold

Carlos Slim Helu, owner of the Latin American telecommunications company America Movil (NYSE: AMX  )  is a regular on Forbes' annual list of the richest people in the world. This year is no exception -- Slim is listed as the second richest man in the world, with an estimated net worth of $72 billion, just behind Microsoft  (NASDAQ: MSFT  ) founder Bill Gates. This year, however, Slim is the only billionaire out of the top 10 on Forbes' list to have lost net worth in the past year. 

The reason behind Slim's falling fortune is an antitrust shake-up in Mexico that has been putting pressure on his company to face competition. Currently, America Movil controls 80% of the landline, and 70% of the mobile phone market in Mexico. 

Mexican reforms target the telecom sector  
In December 2012, members of the three largest political parties in Mexico signed the "Pacto por Mexico" which, among other things, focused on reforming the telecom sector. The reform created a new independent regulatory agency, called the Federal Telecommunications Institute, also known as "Ifetel." The agency has a larger budget that its predecessor, and the power to revoke operating licenses, sanction, and break up companies employing monopolistic practices.   

America Movil faces fines, regulatory changes 
America Movil dodged an almost $1 billion antitrust fine against its mobile unit Telcel in 2012. Ifetel's predecessor, Cofetel, lifted its fine in exchange for Telcel accepting lower rates for its competitors, including Alestra, Axtel, and Maxcom, to access its mobile network.  

In February 2013, Telmex, America Movil's landline division, was fined  $51.6 million for antitrust violations. This year, Ecuador's national regulator fined America Movil's Ecuadorian unit Conecel (with the brand name Claro) $138.5 million for anticompetitive practices there. 

Just last week, Ifetel announced new regulations that would require America Movil to share its telecom infrastructure with competitors. According to Rice University Mexico studies expert Tony Payan, this change "will eliminate the central barrier for new firms looking to enter or to grow in the market." Furthermore, under the new regulations, the rates competitors use to access Telcel's mobile network could be cut in half, and Telcel will not be allowed to charge national roaming fees.   

A slow death for telecom monopoly in Mexico 
In the past two years, shares of America Movil are down about 18%, which is almost triple the decline of the Mexican Stock Market during the same period. Commentators predict that the Mexican government's plan to dismantle Slim's monopoly is unlikely to be swift because his company has the funds to employ lobbyists to challenge reform. Even the current efforts are less than some had hoped for -- a government mandated break-up of his company. 

Still, the company's grip on the telecom sector has been holding back the Mexican economy for many years; according to a 2012 report from the Organization for Economic Cooperation and Development (OECD), Mexicans were being overcharged $13.4 billion a year for telecom services, which cost the overall economy almost 2% of GDP. The government has already shown the willingness to pursue the reforms needed for the Mexican economy to grow and modernize, and telecom reform is one of the top priorities for Mexico's current president, Enrique Pena Nieto. Payan has described recent changes as "a quiet and unsung revolution in the telecommunications sector."

While the death of America Movil's monopoly may not be swift, it appears certain. 

The Motley Fool's top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2877213, ~/Articles/ArticleHandler.aspx, 11/27/2014 1:48:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement