Billionaire Carlos Slim is bowing to imminent antitrust legislation by planning a breakup of America Movil SAB'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 a newly formed independent company, reducing its market share in Mexican landlines and mobile phones to below 50 per cent 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 per cent of America Movil.
Slim, the world's second-richest man and the son of a Lebanese immigrant to Mexico, has been weighing options for America Movil as Congress considers 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 per cent of Mexico's mobile-phone subscribers and about 80 per cent 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.”
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. A spokesman for Mexico’s Communications and Transportation Ministry declined to comment and asked not to be named, citing agency policy. 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.
America Movil didn’t specify which assets would be sold to the new independent operator. It said they would have to fetch market prices. A press official for the company didn’t immediately respond to requests for more specific details. One option would be to create a separate company that manages the national fiber-optic network and other infrastructure, assets that have served as the backbone for America Movil to deliver voice and data traffic around the country. The independent operator could still work for America Movil while offering the same prices to its competitors for routing their traffic.
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 ATandT 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.
The laws being considered by Mexico’s Congress 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.
The bill says Slim can loosen the restrictions by presenting a plan to regulators to reduce America Movil’s market share below 50 per cent. 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.
The Senate approved the law last weekend, and the lower house of Congress voted yesterday in favor of the bill in general terms, allowing lawmakers to begin discussing potential amendments. 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 ATandT 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.
Bloomberg
