Slim’s fat phone realm challenged

New rules sweep Latin America, cut billionaire’s profits

An America Movil SAB Telcel employee helps a customer at a store in Mexico City. Recent rulings and orders have cut into the wireless phone service provider’s profitability.
An America Movil SAB Telcel employee helps a customer at a store in Mexico City. Recent rulings and orders have cut into the wireless phone service provider’s profitability.

— Mexican billionaire Carlos Slim’s expanding mobile-phone empire is facing a growing backlash from the same south and central American countries that made him wealthy.

A wave of telecommunications regulation has swept Latin America in the past four months, and Mexico’s new president pledged last week to stimulate competition against Slim. In Brazil, institutions that monitor the phone industry are also growing 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 SAB, Slim’s biggest company and the most widely used wireless carrier in the Western Hemisphere. Slim, 72, has fought back, 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 control of 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 operates in 18 countries across Latin America, the U.S. and the Caribbean. As of Monday, its stock has slumped 16 percent since July 23, when Brazil’s government barred the company from selling new wireless plans in some states, signifying it was taking a more aggressive regulatory approach. The MSCI Emerging Markets Latin America Index has gained 3.6 percent over that time span, and the Mexican benchmark IPC index has risen 3.4 percent.

In his inauguration speech Saturday, Mexican President Enrique Pena Nieto said there should be more competition in the nation’s telephone industry, where America Movil has 80 percent of landlines and 70 percent of mobilephone subscriptions.

The next day, Mexico’s three major political parties signed a pact to introduce legislation next year to strengthen antitrust and telecommunications regulators 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, Carlos Slim’s eldest son and cochairman 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 percent 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 Madrid-based Telefonica SA, the region’s second-largest carrier, and Telecom Italia SpA, the third-biggest.

America Movil is outspending 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, Madrid-based Telefonica spent $6.9 billion last year in Latin America, including wireless airwave purchases.

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

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

Business, Pages 25 on 12/05/2012

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