Telecoms in Mexico: Carlos Slim faces the biggest challenge yet to his dominance in telecoms, and a golden opportunity to break into television

Telecoms in Mexico: Carlos Slim faces the biggest challenge yet to his dominance in telecoms, and a golden opportunity to break into television

Mar 1st 2014 | MEXICO CITY | From the print edition

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THERE is nothing that better illustrates Carlos Slim’s ambition to muscle into Mexican television than football. In December the boss of América Móvil, the country’s biggest telecoms firm, watched his new investment, León, march to victory in Mexico’s national league, defeating América, owned by Emilio Azcárraga, a broadcasting mogul. Mr Slim was lucky to see the first leg of the final. Most Mexicans couldn’t. Mr Slim had sold the transmission rights to Fox Sports, not to Mr Azcárraga’s Televisa, Mexico’s biggest broadcaster. For the first time one leg of the two-match final was not shown on nationwide free-to-view television.

A few months later, Dish, a satellite-TV company recently revealed to have close ties to Mr Slim, has found a new way of dishing it to Televisa. “Football belongs to everyone,” it says, in a schmaltzy advertisement ahead of the World Cup. “Thanks to [Mexico’s] telecommunications reform, you can watch the matches from Brazil on Dish with free-to-air TV channels.” Those matches will come courtesy of Televisa, even though the broadcaster has fought tooth and nail to stop Dish being allowed to retransmit its channels without paying. On February 21st Mexico’s new telecoms regulator, Ifetel, confirmed that it would let Dish and others rebroadcast four national channels belonging to Televisa and TV Azteca, the terrestrial television duopoly, ignoring the broadcasters’ complaints that Dish is merely a stalking horse for Mr Slim.

Mr Slim’s ambitions in television are controversial for two reasons. First, the 1990 telephone concession that helped make him one of the world’s richest men forbade him from broadcasting TV, either directly or indirectly. As a result of last year’s telecoms reform, he may in future be able to, as long as the regulator approves.

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Second, he has enormous presence in Mexico’s telecoms markets. América Móvil controls 80% of fixed-line and 70% of mobile subscriptions, giving it a massive advantage when it comes to selling internet access. Although his businesses are exceptionally profitable by global standards, the services are slow and expensive, and their uptake low, even by Latin American standards (see charts). Broadcasting, in contrast, is struggling as advertising revenues fall. Televisa and TV Azteca fear that Mr Slim, if allowed to invade their market, will use his massive financial firepower to wipe them out.

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Nonsense, say Mr Slim’s aides. Televisa, too, is a behemoth, with a 70% share of terrestrial broadcasting, and almost 50% of the pay-TV market, including through its majority stakes in Sky Mexico and Cablevision. Mr Slim’s people say Dish has almost halved the cost of pay-TV since its launch five years ago, showing the benefits of competition; consumers will benefit further from Dish and others being free to include Televisa in the bundles of channels it offers them. Televisa says this will cost it 1.4 billion pesos ($106m) in revenues this year.

Ifetel has put both América Móvil and Televisa on notice that by March 9th it may declare each dominant in its market, meaning that both would be subject to stricter regulation than smaller rivals. Televisa and Azteca hope that the leaking on February 19th of a document revealing Mr Slim’s relations with Dish will move the regulator to be harder on him than it is on them. The document shows that since 2008 Mr Slim has had an option to buy control of Dish’s Mexican operations for $325m, and powers to place people on its executive board. The broadcasters argue that this is a violation of Mr Slim’s 1990 phone concession. At their urging, the regulator has launched an inquiry.

Ernesto Estrada, an Ifetel commissioner, says there are two prongs to the inquiry: has the concession been violated? And should the relationship preclude Dish from airing Televisa and Azteca’s content without paying? Arturo Elías Ayub, who represents Mr Slim, says the terms of the arrangement with Dish have been public for years and have been investigated by previous regulators. However, Mr Estrada says Ifetel has no record of the $325m share-purchase option on its files. There is enough at stake that Telmex, Mr Slim’s fixed-line phone company, has launched newspaper advertisements disputing what it calls “partial, misinterpreted and magnified information”.

Whatever the inquiry concludes, América Móvil is likely to face new regulatory curbs. Under last year’s constitutional reforms, Mexico will implement “local-loop unbundling” in telecoms. Currently, Mexico is one of only a few countries in the OECD that do not force dominant fixed-line operators to share the final stretch of wire, connecting the local exchange to a home, with rivals.

The aim of such a move is to give new competitors access to customers without having to build their own networks. It has worked well in Britain, among other countries. However, the risk is that the incumbents may scrimp on upgrading their networks, out of a reluctance to help their competitors. Luca Schiavoni of Ovum, a research firm, says this is a particular worry in Mexico, where internet usage is low. He thinks a quicker way to get more competition for broadband would be for the regulator to encourage cable firms to invest more. It could do both, of course.

Another challenge for América Móvil is likely to come in its mobile-phone business. Here, analysts say, the authorities could foster competition by auctioning high-speed radio spectrum only to its rivals, by making América Móvil pay more to networks that receive its calls or by forcing it to share its antennas.

However, Aitor Ortiz, a regulation specialist at Cidac, a Mexican think-tank, believes that such moves could leave América Móvil still dominant, mostly because it has such a stronghold as an internet-service provider. With traditional broadcasting losing ground to internet channels like Netflix, América Móvil may eventually gain the upper hand in the content business too, if the regulator fails to keep a close eye on it. That may be another reason Televisa is so keen to stop it in its tracks.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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