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    AMX L   MXP001691213

AMÉRICA MÓVIL, S.A.B. DE C.V.

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Mexico telecoms reform could take years to unseat Slim

03/14/2014 | 03:20pm EDT
Mexican billionaire Carlos Slim attends a presentation in Mexico City

MEXICO CITY (Reuters) - Tycoon Carlos Slim, under fire from regulators in his home country, has spent the last two years sniffing out deals in Europe to offset an impending regulatory shake-up of Mexican telecoms.

But though the reforms are the furthest-reaching measures passed against Slim since he became the dominant force in Mexico's telecoms market more than two decades ago, they are likely to take years to erode his hold on the business.

Slim's America Movil, which controls 70 percent of the Mexican mobile market and 80 percent of its fixed lines, was singled out for tougher measures last week by the Federal Telecommunications Institute (IFT), the new market regulator.

His Mexico phone units must now present plans to lower rates for rivals using America Movil's mobile network, eliminate roaming charges, open up the fixed-line network and share transmission towers, ducts and other nonelectronic infrastructure.

It could have been worse. The IFT could have ordered the company to divest assets, and analysts forecast that Slim will still hold 60 percent of the market in a few years.

"We aren't that worried," a top-20 America Movil shareholder told Reuters on condition of anonymity. "We think the company has suffered a lot and that the prices and valuation of the shares incorporated a worse scenario with regards to (IFT)."

America Movil's share price fell to a near four-year low the day after the government presented the reform that created the IFT in March 2013, and it remains well below mid-2012 levels.

Since last week's announcement the stock was up 0.85 percent to 13.09 pesos at Thursday's close.

"The company's entrenched market position is not likely to face any serious decline, despite the regulatory benefit for smaller players, given its well-established operational scale and expertise," credit ratings agency Fitch said this week.

FALLING SHARE, GROWING MARKET

America Movil has been looking to expand into recovering European economies for the last two years to escape the rising tide of regulatory measures in Mexico.

After a failed takeover bid for Dutch telecoms group KPN last year, the company is now moving toward a deal with the Austrian government that could see Slim take control of Telekom Austria.

One of the top telecoms experts in Congress told Reuters last year the reform would be a failure if Slim's share of Mexico's mobile market did not drop below 50 percent by 2018. Market estimates look more cautious.

Analysts at bank BBVA forecast in January that he will reach around 61 percent by end-2020, while Bernstein Research estimated it will be around 60 percent by 2016/17.

America Movil's Mexico unit, which accounts for just under half of group earnings before interest, taxes, depreciation and amortization (EBITDA), is tipped to become less profitable.

The company could see its Mexico EBITDA profit margins fall to below 35 percent in 2017, from 43.9 percent in 2013, analysts at ItauBBA forecast. Bernstein estimates that America Movil's annual EBITDA in Mexico will decline 13 percent between 2013 and 2016, equivalent to a drop of around $1.2 billion.

Mexico's telecoms market is expanding meanwhile.

The IFT's production index for the sector, which includes fixed and mobile subscriptions, phone traffic, pay TV subscriptions and other measures, grew 8 percent in 2013.

Secondary laws to implement the 2013 telecoms reform, expected to be presented to Congress soon, are more than three months behind an original December deadline for passing them. Legal battles over the new laws could further delay changes.

The IFT's measures will be revised every two years, though the regulator can still order asset divestitures if it finds sufficient evidence of antitrust practices by America Movil. And if the company fails to comply with accounting separation rules, it may have its concessions revoked, the IFT has said.

IMPACT LIMITED, UNCERTAIN

America Movil's fixed-line subsidiary Telmex must, within 180 days of last Friday, allow rivals use of its "last mile" of phone line connecting the telephone exchange to customers for a regulated fee.

Interconnection rates, which rivals pay to use America Movil's mobile network, were already reduced as part of a 2011 law but will now be asymmetric, meaning the rate Slim's company can charge will be lower than rivals.

ItauBBA analyst Gregorio Tomassi expects the rates to be halved from 0.3 pesos ($0.02) per minute now. Fitch highlights America Movil's interconnection fees in Mexico, which account for less than 2.5 percent of group revenue.

The company also has to be ready to start sharing its infrastructure with rivals within the 180-day period. The national roaming charges it must drop make up less than 5 percent of Mexico's total wireless revenue, according to Bernstein, or less than 8.968 billion pesos ($678 million).

In the past, America Movil and broadcaster Televisa, another target of the sweeping overhaul, frequently used injunctions to block regulators.

Slim's lawyers no longer have the same tools at their disposal after the 2013 reform ended his ability to suspend regulatory decisions during the appeals process.

The carrot for compliance with the rules is that Slim could be granted a Mexican TV license for the first time. America Movil declined to comment on its plans in television.

But the telecoms market is about four times the size of the TV business. Slim's potential loss in EBITDA from telecoms is around 16 billion pesos a year by 2015, while possible gains in TV are about 3 billion, a Bernstein analysis last year showed.

($1 = 13.2290 pesos)

(Additional reporting by Tomas Sarmiento; Editing by Dave Graham and Prudence Crowther)

By Christine Murray


© Reuters 2014
Stocks mentioned in the article
ChangeLast1st jan.
AMÉRICA MÓVIL, S.A.B. DE C.V. 1.86% 16.98 End-of-day quote.17.18%
GRUPO TELEVISA, S.A.B. 1.49% 53.78 End-of-day quote.64.26%
ROYAL KPN N.V. 0.50% 2.806 Real-time Quote.12.26%
TELEKOM AUSTRIA AG -0.69% 7.23 Delayed Quote.15.01%
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Financials
Sales 2021 999 B 50 315 M 50 315 M
Net income 2021 86 336 M 4 350 M 4 350 M
Net Debt 2021 536 B 26 986 M 26 986 M
P/E ratio 2021 13,0x
Yield 2021 2,27%
Capitalization 1 119 B 56 142 M 56 366 M
EV / Sales 2021 1,66x
EV / Sales 2022 1,65x
Nbr of Employees 183 956
Free-Float 48,0%
Chart AMÉRICA MÓVIL, S.A.B. DE C.V.
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América Móvil, S.A.B. de C.V. Technical Analysis Chart | AMX L | MXP001691213 | MarketScreener
Technical analysis trends AMÉRICA MÓVIL, S.A.B. DE C.V.
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 14
Last Close Price 16,98 MXN
Average target price 18,44 MXN
Spread / Average Target 8,57%
EPS Revisions
Managers and Directors
Daniel Hajj Aboumrad Chief Executive Officer & Director
Carlos José García Moreno Elizondo Chief Financial Officer
Carlos Slim Domit Chairman
David Antonio Ibarra Muñoz Independent Director
Pablo Roberto González Guajardo Independent Director
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