Mexican Telecom Majors Troubled by New Approved Competition Bill - Analyst Blog

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After a long wait, the impending Telecommunications Competition Bill has finally received the green signal from the Mexican Senate, according to Bloomberg reports.  While the new bill favors the small telecom players defending their competitive position, it targets larger operators like America Movil S.A.B.   ( AMX ) and Grupo Televisa S.A.B. ( TV ), occupying dominant positions in the Mexican telecom industry.

In early 2013, the aforesaid new Telecommunications Competition Bill was proposed by the Mexican President Enrique Pena Nieto, highlighting several measures necessary to reform the telecom and television industry in Mexico. The main objective behind introducing this bill was lending greater uniformity and transparency to the sector while also curbing the concentration of power lying in the hands of select players who dictate market behavior. The telecommunications sector in Mexico is highly monopolistic with one or two major companies influencing the market.

America Movil's wireline division, Telmex, currently controls around 80% of the Mexican fixed-line business, whereas its wireless equivalent, Telcel, holds about 70% market share. Other wireless behemoths in Mexico include Telefonica S.A. ( TEF ) and NII Holdings Inc.   ( NIHD )

Meanwhile, the Mexican government intends to increase competition by encouraging the entry of new operators in the industry. This, in turn, should help control the price of telecom and broadcasting services in the country.

Apart from advocating the need to create a new regulatory body, the bill stresses on the implementation of asymmetric regulations - a move that faced severe condemnation from America Movil. The rule implies that the leading players, who control majority of the market share, as in the case of America Movil, will have to pay higher mobile termination rates (MTRs) to smaller peers and receive lower rates from them for network interconnection.

Similarly, Televisa, which rules the Mexican broadcasting market, will have to share its broadcast towers with competitors for a stipulated amount of fees. In addition, Televisa will also not be allowed to acquire exclusive broadcasting rights of popular sports and entertainment events.

In April 2014, America Movil filed an injunction against the regulator's decision distinguishing the company as a dominant operator and imposing asymmetrical regulations on it. On its part, Televisa also reportedly stated that the new telecommunications bill would impose disproportionate obligations on the company such as limitations on its advertising sales, use of infrastructure and content distribution.

However, America Movil's appeal fell on deaf ears. Despite all its objections, the bill has successfully seen the light of the day. The new rules could force America Movil to eliminate fees on mobile termination and share its network infrastructure with other operators. To add to its woes, America Movil is also likely to be banned from charging national roaming fees. This is part of the initiative being taken to prohibit telecom operators from charging domestic long-distance fees beginning next year.

However, on the bright side, the new telecommunications reform bill in Mexico may pave way for Televisa to capture a large chunk of the wireless market share. The new regulations will also similarly allow America Movil to enter the broadcasting market of Mexico, which has been dominated by Televisa for a long time. However, the proposed regulation will defer America Movil's television expansion plans for at least another two years.


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Referenced Stocks: TEF , TV , AMX , NIHD

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