Mexico telecoms overhaul starts to drag on America Movil

Reuters News
Posted: Jul 21, 2014 6:50 PM

By Christine Murray

MEXICO CITY (Reuters) - Carlos Slim's America Movil, Latin America's biggest telecoms company, said on Monday that new regulation in its core Mexico market was beginning to weigh on its performance.

Lower exchange rate and financing costs helped the company increase its profit by 32.7 percent to 18.83 billion pesos ($1.45 billion) in the second quarter. Revenue also rose 4 percent to 202.63 billion pesos.

But the results were below expectations forecast in a Reuters poll of five analysts of a net profit of 20.74 billion pesos ($1.6 billion).

In Mexico, where the company makes almost two-thirds of its core profit, tough new regulations that force it to share infrastructure, stop national roaming charges and slash what it charges competitors to use its network, began to take effect.

Mobile voice revenues in Mexico were down 8.7 percent year- on-year due to the new rules, the company said, though data revenue growth on mobile and fixed-line slightly outweighed the fall in fixed-line and voice revenue.

The telecoms sector overhaul was initiated by President Enrique Pena Nieto to drive competition in the sector where Slim controls around 70 percent of the mobile market and more than 60 percent of landlines.

Earlier this month, as the new regulations were being finalized, America Movil surprised the market by saying it aimed to avoid the new rules by selling a chunk of Mexico assets to a new, probably foreign, competitor.

It aims to drop below 50 percent market share in Mexican telecoms by selling an attractive cross section of the company, Slim told Reuters in an interview this month.

Slim must now present a plan to the new regulator the Federal Telecommunications Institute (IFT) which, if accepted and executed successfully, will allow Slim to avoid the tough antitrust rules and entry into Mexico's pay TV market.

Since the announcement on July 8, shares in America Movil have jumped 12 percent, increasing the company's market value by more than $8 billion and, according to Forbes, making Carlos Slim the world's richest man once again.

But after the share price rally, Morgan Stanley analysts said in a note published early on Monday that it thought the market was "overly optimistic" about the potential sale and it struggled to see how it could unlock value for the company.

"It's going to be a very flat year with the impact of the tariffs," Monex brokerage analyst Valeria Romo said. "We're not going to see the asset sale from one day to the next."

Some investors have hoped other markets, such as Brazil, where America Movil has around 25 percent of the wireless market and 54 percent of pay TV, can offset some of the regulatory pressure in Mexico.

Brazil earnings before interest, tax, depreciation and amortization (EBITDA) rose 18.9 percent in the second quarter. It also added half a million new pay TV subscribers.

In Europe, America Movil is still saddled with a multimillion dollar paper loss after it tried and failed to take control of former state-owned Dutch telecoms firm KPN.

It the statement on Monday, America Movil said it had reduced its stake in KPN to 22.6 percent, from 25.7 percent in March.

The company also said it now owned 50.8 percent of Telekom Austria after a $1 billion buyout offer to minority shareholders. It plans to use the former state monopoly as a basis for expansion into Eastern Europe.

($1 at end of June = 12.9865 pesos)

(Additional reporting by Gabriel Stargardter and Joanna Zuckerman Bernstein in Mexico City and Brad Haynes in Brasilia; Editing by Simon Gardner and Lisa Shumaker)