BY MICHAEL O’BOYLE
MEXICO CITY – A quick sale of a block of billionaire Carlos Slim’s vast telecoms empire to a foreign company may be the fastest path to lower prices, broader coverage and better service for Mexican consumers.
Controlling around 70 percent of Mexico’s mobile market and more than 60 percent of landlines, Slim’s America Movil has been blamed for overcharging consumers for patchy service since he bought a former state-run phone monopoly in the early 1990s.
But industry experts said the asset divestiture plan America Movil announced last week to escape tougher Mexican regulations could shake up the telecommunications market by bringing in foreign telecom companies that could accelerate price drops.
“If they sell a big chunk, we will see more operators who will pressure the companies that are already in the market and that will help put prices on a more competitive path with better coverage,” said Abel Hibert, a former Mexican telecoms regulator.
Mexico has for years lagged other emerging markets in telecoms, prompting a radical reform to curb Slim’s dominance that President Enrique Pena Nieto signed into law on Monday.
America Movil said it would sell assets to a new operator to bring its market share in Mexico below 50 percent and avoid antitrust measures that force Slim to lower connection costs for rivals and share his infrastructure.
Slim still needs to present his plan to the country’s telecoms regulator, which could take months to evaluate the proposal before a sale may take place.
Slim’s companies, which would need to shed some 20 million customers, have yet to say what will be sold. Slim said it would be an attractive cross-section of the business to create a new national provider – one that many Mexicans have long hoped for.
Mexico ranked 129th out of 144 countries in terms of mobile phone affordability in a study by the World Economic Forum – down 27 places from the previous year’s survey. Mexicans paid over $28 for a month of fixed-line broadband service in 2013, compared to less than $16 in Brazil or about $15 in the United States, according to the report.
In addition, only 26 percent of Mexican households had access to the internet in 2013, compared to rates just above 45 percent in Brazil and Chile, the WEF report showed.
“The problem is the prices, the bad internet service,” said events planner Carolina Suarez, 40, at a customer service branch of Slim’s Mexican cell brand Telcel in Mexico City.
“They should be able to give a better price, make a good profit and keep productive communication going,” she added.
More than a quarter of all complaints to the country’s consumer protection agency are about telecom services.
Mexico also has limited phone and internet coverage. Outside of major cities, vast swathes of Mexico can only call on Slim.
Still, better technology and increased regulation have already helped reduce prices in Mexico. The cost of a basket of telecoms services fell 4.6 percent in the first quarter versus the same period last year, official data show.
“The drop in prices in Mexico is coming faster than other parts of the world, but we were starting from a base scenario that was so high that we still have not caught up with international standards,” said Ernesto Piedras, head of market research firm The Competitive Intelligence Unit.
Piedras blames Slim’s dominance for keeping prices high in Mexico. During the 2000s, Slim could block regulator rulings with legal injunctions. The reform makes that impossible.
Consumers should see some quick relief under the new laws, which have eliminated roaming costs and prohibit long distance charges from 2015. Customers who once faced long waits to change providers should be able to switch companies within 24 hours.
Slim hopes to divest the America Movil assets to an experienced operator that could fund infrastructure investment and he hinted that the buyer would need to be foreign, rather than a player already established in Mexico.
Spain’s Telefonica, his biggest local rival, has struggled to capture more than 20 percent of the market. Smaller players like Axtel are held back by debt.
AT&T, Deutsche Telekom and Vodafone are among the favorites to come in. AT&T was a major shareholder in America Movil until last month, when it sold its stake to Slim.
AT&T declined to comment after Slim’s announcement, but executives said in a May conference call that they would look at opportunities in Latin America after gaining a footprint across the region with their purchase of satellite TV provider DirecTV.
Pena Nieto’s reform should help: it removed foreign ownership limits on telecommunications assets, and analysts think foreign companies could buy smaller players such as Axtel.
The government projects that investment in telecoms could rise to around 700 billion pesos ($54 billion) during Pena Nieto’s six-year term, up from around 350 billion to 400 billion pesos in previous administrations.
But there is a risk that big players may not fancy their chances competing with Slim. And smaller companies may struggle to finance the big investments needed to improve services.
“If foreign players with experience come in, I think you will more quickly see an impact,” said Cristina Massa, a former Mexican competition commissioner, who warned that lower prices and better services could be slow in coming.
“Enormous expectations for fast changes have been raised,” she said. “I don’t think it will be so easy.”
Edgar Duran, a lawyer and a Telcel customer since 1998, has doubts. He thinks he pays too much, but no other carrier offers the same coverage. He is thinking about switching carriers but is skeptical that the changes in Mexico will save him money.
“For the real issues, which are improving service quality, offering better prices, we haven’t ever seen this and we never will,” the 33-year-old said. (Reuters)[eap_ad_3]
BY MICHAEL O’BOYLE