Anlaysis: Mexico telecoms reform pits America Movil vs. Televisa

Mexico's ambitious bid to overhaul its phone and television markets threatens to eat into revenue of the major players, telecoms tycoon Carlos Slim and TV mogul Emilio Azcarraga, and may force the two to seek new business on each other's turf.

A new bill aims to stir up competition in the telecoms sector by allowing increased foreign ownership of media and phone companies, and giving regulators the power to force players controlling more than 50 percent of the market to sell some assets.

The planned reform has been hailed as the boldest attempt to shake up the market since Slim, the world's richest man, first acquired former fixed-line phone monopoly Telmex in 1990.

Telmex is now part of Slim's telecommunications giant America Movil, whose shares have been hit since the reform was presented on Monday. Investors have also sold off shares of Azcarraga's broadcasting giant Televisa, albeit less so.

Uncertainty over how the reforms will be implemented could put further pressure on the share prices of both companies.

"We believe that the net risks introduced by this proposal are higher for America Movil than for Televisa, but negative for both," wrote analyst Gregorio Tomassi at Brazil's Itau bank.

Requiring Televisa to offer its public TV channels to rivals for either a reduced rate or free could wipe around 3 percent from the company's core profit, Tomassi estimated.

Tough-sounding elements such as forcing dominant companies to sell assets, as well as opening up the market to greater foreign investment would mean lower future revenue for both America Movil and Televisa, analysts agreed.

"I think the government is being aggressive," said Rogelio Gallegos, who manages 8 billion pesos ($640 million)in equity at Mexico City-based Actinver, adding that he expected Televisa and America Movil shares to fall further still.

Important details of the reform, such as how regulators might force dominant companies to restructure to meet a 50 percent market-share cap, are still to be worked out.

And it is unclear how the bill may fare in Congress, though President Enrique Pena Nieto thrashed out the plan with the leaders of both of Mexico's main opposition parties.

Members of Pena Nieto's Institutional Revolutionary Party say they are confident it will be approved in Congress by May.

America Movil shares have lost almost $5 billion in market value, down 5.8 percent since the reform was announced on Monday, while Televisa shares have lost 1.1 percent.


Telmex controls about 80 percent of the fixed-line market, and Slim's Mexican mobile phone unit Telcel has about 70 percent market share. Total revenues for Slim's phone businesses in Mexico was 277 billion pesos ($22 billion) in 2012.

Azcarraga's Televisa is estimated to have about 60 percent of Mexico's broadcast market, but because of the more diffuse nature of its business, it is harder for regulators to calculate the company's market share.

If Televisa and America Movil are forced to reduce assets, it would cut cash flow, which could mean the companies would have to reduce their debt loads, said Nymia Almeida, an analyst at Moody's Investors Service in Mexico City.

Televisa and America Movil welcomed the reform in statements released on Monday. Officials for both companies declined to comment for this article.

It's not all bad news for Slim and Azcarraga. The two tycoons have battled for years to make inroads into each other's territory. The reform unveiled by Pena Nieto may open the door for them to do just that.

The 72-year-old Slim has so far been kept out of Mexico's television market, but the bill appears to let him enter it if he can meet certain requirements.

Offering television would allow Slim to sell so-called triple-play packages bundling phone, Internet and television, something that he has sought for years in Mexico.

Meanwhile, Televisa's cellphone joint venture with rival broadcaster TV Azteca, Iusacell, could benefit if the government forces Slim to cut his market share in Mexico. Iusacell currently has about 6 percent of the Mexican mobile market.


Both Slim and Azcarraga have the option of restructuring their businesses or looking abroad to curb the reform's impact.

Eduardo Garcia, editor-in-chief of Mexican financial website Sentido Comun, said Slim might want to tap the United States for new opportunities and cut his exposure in Mexico.

"He must have a Plan B, and Plan B, in my order of thinking, would be to get rid of what's less profitable to lower his size, but not his profits," said Garcia.

Slim could reduce his phone presence in poor far-flung rural areas, Garcia said, adding that America Movil has already been preparing for tighter regulation in Mexico with recent expansion into Europe.

That, however, has been expensive so far.

In 2012, America Movil spent billions of dollars acquiring large stakes in Dutch telecom KPN and Telekom Austria, but the shares of both European companies have tumbled since then.

Televisa has not taken the same risks to date.

The broadcaster, which is the world's biggest producer of Spanish-language content, is set to face greater competition as the reform will launch two new public television channels.

But Televisa, which has sold its soap operas around the globe, could even benefit by selling its content to new channels, noted Michael Corty, a Chicago-based analyst at Morningstar.

"Content is king," Corty said, "and Televisa is definitely a video content leader."

($1 = 12.44 Mexican pesos)

(Additional reporting by David Alire Garcia, Alexandra Alper and Dave Graham; Editing by Kieran Murray and Jan Paschal)