Strict Telecom Laws to Check Mexican Duopoly - Analyst Blog

The government of Mexico has decided to reform its telecommunications sector, predominantly the wireline and wireless phone segments and the cable and satellite TV segments. The telecommunications sector in Mexico is highly monopolistic with one or two companies dominating the market.

The Mexican government, however, intends to increase competition by encouraging the entry other operators. This in turn will reduce the costs of telecom and broadcasting services.

In this regard, regulator Federal Telecommunications Institute, which is popularly known as IFT, identified telecom behemoth America Movil S.A.B. AMX and broadcasting giant Grupo Televisa S.A.B. TV as the dominant players in the respective markets.

America Movil's wireline division, Telmex, currently control around 80% of the Mexican market, whereas its wireless division, Telcel, holds about 70% market share. On the other hand, Televisa currently dominates approximately 70% of the Mexican broadcasting and pay-TV market. The IFT wants to restrict the maximum hold of a company in a market to 50%.

As stringent measures, IFT will ban America Movil from charging national roaming fees. Further, the company will have to share its infrastructure with other operators particularly in the local loop (last mileage) segment. Interconnection fees levied by America Movil will also be closely monitored.

Similarly, Televisa has to share its broadcast towers with competitors for a stipulated amount of fees. Moreover, Televisa will not be allowed to acquire exclusive broadcasting rights of popular sports and entertainment events such as world cup football.

The new telecommunications industry reform bill of the Mexican government may pave the way for Televisa to capture a large chunk of the wireless market share. In 2010, Televisa abandoned its wireless venture with Nextel de Mexico, a subsidiary of NII Holdings Inc. NIHD owing to prolonged legal disputes.

Currently, the company holds a 50% stake in Grupo Iusacell, a small wireless operator of Mexico. However, Bloomberg reported that Telefonica S.A. TEF is negotiating with Televise and Grupo Salinasto, the remaining 50% stake holder of Iusacell, to acquire the company.

The new regulations will also allow America Movil to enter the broadcasting market of Mexico, which has been controlled by Televisa for a long time. This may substantially reduce Televisa's advertisement revenues. In fact, America Movil had been eager to enter this market with its existing telecom network earlier.

Currently, both America Movil and NII Holdings carry a Zacks Rank #3 (Hold) while Televisa and Telefonica carry a Zacks Rank #4 (Sell).