America Movil to Challenge Mexican Ruling - Analyst Blog

America Movil S.A.B. AMX, the undisputed leader in the Mexican telecom market, has decided to file an injunction against the recent ruling of the Mexican antitrust regulator classifying it and its group of companies as a "preponderant economic agent" in the Mexican telecom market. America Movil is currently a Zacks Rank #3 (Hold) stock.

Earlier this month, Mexican regulatory authority the Instituto Federal de Telecomunicaciones IFT, identified telecom behemoth America Movil 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 a 70% market share. Other major wireless operators in Mexico include Telefonica S.A. TEF and NII Holdings Inc. NIHD.

The regulator considered America Movil and its fixed and mobile subsidiaries Telmex and Telcel, conglomerate Grupo Carso and banking company Grupo Financiero Inbursa as a single holding entity.

However, the company countered the ruling by stating that all the companies are separate entities and for that the parent company cannot be judged as dominant. 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.

The new telecommunications industry reform bill of the Mexican government may pave way for Televisa to capture a large chunk of the wireless market share. 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. However, the proposed regulation will defer America Movil's television expansion plans for at least two years.

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 of new operators. This in turn will reduce the price of telecom and broadcasting services.