Feature Article

July 10, 2014

America Movil to Divest Assets, Avoiding a Government Breakup and Forced Interconnection Policies

It is helpful to remember that non-linearity operates in the telecommunications business as it does in the regulation of the telecom business. Consider, for example, the new move by América Móvil, facing what some would say is harsh new regulatory treatment designed to limit its market share and influence.

New legislation allows Mexican communications regulators to force the breakup of any firm with more than 50 percent market share in telecommunications or television markets.

América Móvil controls about 70 percent of Mexico’s mobile-phone subscribers, and about 80 percent of Mexico’s fixed network accounts.

América Móvil plans to divest enough assets to avoid triggering new rules that would apply to it as a more-dominant company.

The new Federal Telecommunications Institute (IFT) has the authority to force companies to divest assets if they have too much control over the industry.

Also, a new law, applying to such dominant service providers, would have forced América Móvil to share parts of its network with rivals, and also eliminate the interconnection fees it charges other operators to connect calls to its customers.

Those provisions would enable América Móvil competitors to operate at lower cost.

The threat of such moves has cost América Móvil about $17 billion in market value since 2012.

América Móvil has decided to break itself up voluntarily, relinquishing enough customer accounts and assets to escape the measures that would apply to it as a firm with more than 50 percent share of telecom market segments.

The company will need to divest about 21 million mobile users and four million fixed network accounts in order to reduce its market share below 50 percent, Martin Lara, an analyst with Corp. Actinver SAB, estimates.

As outlined, the company will sell assets in Mexico to a new independent operator to cut its market share below 50 percent, avoiding regulations imposed on it as the dominant player in the market.

There are two ways to view the move: Regulators say the divestitures are evidence of success of the new pro-competitive policies, while others conjecture that América Móvil will simply sidestep the new rules by reducing its Mexico operations and deploying capital elsewhere.

The point is that in business and in regulatory efforts, markets and firms adapt to new obstacles in ways that might not have been foreseen, sometimes obviating the effect new rules are supposed to have on concentrated markets.

Edited by Adam Brandt

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