Mexico's Slim will cut phone fees to skip fine

MEXICO CITY Thu May 3, 2012 7:06pm EDT

Businessman Carlos Slim looks on after receiving the Medal of Honour and Merit of the Mexican Red Cross from the President of International Federation of Red Cross and Red Crescent Tadateru Konoe during an event supported by the Red Cross in Mexico City February 21, 2012. REUTERS/Tomas Bravo

Businessman Carlos Slim looks on after receiving the Medal of Honour and Merit of the Mexican Red Cross from the President of International Federation of Red Cross and Red Crescent Tadateru Konoe during an event supported by the Red Cross in Mexico City February 21, 2012.

Credit: Reuters/Tomas Bravo

MEXICO CITY (Reuters) - Mexico's competition watchdog has ordered Carlos Slim to cut charges he levies on mobile phone competitors in exchange for dropping a record fine, exacting a small concession from the country's dominant telecoms mogul.

Slim's cash cow, mobile giant America Movil, said on Thursday it had agreed with Mexico's Federal Competition Commission (Cofeco) to cut by about 20 percent its interconnection rates, the fees it charges rivals to tap its mobile network.

Analysts said the deal was a minor setback to Slim, and shares in America Movil even rose slightly. The settlement follows a series of steps by regulators to curb the power of the tycoon, who controls some 70 percent of Mexico's mobile market.

The latest decision ends a battle over a fine worth nearly $1 billion handed down by the regulator in April 2011 against America Movil's local brand Telcel. Then, the regulator found that Slim's company charged unfair fees to competitors.

"On paper, we can't say that this is a huge blow to Slim. But it is an achievement that avoids a long and uncertain legal fight. Those battles have left the sector paralyzed," said Carlos Ramirez, an analyst with the Eurasia Group.

Slim, the world's richest man, counted on a 0.39 pesos ($0.03) per minute mobile-to-mobile interconnection rate last year. The Cofeco decision this week will trim that to 0.31 pesos per minute in 2014.

The cut was in line with what Telcel had agreed to with several local operators late last year.

But it was a big drop from what America Movil was charging at the start of 2011, when the interconnection rate for many of its rivals was about 0.95 pesos ($0.07) per minute.

That cut shaved about 3 percent, or roughly $390 million, from America Movil's quarterly revenue, executives told analysts on a call last year. The company does not publish details on how much money it makes from interconnection fees.

Markets had been betting for weeks that the company would escape the big fine, and its share price has risen by more than 20 percent since early March. Shares in America Movil were up by 1.48 percent to 17.88 pesos at the close of trading.

Slim has been at the center of regulatory efforts to spur greater competition in Mexico, where a number of key industries are in the hands of a few powerful families.

Earlier this year, the Organisation for Economic Co-operation and Development said Mexicans were overcharged $13.4 billion a year between 2005 and 2009 for fixed-phone, mobile and broadband services, a market dominated by Slim.

STEP BACK

A spokeswoman for America Movil said it had agreed to the regulators' terms, and Cofeco noted that if it failed to comply, it would be fined up to 8 percent of Telcel's annual revenue.

Nevertheless, the fact that America Movil had managed to escape the big fine raised doubts about the regulator's ability to punish future wrongdoing by the company.

"This is a step back for the industry," said Carlos Hernandez, a telecommunications analyst at consultancy the Competitive Intelligence Unit.

"(Slim) got what he wanted: they were able to push the fine back for a year and in the end won't have to pay it," he added.

That fine followed a four-year probe by Cofeco into Telcel, which had kept the watchdog at bay for months.

Telcel appealed the sanction and managed to ban Cofeco's president, Eduardo Perez Motta, from taking part in a second vote, after arguing he made biased comments to the media.

Yet for some, the deal between Cofeco and America Movil suggested Slim was looking to cooperate more with regulators.

In 2012, Telcel will have to cut the interconnection rate to 0.36 pesos per minute, and has also pledged to work with Cofeco to carry out further reductions thereafter, the watchdog said.

Another part of the settlement requires Slim to let the regulator know about its planned promotions and to offer customers discounts to call rival networks, matching existing packages for calls within its own network.

"In some respects the past year's events also indicate a more constructive relationship between America Movil and the authorities," said Richard Dineen, a telecom analyst with HSBC.

Mexican regulators and the supreme court have hurt Slim's bottom line several times in the last 12 months or so.

"No doubt, in the last few months we have seen a great convergence of decisions regulating the telecoms industry," said Cofeco president Perez Motta. "It sends a signal that competition is healthy."

Both Slim's Telcel and home phone giant Telmex have counted on charging rivals high fees when they cross his phone network.

Last June, the telecoms regulator Cofetel slashed the call fees Telmex charges rural and suburban communities where it is the only operator by 95 percent.

America Movil, the top provider of mobile services in Latin America, had 66.7 million subscribers in Mexico as of March. ($1 = 12.9722 Mexican pesos)

(Reporting by Patrick Rucker, Tomas Sarmiento and Mica Rosenberg, additional reporting by Elinor Comlay; Editing by Gerald E. McCormick, Matthew Lewis, Leslie Gevirtz and M.D. Golan)

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