UPDATE 3-Mexico takes steps to weaken Slim's hold on telecoms

Fri Dec 20, 2013 9:00pm EST

By Elinor Comlay

MEXICO CITY Dec 20 (Reuters) - Mexico's telecoms regulator has taken the first steps to weaken Carlos Slim's hold on the phone market, setting out plans to make the billionaire' s fixed-line provider share part of its network.

Slim's company America Movil has around 80 percent of the Mexican fixed-line market through its Telmex unit, and the Federal Telecommunications Institute (IFT) said the process of opening up the top provider's network had begun.

The IFT was created earlier this year when the government gave the regulator sweeping powers to open the phone and broadcasting market to greater competition.

Slim, who began 2013 the world's richest man, is a symbol of entrenched interests in Mexico, where much of the country's wealth is concentrated in just a few hands.

America Movil, Latin America's biggest telecommunications company, also has about 70 percent of the Mexican mobile market, and the government has pledged to explore all the options available to loosen Slim's hold on the industry.

The IFT said in its first quarterly report it had started the procedure whereby the dominant operator would have to share with other operators the so-called last mile of its network that connects phone and Internet directly to customers.

The process is known as local-loop unbundling and was part of the reform passed earlier this year.

Enrique Melrose, a former commissioner of previous telecoms watchdog Cofetel, said the unbundling would help, but needed to be managed carefully. Ideally, he said, competitors ought to be allowed to connect their lines with Telmex's main facilities, which could prove contentious.

"This is a step in the right direction. But the practical implementation may take time," Melrose told Reuters. "We'll have to see who's ready to compete with (Telmex)."

A spokeswoman for Telmex declined to comment.

The Mexican government's reform gives the IFT the power to break up companies to spur competition, though Gabriel Contreras, the head of the watchdog, has said that power would only be used as a last resort.

Analysts say breaking up Slim's companies would be risky and could leave the industry short of investment. Some of his competitors, however, say that without that kind of radical step, major investors may stay away from Mexico.

Officials close to America Movil say privately they are confident the government is unlikely to order any quick breakup, arguing tougher regulation should make it unnecessary and will allow competitors to get a stronger foothold on the market.

PREPARING FOR REFORM

Slim's company, which hopes to obtain a TV license as part of the reform, has been trying to prepare for allowing other operators onto its network.

America Movil already owns several TV and film production companies and provides pay-television services outside Mexico.

The government has kept Slim out of pay TV in Mexico to date, and it is unclear whether he will be allowed in because of concerns his financial muscle could crush rivals.

A broadcast license in Mexico would allow Slim's company to offer triple-play packages that bundle phone, Internet and television and could go some way to offset lost profit as it gives up its exclusive hold on its phone network.

The phone company is also likely to participate in spectrum auctions that will be held as part of the reform effort, as it seeks to upgrade its network.

Rival Telefonica - which operates Mexico's second-biggest cellular phone service - has already signed agreements to rent its network to a retail company and Virgin Mobile, who will act as mobile virtual network operators (MVNOs) and America Movil could follow suit.

America Movil's network helped it to report a core profit of 30 billion pesos ($2.31 billion) in the third quarter, making up almost half the company's total core quarterly profit.

America Movil shares, up 1.16 percent on Friday at 14.83 pesos, have recovered some losses since the initial announcement of the reforms.

The shares, down more than 10 percent on the year some months ago, were down only 0.47 percent year-to-date on Friday.

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