Slim's telecom deal may stir competition concerns

MEXICO CITY (Reuters) - Mexican entrepreneur Carlos Slim’s plan to consolidate his telecom operators is seen as a defensive move to save costs, but the company’s massive size could stir concerns about competition.

Slim's America Movil AMX.N launched a share offer worth more than $20 billion on Wednesday to buy Carso Global Telecom TELECOMA1.MX, the holding company through which the Slim family controls fixed-line operator Telmex TELMEXL.MX and regional company Telmex Internacional TELINTL.MX.

The move is meant to create a much larger and stronger operator, extending from the United States to Argentina, able to offer wireless, fixed-phone, Internet and video services to counter rising competition from regional rivals such as Spain's Telefonica SA TEF.MC.

“The recombination of Slim group’s wireless and wireline assets makes a lot of strategic sense,” Deutsche Bank analyst Rizwan Ali said in a report. “This proves our contention that a pure wireless business model is going out of fashion.”

The combined companies could have sales of $48 billion across Latin America this year, Morgan Stanley said in a report.

Some analysts think the deal could save Slim at least $2 billion in costs in the short term, although it is not clear yet how much more he could save over several years.

“Formally combining its pan-Latin American operations with those of Telmex Internacional would allow both companies to leverage each others’ networks, thereby reducing operating and capital expenditures,” Morgan Stanley analyst Vera Rossi said.

America Movil AMXL.MX shares plunged nearly 6 percent on Thursday due to the dilution it will suffer from issuing shares to fund the transaction.

Some investors were also concerned America Movil might be paying a bit too much for Telecom and Telmex Internacional, both of which have had less attractive performance.

“We believe America Movil investors will see it as an imposition by the control group to have to assume the wireline and triple-play businesses of Telmex and Telmex Internacional,” said BBVA analyst Andres Coello in a note.


Authorities across Latin America have yet to approve Slim’s plan. In Mexico, telephone regulator Cofetel and competition watchdog Cofeco see his companies as heavily dominating their markets.

Telmex has more than 80 percent of Mexico’s fixed-line market, while America Movil has a 70 percent market share in mobile communications in Mexico, where Slim has fought court battles to resist proposed regulatory changes to bolster competition.

“We believe Cofetel and Cofeco will see this as a unique opportunity to negotiate with America Movil and Telmex to get some of their regulatory proposals accepted by the companies before being allowed to complete this transaction,” Ali said.

The deal is expected to be approved in Brazil and other South American markets where Slim’s companies face more competition.

A source from Cofeco said the agency could not comment until being formally notified of the transaction.

“We are waiting for their business plan,” the source said. Cofetel was not available for comment.


America Movil is following in the steps of other sector giants, such as Telecom Italia SpA TLIT.MI or Deutsche Telekom AG DTEGn.DE, to merge operations to keep up with fast-changing technologies and dodge blows from rivals.

Slim’s telecom empire has lost some of its luster in recent years as fixed-line users migrated to cheaper cell phones or telephone services via broadband bundles offered by smaller cable television operators.

An upcoming government auction of frequency spectrum is likely to lure at least one new wireless competitor to the Mexican market and strengthen the reach of existing rivals.

Media company Televisa TLVACPO.MX has said it may bid for spectrum, raising the possibility the company could soon offer packages combining fixed-line and mobile telephone, Internet and television.

“Convergence leads companies to consolidate,” said telecommunications consultant Ernesto Piedras. “They saw it was more efficient to operate as one company again.”

Mexico’s ban on foreign companies controlling fixed-line telephone operators has crippled competition. A Congress initiative to open that market to international investors is in the works, but there is no guarantee it will be passed.

“I would expect regulators to say that allowing such an operation would be anti-competitive for the rest of the operators (in Mexico). If full foreign investment is allowed (across all markets), I wouldn’t see a problem,” Piedras said.

(Reporting by Cyntia Barrera Diaz; additional reporting by Tomas Sarmiento; editing by Richard Chang and Andre Grenon)