America Movil Weighs Options in Mexico After Legal Changes

Jun 25, 2014 9:03 pm ET

(Updates with group members starting in third paragraph.)

June 25 (Bloomberg) -- America Movil SAB, the mobile-phone company controlled by billionaire Carlos Slim, created a committee to study strategic options in the wake of regulatory changes in Mexico, where it gets almost half its profits.

The group will evaluate “various structural, commercial, technological and other options available to it, as well as the opportunities offered by the new Mexican regulatory framework,” the company said today in a filing.

The eight-member committee includes America Movil Chief Executive Officer Daniel Hajj and Hector Slim, head of the company’s Telmex landline unit, according to an e-mailed statement from a press official.

America Movil shares have dropped 15 percent this year, the second-worst on Mexico’s benchmark IPC index, on speculation that the government’s plan to boost competition in the phone industry will hurt the company’s profits. President Enrique Pena Nieto won approval last year for a law with tougher penalties for dominant companies, and his new proposal this year would block America Movil from offering TV service for at least two more years.

“We now know the initial impact of the regulation, and I think this committee will try to set a strategy to mitigate these effects,” said Julio Zetina, an analyst at Vector Casa de Bolsa SA in Mexico City. “The important part is: What are they doing to defend themselves? What new businesses could they enter?” He has a hold rating on America Movil shares.

Network Sharing

Slim’s company has about 70 percent of the nation’s mobile- phone subscribers and 80 percent of its landlines. The Federal Telecommunications Institute, created by the law passed last year, found the company dominant in the industry in a March ruling and ordered it to share network infrastructure with rivals and reduce the fees it charges them. America Movil, based in Mexico City, has challenged the ruling in court.

The rest of the new committee comprises board members Alejandro Soberon, CEO of entertainment company Corporacion Interamericana de Entretenimiento SAB, Pablo Gonzalez Guajardo, CEO of Kimberly-Clark de Mexico SAB, America Movil’s Director of Operations Oscar Von Hauske, and Ernesto Vega Velasco.

America Movil’s Chief Financial Officer Carlos Garcia- Moreno and General Counsel Alejandro Cantu are also in the group.

Morphing Company

America Movil has gone through various configurations since Slim acquired Telefonos de Mexico, the state phone monopoly, in a 1990 privatization sale. Telmex, as the landline carrier is known, spun off its wireless unit a decade later to create America Movil. Both companies grew internationally with acquisitions throughout Latin America, and America Movil acquired full control of Telmex, its former parent, in 2012.

A Telmex reorganization announced in 2011 may provide a clue to the changes America Movil’s committee is now considering. At the time, Telmex said it planned to create a separate unit, Telmex Social, for its customers in rural and marginalized communities.

With the new division, representing about 10 percent of its subscribers, Telmex sought for regulators to view it as two companies -- a utility for customers who have no other phone provider, and an urban telecommunications provider engaged in fierce competition against cable and fiber-optic operators, analysts at Banco Santander SA said at the time. The creation of Telmex Social required regulatory approval, which was never granted.

Last year, Telmex announced plans to split off its non- telecommunications divisions, which handled real estate and equipment logistics, into a new company. In January, the company denied a report by newspaper El Financiero that the transaction was designed to circumvent the new telecommunications law.

America Movil rose less than 1 percent to 12.92 pesos at the close in Mexico City, before the committee’s formation was announced. Slim’s holdings of the company represent almost half of his $69.4 billion fortune, according to the Bloomberg Billionaires Index.