Published by Minyanville

World’s richest man Carlos Slim may have a wry smile on his face this weekend as he finds himself on the right side of an anti-competition ruling.


The Mexican billionaire runs the country’s telecoms industry, controlling 80% of the country’s fixed lines and 70% of its cell phones with companies under America Movil (AMX). He has regularly found himself the target of anti-competition legislation.


This time round, it was his rivals—Emilio Azcárraga Jean of Televisa (TV) and Ricardo Salinas Pliego of TV Azteca and lusacell—who have suffered at the hands of the Federal Competition Commission who voted 3-2 against a deal whereby Televisa would acquire a 50% stake in lusacell for $1.6 billion, according to some local press.


Though lucacell is a relatively small player in the cellular market, the deal would have bought Azcárraga’s broadcasting companies entry into the lucrative telecoms sector, muscling in on Slim’s long-held territory.


The ruling hasn’t officially been announced, though it has been reported by sources that have spoken to Mexican daily El Universal as well as Dow Jones. Despite this, Mexican magazine Proceso as well as newspaper Excelsior have contradicted news of the rejection.


Neither Televisa nor lusacell have made any official comment and the commission has said both parties will be notified before any announcement is made, the deadline for which is Feb. 7.


Televisa’s shares dropped 3.2% on the news, its lowest price in over three months. The company has already spent $1.6 billion on the attempted acquisition for which it is likely to receive no return, as there is no clause in the April 2010 agreement which allows Televisa to claim the money back if the government blocks the deal.


There is still the opportunity for an appeal, and this investment, coupled with the potential $1.6 billion loss, could be offset by income from upcoming elections and Olympic games.


The anti-competition commission had to weigh up the huge boost the merger would give the broadcasting giant in that sector against the formidable monopoly Slim has in the telecoms sector. “The case,” writes Pan Kwan Yuk in the Financial Times, “is a sad reminder that Mexico, for all the progress that it has made, remains an economy dominated by monopolies and oligopolies.”


The battle between the rival companies has been dominating the headlines for some time in Mexico, as the telecoms and broadcast industries converge with, for example, voice-over-Internet phone calls and the streaming of television programs. With the lines between the markets blurred, the rival camps are encroaching on each other’s territory with some gritty results.


The competition became farcical last year as Slim’s enemies in April took out adverts in the country’s press parodying The Simpsons. Entitled “The Slimsons,” they slammed the cost, reliability and general services offered by Slim’s telephone companies overseen by America Movil, Latin America’s largest cellphone provider.


Slim may have the last laugh as the company may be about to grow even further. Analysts predict an upcoming $14 billion investment to grow the network in both Mexico and Brazil. The company announced a $2.5 billion bond offer last week, with maturities between one and 40 years.


“Smartphone data usage is growing 30-40% a year [around the world] but in Mexico, it’s just at 10%,” Julio Zetina, an analyst with Vector Casa de Bolsa in Mexico City, told Forbes. “They need to build a whole bunch of new antennas, expand Telmex’s fiber optic network, through which data can also connect from antenna to antenna, or do both.”


One of the big projects the company has already invested in is an under-sea cable transmitting data from the US to Brazil, expected to cost $540 million.


Interest Rates

Mexico’s Central Bank has kept its benchmark interest rate at 4.5%, as expected pretty much unanimously by analysts.


The peso has declined 12% against the US dollar over the past six months and the inflation rate was up 3.82% in December 2011 from 3.14% three months earlier. Growth in 2012 is expected at 3.5%, according to Central Bank Governor Agustín Carstens.


“The next move for interest rates is more likely to be down that up,” wrote London’s Capital Economics in a look ahead to 2012 for investors. “The recent increase in inflation has been due to an increase in food inflation and not due to the depreciation of the peso in the second half last year as some have speculated. Moreover, it seems to be only a matter of time until demand from the US weakens. Accordingly, we continue to expect rates to be cut … to 4% later this year.”


Retail Sales Rise

Sales rose 7.5% in November from the same period last year, dwarfing forecasts of around 5.8%. Nomura analysts Benito Barber and Tanuja Gupta believe this is a one-off.


“While Mexican domestic demand is still strong,” they write, “it faces risks from abroad. A recessionary environment in the US and the Eurozone could cause domestic consumption to fall. For now the recent numbers coming out from the US is good news for Mexico. As long as the US avoids a recession, we think Mexico should be able to grow at least by the potential rate of 3%.”