Mexico: Slim To Split Telco in Two

| Mar. 11, 2011 |

Published by Minyanville

Following heavy criticism of Carlos "world’s richest man" Slim’s monopoly over Mexico’s communications industry, the billionaire’s Telmex is to split into two companies, one of which will serve rural areas where his billionaire competitors are yet to invest.

The company—owned by America Movil (AMX) and also owned by Slim—currently runs about 80% of Mexico’s fixed lines. The new offshoot, Telmex Social, will set up fixed lines in the 46% of the country which is not served by competitors due to a lack of economic interest.

The new company would pay the same interconnection rates to Telmex as competitors. It is these interconnection rates which fuelled the current dispute between Slim’s companies and the country’s major broadcasters Televisa (TV) and TV Azteca, as reported a fortnight ago (see Mexico: World's Richest Man has Busiest Week Ever).

Slim pulled advertising from Televisa as rates increased 20%; this was disputed by the broadcaster which claims the increase is standard practice after initial discounts and applies across the board. The saga was intensified when TV Azteca refused to sell Slim’s companies advertising space unless his phone companies offered lower connection rates to them.

The dispute—dragging on longer than many expected—is being viewed as a personal one between the country’s top three billionaires: Slim versus Emilio Azcárraga (Televisa) and Ricardo Salinas (TV Azteca). "The veneer of friendship is disappearing," Eduardo Garcia, founder of Sentido Comun, told the Wall Street Journal. "Mexico's billionaires are battling over the prize using all the weapons at their disposal."

Despite being embroiled in a row with Slim, TV Azteca saw its shares rise to a three-month high of 8.74 pesos after Credit Suisse (CS) raised its 2011 Ebitda forecast to $409.5m, thanks to TV Azteca's 16% revenue increase in 2010.

Slim will be happy regardless after topping Forbes’ Rich List for the second year running, with gains in his personal fortune of $20 billion in a single year. The value of his companies is now $74 billion according to the magazine, “nearly twice the projected 2011 gross domestic product of Lebanon, from where Slim's father fled to Mexico in 1902 to escape Ottoman rule,” according to Reuters. Clearly the 71-year-old isn't slowing down.

Nafta Redux: Links between the US and Mexico took a slightly warmer turn as the two countries finally agreed to settle the ‘truck feud’ that has banned Mexican trucks crossing north of the border for 17 years. Mexico will cut 50% of tariffs on $2.4 billion worth of US products annually. “The 50% remaining will be lifted once the US grants the first authorization for a Mexican truck to operate [in the US],” said Economy Minister Bruno Ferrari. This is due within 60 days.

The ban on Mexican trucks entering the US was a violation of the North American Free Trade Agreement (NAFTA), but was encouraged by labor unions in the US. The International Brotherhood of Teamsters has long said that Mexican trucks are unsafe as well as threatening US jobs.

However, freight companies in the States are warming to the idea. "A lot of what [the agreement] does is have those companies meet the same requirements that American companies have to meet, especially safety and environmental," said a spokesman for ABF Freight System, one of the country’s largest haulers. "And now there's an opportunity to open up the market for truckers wanting to take American products into Mexico."

The agreement was the result of Mexican President Felipe Calderón’s visit to Washington last week for talks with Barack Obama. This came itself a week after scathing comments by the Mexican premier in a local newspaper and a generally fractious relationship between the neighboring countries, mostly centered on Mexico’s inability to reduce its drug violence.

Mexico Inflation: Mexico’s central bank is likely to keep its interest rate unchanged at 4.5%, though it voiced concern that Middle East unrest, commodities prices across the globe, and bad weather locally may add to inflation worries in 2011.

“This is a little more hawkish than previous statements,” Citigroup economist Sergio Luna told Bloomberg. “We’re expecting a rate increase in October and now we feel even more convinced of that.” However, not all analysts are agreed on the timeframe; Santander’s Rafael Camarena expects policy makers to raise the rate in January 2012.

Inflation hit a 14-month low in February, despite food price increases. Banco de Mexico forecasts 3-4% inflation in the first and second quarters of 2011. Consumer prices rose 0.38% in February from January, and 3.57% from February 2010.

Monterrey-based cement manufacturer Cemex (CX) will offer up to $1.38 billion of notes convertible to US shares, in order to raise the funds necessary to pay off large debts. The offer will be made in two stages, one worth $600 million maturing in 2016 and another of the same value maturing in 2018. Shares slumped on Wednesday with the news, down 2.8% to $8.65 on the NYSE.