Carlos Slim to break up América Móvil empire
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Carlos Slim is to break up the América Móvil empire he has built in Mexico over nearly a quarter of a century, selling a large chunk of the country’s fixed-line and mobile assets in the face of a sweeping telecoms shake-up.
América Móvil said it would sell off assets to bring it below a 50 per cent market share threshold to prevent it from being classed as the dominant group in the market, and therefore subject to onerous new rules.
Barring such a move, Mr Slim’s empire faces being forced to share infrastructure with rivals for free – something América Móvil has slammed as “confiscatory”.
The company’s fixed-line operator Telmex has about 80 per cent of that market in Mexico and its mobile company Telcel holds about 70 per cent of the mobile market.
América Móvil also said all cellular base stations, including towers and related infrastructure, would be separated from Telcel and made available to other groups, suggesting a spin-off was in the offing.
“This is a strategic way to respond to being declared the preponderant player,” said Alexander Elbittar at Mexican think-tank CODE.
The plan must be approved by Mexico’s independent telecoms regulator, IFT, which said it would need to study the fine print.
América Móvil did not spell out exactly what it was selling, or to whom, beyond that the sale “of certain assets” would be “to a new and solid carrier independent from América Móvil, with experience in the telecoms sector, with sound economic and technical resources”.
América Móvil did not clarify if any buyers had been identified.
Analysts said that América Móvil was likely to follow in the footsteps of US carriers such as Verizon and AT&T and divest subscribers and spectrum in areas with low profitability, rather than to sell any equity in its companies. It could potentially do that because its concessions are granted region by region.
They added that private equity groups might be interested in rural subscribers while companies such as America Tower or SBA Communications could find the infrastructure assets attractive.
“The key question is whether IFT will look at market share on a national basis or on a state or local basis. This will determine whether the spin-off of rural subs will be a sufficient remedy,” Kevin Smithen at Macquarie wrote in a research note. He put average revenue per user (Arpu) for pre-paid mobile phones in rural Mexico at $4 to $5 per month, compared with about $10 for postpaid clients in big cities.
América Móvil stock has fallen more than 11 per cent in Mexico and more than 10 per cent in New York this year, but Mr Smithen said he expected the asset sale announcement to go down well with investors – “especially the separation of its towers . . . [which] could drive 6 to 8 per cent earnings per share accretion”.
The news breaks weeks of silence from Mr Slim’s camp about what it planned to do in the face of the sector shake-up.
In a statement that hinted of bitterness behind the move, América Móvil said its investments over the past 23 years had resulted in “important and continuous productivity increases”. Telmex and Telcel assets would be sold at “market conditions at their commercial value”, it added.
The telecoms reforms, which should be approved in Congress this week, give the green light to Telmex to move into television services, which it is barred from doing. If América Móvil remains the predominant player, it would first have to meet the new regulations designed to level the playing field for other companies.
Mexican finance house Monex said the divestment would be positive in the medium term, as it expects América Móvil “will diversify into new segments that are less saturated and have higher growth rates”. It noted that growth rates in pay TV over the past five years were 18 per cent, compared with 3.4 per cent for mobile telephony.