America Movil Wireless Unit To Be Under Regulatory Scrutiny

Mexican telecom behemoth America Movil SAB (NYSE:AMX) recently announced that its wireless division – Telcel (Radiomovil Dipsa) – has received a notification from the country’s telecom regulator, the Federal Telecommunications Institute (IFT). The notification states that the IFT has decided to evaluate the stringent measures that were imposed on the company on Mar 2014. The authority also declared that it may review these asymmetric regulatory measures.

In 2014, the government of Mexico introduced major reforms within its telecommunications sector. The IFT identified America Movil as a dominant player in this market. Both the company’s wireline division Telmex and the wireless division Telcel control nearly 68% of the Mexican market. As per the IFT’s reformed norms, the maximum hold of a company in the market has been restricted to 50%.

As part of these reforms, the IFT banned America Movil from charging national roaming fees. Further, the company will now have to share its infrastructure with other operators particularly in the local loop (last mileage) segment. Interconnection fees charged by the company were under close scrutiny as well.

In order to avoid stringent regulatory measures, America Movil has taken several steps over last couple of years. In Dec 2015, the company spun-off the wireless tower division Telesites and is likely to divest some non-core wireless and fixed-line assets in the future. In Nov 2015, America Movil received approval from the IFT regarding the prices it can charge as interconnection fees.

In Jul 2016, Telmex decided to gradually lower its rates for calls from land lines to mobile phones by about half by 2018. The pre-tax call rate from landline to mobile phones will come down to MXN 0.342 ($0.0185) per minute in 2018 from the current rate of MXN 0.6763 per minute. The company’s decision to reduce its fixed-line-to-mobile call rates in phased manner reflects its compliance with regulations.

In 2014, Mexican wireless market was mainly dominated by Telcel and Telefonica SA (NYSE:T) , In 2015, U.S. telecom giant AT&T Inc. (NYSE:T) forayed into the Mexican telecom industry with the acquisition of Grupo Iusacell and Nextel de Mexico. Since its entry, AT&T has been gradually expanding its 4G LTE wireless networks in Mexico. Currently, this service is available across 12 Mexican cities. AT&T’s services will be available to 75 million Mexican people by the end of 2016.

In addition, the Mexican cable MSO (multi service operator) Grupo Televisa S.A. (NYSE:T) has received a go-ahead from the IFT to enter the wireless space. However, the company is yet to take any decision in this regard. Moreover, America Movil SAB has decided to invest $6 billion over the next three years in the Mexican telecom market. Of the total, half will be spent on its wireless services alone.

As a result of these developments over the last two years, the IFT has decided to review the whole situation and evaluated the asymmetric measures levied on America Movil, which currently carries a Zacks Rank #5 (Strong Sell).

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