Billionaire Carlos Slim is preparing an aggressive push into Mexico’s television market to take advantage of new telecommunications legislation, even as the changes threaten his dominance in the phone business.
While Slim’s wireless carrier, America Movil SAB, is one of the chief targets of a bill to create more competition in Mexico, proposals to give consumers more options in cable and satellite TV will benefit the company, Chief Financial Officer Carlos Garcia-Moreno said last month. The bill is under Senate review after passing the lower house of Congress in March.
The law offers Slim his best chance in years to get a license to offer pay-TV services over satellite and cable, said Pablo Vallejo, an analyst at Corporativo GBM SAB. Slim, the world’s richest person, is amassing media assets, including Mexican soccer teams and the rights to air the Olympics, to lure customers with exclusive programming.
“They’re going to move really quickly,” said Vallejo, who is based in Mexico City. “They’ll probably start off with really intensive promotions to gain market share.”
America Movil (AMXL) can move so rapidly because it has a path to enter the pay-TV business all lined up, the company’s filings show. It has an option to acquire a controlling stake in Dish Mexico, the nation’s second-largest satellite-TV company, as soon as America Movil gets its TV license. Slim could also easily begin providing television over the fiber-optic Internet connections he has in some neighborhoods.
Before the proposed changes, America Movil’s dominance in phone service prevented it from expanding into the TV business.
“This is the only country in Latin America where the incumbent can’t offer video service,” Garcia-Moreno said at the Bloomberg Mexico Economic Summit in March. “It was paradoxical that a company like America Movil with operations in 29 countries had opportunities to offer service in practically all of them except its home country.”
America Movil fell 1.1 percent to 12.72 pesos at the close in Mexico City. A press official for the Mexico City-based company declined to comment on its specific TV plans.
Slim’s move into pay TV could squeeze profit margins for Grupo Televisa SAB (TLEVICPO), Mexico’s biggest video-service provider, which is increasingly relying on its satellite and cable businesses for growth.
In a filing yesterday, Televisa (TV:US) said the bill before Congress presents risks and opportunities for the company.
While the legislation may cut into revenue and create new competitors for satellite and cable TV, it will also “level the playing field for all participants in the telecommunications market and foster competition, representing an opportunity for the growth of our telecommunications business,” Televisa said.
The telecommunications law would do plenty to threaten Slim’s dominance in the phone business. Under the proposal, regulators could break up companies with market share of more than 50 percent. America Movil has 70 percent of Mexico’s mobile-phone subscribers and about 80 percent of its landlines.
The bill also lifts restrictions on foreign investment in landline phone networks to encourage more challengers to Slim. And it would require America Movil to share parts of its infrastructure and to adhere to rules governing the fees it can charge competitors to connect calls.
Implementing all those changes -- and ensuring that America Movil is following the law -- will take months after the bill is passed, so the company may have to wait until early 2014 or longer to get its TV license, said Alejandro Gallostra, an analyst at Banco Bilbao Vizcaya Argentaria SA (BBVA) in Mexico City.
America Movil has been unable to obtain the video permit under current law because the government has ruled it hasn’t complied with requirements for its connections to rival networks. Under the new bill, the company will have little choice than to follow the rules or face harsh penalties, Gallostra said. The good news is that would allow America Movil to finally qualify for a TV license.
“It doesn’t behoove them to be without TV for a long time,” Gallostra said.
The pay-TV market offers America Movil a new avenue for growth, since more than half of Mexican households still don’t have cable or satellite service. More importantly, Slim’s company needs TV to keep Televisa from luring away its customers with packages of video, voice and Internet service.
America Movil lost 225,000 landline phone customers in the fourth quarter, more than the 164,000 Internet subscriptions it gained.
Without a TV license of his own, Slim has had to improvise. America Movil turned to Dish Mexico in 2008 as a partner, letting the carrier sell satellite service along with its own phone and Internet plans. It charges customers for all three on a single bill.
Dish Mexico, a joint venture of MVS Comunicaciones SA and billionaire Charlie Ergen’s EchoStar Corp. (SATS:US), had about 2.5 million subscribers at the end of 2012, according to Amy Yong, an analyst at Macquarie Securities in New York. That figure could more than quintuple by 2022, making the satellite company an attractive target for an America Movil takeover, she said.
“That’s pretty compelling,” Yong said in an interview. “Dish Mexico already is a pretty good consumer brand.”
Dish Mexico is probably worth about $1 billion, based on the average of three analysts interviewed by Bloomberg. America Movil had 45.5 billion pesos ($3.8 billion) in cash at the end of 2012, so it could more than cover the acquisition of at least 50 percent of the satellite company.
America Movil hasn’t disclosed the full extent of its agreement with Dish Mexico, and it’s possible that it agreed to an acquisition price years ago, or already has debt convertible to a stake in the company, Gallostra said. America Movil’s press official declined to comment on the agreement. A Dish Mexico spokesman also declined to comment.
America Movil already serves wealthier neighborhoods in places like Mexico City with speedy fiber-optic lines, so it could offer television to those consumers through those connections, said GBM’s Vallejo. Dish, meanwhile, can provide attractive deals to the broad swath of poorer Mexicans who don’t yet have pay-TV subscriptions, he said. Dish charges 119 pesos (less than $10) a month for its cheapest subscription.
“They’re going to try to reach all of the customers on the pyramid,” Vallejo said.
America Movil also has exclusive content to offer. Last month it acquired the rights to distribute the 2014 Winter Olympics and the 2016 Summer Olympics in all of Latin America except Brazil. The company also bought 30 percent stakes in two Mexican pro soccer teams last year. And in 2011, it purchased DLA Inc., a distributor of movies and TV programs online and on cable systems, for $50 million.
Slim also could benefit from a provision in the Mexico telecommunications bill that requires broadcasters to offer their signals to cable and satellite providers for free. That would allow America Movil to include some of Mexico’s most popular programming, including prime-time soap operas and soccer matches, without having to pay for the rights.
Still, that situation may change. The lower house of Congress added language in the bill that would prevent a company determined to be dominant from benefiting from the free broadcast signals, even through a third party like Dish. That measure, if upheld by the Senate, might close off Slim’s access unless his market share shrinks in the phone business.
As Slim weighs his options under the new law, he’ll need to strike a balance between retaining his most profitable customers while getting access into the TV market to enhance America Movil’s growth, Macquarie’s Yong said.
“It’s retention and it’s also market-share gains,” she said. “Just like in the U.S., for every incremental service you’re able to provide, you will return that much more.”
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