(Bloomberg News) Billionaire Carlos Slim, who used his telecommunications dominance in Mexico to become the world's richest person, faces mounting competition in his home market as rivals team up to increase their power.
Grupo Iusacell SA, Mexico's third-largest wireless carrier, struck a deal this week with Telefonica SA to share mobile-phone networks. Yesterday, Iusacell also won antitrust approval to sell a 50 percent stake to Grupo Televisa SAB, one of Slim's biggest enemies, giving it more money to build out the service.
Slim's Mexican mobile-phone business, America Movil SAB, is counting on two advantages to protect its status. The company can keep customers loyal by giving discounts for calling within the network, and it's poised to be the nation's first carrier to offer fourth-generation service. Even as a unified front, Televisa, Iusacell and Telefonica have to overcome those hurdles to threaten America Movil's 70 percent share of the market.
"I'd still rather be America Movil than anybody else in the telecommunications industry in Mexico," said Christopher King, an analyst at Stifel, Nicolaus & Co. in Baltimore. "I don't see Iusacell having a significant impact on America Movil for a number of years, since they need to invest over the course of the next year or two to become a viable competitor to anyone."
Mexico is America Movil's largest and most profitable market, representing about 40 percent of sales and more than half of operating income. Mexico City-based America Movil represents about 60 percent of Slim's $66.5 billion fortune, according to the Bloomberg Billionaires Index.
America Movil declined to comment. Telefonica, based in Madrid, didn't have an immediate comment.
America Movil's shares have been outperforming those of rivals this year. The stock has gained 6.3 percent in 2012, compared with declines of 26 percent for Telefonica and 4.4 percent for Televisa.
America Movil today agreed to buy a 21 percent stake in Telekom Austria AG from investor Ronny Pecik as part of Slim's strategy to establish footholds in Europe as the continent's debt crisis hurts the value of telecommunications assets. America Movil in May made an unsolicited offer of 2.6 billion euros to increase its stake in Dutch operator Royal KPN NV to 27.7 percent.
America Movil owns Mexico's biggest fiber-optic network, stretching almost 136,000 kilometers (84,500 miles) as of the end of 2011. Telefonica and Televisa, meanwhile, participate in a joint venture with cable carrier Megacable Holdings SAB to operate almost 20,000 kilometers of government-owned fiber, supplementing the networks the companies already own.
Slim's company plans to start offering 4G wireless service, with faster download speeds for high-definition video and other applications, in four or five Mexican cities by the end of this year, Chief Executive Officer Daniel Hajj said in April. Iusacell and Telefonica may have 4G networks running by next year, Iusacell CEO Adrian Steckel said this week.
Iusacell's subscriber base surged 39 percent to 5.4 million customers between September 2010 and December 2011, the only dates for which the company has disclosed its data. America Movil's subscriptions grew 5.2 percent in that span, and Telefonica's numbers were little changed, partially because both companies cleaned up their books to get rid of customers who didn't show much calling activity.
While Telefonica and Iusacell are sharing a network to improve coverage, Iusacell's newfound ambition may end up hurting Telefonica more than America Movil, said Alejandro Gallostra, an analyst at Banco Bilbao Vizcaya Argentaria SA.
Gallostra forecasts that Iusacell's subscriptions will reach 11 million in four years, with some coming from new device users and some from the customer rosters of Telefonica and America Movil. Telefonica can't offer the kinds of "triple play" and "quadruple play" deals that bundle a number of services in one package, he said.
"Telefonica is more vulnerable," said Gallostra, who advises buying America Movil and selling Televisa. "It has never figured out a strategy to be able to compete with America Movil."
Iusacell and Televisa are reviewing the antitrust agency's decision, which approved Televisa's $1.6 billion deal for a 50 percent stake in Iusacell with conditions attached. Some of the conditions are "onerous," Luis Nino, a spokesman at Iusacell, said yesterday.
One condition would require the companies to dissolve their partnership if Mexico's government is unable to auction off airwaves to create a new TV network in the next 24 months. That condition is meant to eliminate the incentive for the companies to use legal tactics to stall the auction, the antitrust agency said.
Iusacell is owned by Ricardo Salinas, who also controls broadcaster TV Azteca SAB. Its partner Televisa is the nation's largest broadcaster. Nino says the requirement is unfair because the companies can't control the timing of the auction, which is under the control of the Federal Telecommunications Commission.
"We shouldn't lose sight of the fact that what we're trying to do is break up a monopoly," Nino said yesterday, referring to Slim's company. "The Mexican market needs competition."