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 Business News | April 2008 
In Hard Times, Mexico's Telmex Wants TV Rights
 Chris Aspin - Reuters
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Mexico City - Mexico's Telmex, the country's leading but stagnant fixed-line phone operator, is facing hard times from ever stiffer competition and wants to offer television services to grow.
Telmex's Chief Financial Officer Adolfo Cerezo said on Wednesday that telecommunications convergence, with telephone operators and broadcasters moving to provide the same services - TV, Internet and phone calls - was driving down prices.
Cerezo predicted that prices would come down further and said Telmex should be allowed to offer TV to its customers - a controversial issue in Mexico because of its dominance in the fixed-line industry with 90 percent of all lines.
"We see prices continuing to decrease substantially as a result of technological advances, competition and the convergence of networks," Cerezo told a conference call with analysts.
Competition from upstart fixed-line players like Axtel and Maxcom and cable TV operators is eating into the profits of Telmex, controlled by billionaire Carlos Slim.
On Tuesday, Telmex posted a 27 percent decline in first-quarter net profit for its Mexican operations as revenue slipped 5.5 percent amid tougher competition and frozen tariffs. Its lines in service fell to 17.795 million from 18.284 million a year ago.
Cerezo said Telmex, which has an operating concession that can be read to mean it is banned from going into broadcasting, should be able to offer television just as cable TV operators can offer the voice and data services.
"Currently all cable TV operators can offer voice and data services to their video customers. We do not have the same opportunity at present," Cerezo said.
Mexico's Communications and Transport Minister Luis Tellez told Reuters earlier this month that Telmex will be allowed to enter the TV industry later this year, once it has complied with some competition conditions.
The government opened an investigation last year into dominance and monopoly practices in broadband Internet and fixed line markets. Telmex has 60 percent of the high-speed Internet market and 90 percent of fixed lines.
The probe is ongoing and if Telmex is declared officially "dominant" it could be forced to reduce its rates.
Telmex's Cerezo said the telecommunications market should be seen in its new broad sense with 98 million subscribers in the mobile, fixed and cable market, which made Telmex just one player alongside the competition.
Telmex, he said, had 17.8 million clients, or 18 percent of the total telecommunications market.
"We must recognize that the telecommunications market includes three old components: fixed telephony, mobile telephony and video, which includes cable TV and satellite providers," he said.
"Even when you describe the telecommunications market in the most traditional terms, and look only at fixed telephony, it is clear that Telmex has competition," he said in an open dig at the probe by the government's competition watchdog.
Rivals of Telmex, which was snapped up by tycoon Slim in a 1990 privatization of a state-run monopoly, have complained to the anti-monopoly commission that the giant wields too much power in the market, hurting competition.
Francisco Gil, head of the Mexican unit of Spain's Telefonica, slammed rival Telmex on Wednesday.
"Beyond the disproportionate cash flows that the monopoly generates, the lack of competition and the epidemic of predatory tactics, what we have is a state within a state," he said at a forum.
Telmex is currently running a TV advertisement campaign inviting competitors to invest more in rural areas in Mexico where Telmex is often the only player and Cerezo rebuffed the notion that it thwarts competition.
"For 18 years, Telmex has been part of a sector that was open to competition in every market where we operate, except for long distance services where competition begun more than 11 years ago," Cerezo said.
But analysts are bleak about the outlook for Telmex, which was downgraded by Credit Suisse from "neutral" to "underperform" on Wednesday after the weaker-than-expected results.
"The outlook is complicated: the resolution over dominance and the modification of its concession to offer TV services are pending, and there is also the strong competition," Actinver brokerage said in a note.
Telmex shares fell 3 percent in opening trades on Wednesday and then did a "U" turn to advance 1.96 percent to 19.29 pesos. Its New York-traded stock was up 2.05 percent at $36.83.
(Additional reporting by Tomas Sarmiento) |
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