| | |  Business News | October 2009 
Mexico Lawmakers to Vote on Telecom Tax
 Noel Randewich & Tomas Sarmiento - Reuters
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October 21, 2009
Mexico City - Mexican legislators looking to shore up depleted public finances were expected to approve a tax on telecommunications services, a blow to billionaire Carlos Slim, who dominates the industry.
The lower house's finance panel has signed off on the creation of a 3 percent excise tax on telephone and Internet services, markets where Slim's fixed-line operator Telmex (TELMEXL.MX) (TMX.N) leads.
If it is approved by the lower house and then the Senate, the tax could translate into higher prices - possibly leading to lower sales - as telephone companies pass the levy on to customers.
Critics warn the tax would retard the growth of telephone and Internet use among low-income Mexicans but defenders say it will only have a small effect.
"The companies that are most affected will be those that depend most on Mexico for their sales, like Telmex, Axtel (AXTELCPO.MX) and Maxcom (MXCMCPO.MX)," said Martin Lara, an analyst at Vector brokerage.
Slim's America Movil (AMXL.MX) (AMX.N), Latin America's leading cellphone operator, would likely suffer less overall because only part of its operations are in Mexico.
Lara estimated the tax could cause a 3 percent decline in Telmex's sales and a 6 percent reduction in earnings before interest, tax, depreciation and amortization, or EBITDA.
Revenues at America Movil, which also operates in Brazil, Chile, Argentina and other countries in the region, might slip 1 percent, with a 3 percent fall in EBITDA, Lara said.
ALREADY EXPENSIVE
America Movil and Telmex, a former state monopoly, dominate Mexico's telecommunications industry but have come under pressure in recent years by growing competition from small players and from increased regulation as the government tries to pry open up the market.
The Organization for Economic Co-operation and Development says Internet service in Mexico is already expensive and extremely slow compared to other member countries.
Around a quarter of Mexicans use the Internet, many of them only at work or at Internet cafes, according to Mexico's telecommunications regulator.
"I don't think the tax will have a big effect on (market) penetration," John Scott, a researcher at Mexico's CIDE think tank. "The tax's effect will be very small."
The telecommunications tax is part of a fiscal package proposed by President Felipe Calderon in a bid to help Mexico's government reduce its dependence on oil volatile exports.
America Movil and Telmex declined to comment.
Legislators may also increase the value added tax rate by 1 percentage point to 16 percent, which would also affect telecommunications companies.
Telecommunications shares were mixed on Tuesday. Telmex rose 1.06 percent, while America Movil slipped 0.42 percent.
Broadcaster Televisa (TLVACPO.MX) (TV.N), which offers telephone and Internet services through several cable companies across the country, rose 1.92 percent on Tuesday.
Legislators are also expected to increase a sales tax on beer by 1.5 percentage points to 26.5 percent, a proposal that has been opposed by Grupo Modelo (GMODELOC.MX) and Femsa (FMSAUBD.MX), Mexico's two main brewers. (Reporting by Noel Randewich and Tomas Sarmiento)
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