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Mexico's Big Cellular Problem: Carlos Slim
 Crayton Harrison - Bloomberg News
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May 28, 2010
Mexico is dead last among Latin America's five largest economies in cell phone use per capita. The problem, government officials say, is billionaire Carlos Slim. His company, America Móvil (AMX), controls 71 percent of Mexican cellular traffic.
For years, the government and mobile industry have tried to reduce that dominance. Yet when the results came in from a May 25 auction of new radio spectrum intended to break open the market, it looked like Slim had further tightened his grip.
Slim's spectrum gains in the auction moves his company closer to offering 4G service. If he does, America Móvil's network would move data up to four times faster than the 3G service that an investment group including Spain's Telefónica, NII Holdings (NIHD), and Mexican broadcaster Televisa (TV) hope to launch with the spectrum they won in the bidding.
Mexican regulators had hoped the added spectrum capacity would bolster Slim's rivals. One goal: To raise the 77 percent of Mexicans who have a wireless device closer to the 90 percent average of big Latin American nations. However, some foreign investors declined to enter the bidding. "What worried [potential competitors] the most was the regulation in Mexico," said Gonzalo Martínez Pous, a member of the country's Federal Telecommunications Commission.
President Felipe Calderón's government had invited foreign bidders. Deutsche Telekom, China Mobile, and Mumbai's Reliance Communications declined to participate. "It's a disappointment for the government," says Christopher King, an analyst at Stifel Nicolaus.
Potential competitors voiced concerns about high payments to connect to Slim's mobile network and unclear rules on how companies could share infrastructure, said Martínez Pous.
Mexicans pay extra fees to call people on different cell networks. That makes America Móvil the best option for many Mexicans because it is by far the biggest. The government has tried to force Slim's company to levy lower interconnection fees. America Móvil sued to block the plan; the case is now tied up in court. In a statement, Móvil said Mexico is very competitive, that the company leads the market because of its superior coverage, and interconnection fees are negotiated between companies.
The status quo is good news for Slim, who is worth an estimated $14.6 billion. Profit margins for wireless service in Mexico at his company are the highest among Latin America's seven largest countries and ranks fifth among carriers in 50 countries worldwide, reports Merrill Lynch (BAC).
The bottom line: Cellular phone service is a profitable business in Mexico. But the expense of connecting to the existing networks discourages new entrants.
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