Slim Gets Bittersweet Court Win, With Damage Already Done


Billionaire Carlos Slim won’t be able to savor his Mexican Supreme Court victory for very long.

The top court decided Wednesday to water down the nation’s telecom overhaul, four years after the landmark legislation hamstrung Slim’s market-leading wireless provider America Movil SAB. But the ruling doesn’t reverse the damage already inflicted on Slim’s company. And the industry has changed so much that the decision’s effects may be limited.

The top court said Wednesday that starting in January, America Movil can charge rivals a fee again for any calls that end up in its network. The ruling overturns a law that had left America Movil at a disadvantage, paying interconnection fees to smaller competitors but unable to collect the tariffs for calls to its subscribers. The law had been designed to help end years of dominance by Slim’s company.

But the court didn’t make the injunction retroactive, arguing consumers and the industry as a whole have benefited from the elimination of the fee. This means rivals won’t have to pay $800 million in backlogged fees.

And when America Movil resumes its fees, the rate will likely be far less than it was before Congress eliminated it in 2014. The Federal Telecommunications Institute, or IFT, is responsible for setting the rate, the court said, and is expected to do so in about two months.

‘Data-Driven World’

The high court’s ruling is positive for America Movil, but interconnection fees are “becoming less important in a data-driven world.” said JPMorgan Chase & Co. analyst Andre Baggio. “Demand is moving away from voice, which pays interconnection, to data plans, which do not,” he wrote in a note to clients on Aug. 10.

Even so, the court’s decision raises concerns that prices will jump back up and competitors like AT&T Inc. and Telefonica SA pull back their investments. Some low-end plans that offer unlimited calls could see price increases due to the return of the fee, Baggio said.

“Two years after we arrived, we still face a dominant carrier who holds 65 percent of the market,” Dallas-based AT&T said in a statement Wednesday. “Our priority will continue to be to transform a market with effective competition, innovation and more and better options for the consumer.”

The IFT must find a way to keep regulating the dominant phone company more strictly than its competitors for as long as necessary, Telefonica said in a statement. “A change to the existing legal framework will have serious consequences in the sustainability and composition of the the telecom industry,” the Madrid-based company said.

The IFT will analyze and comply with the court’s ruling once it is published, the agency said in a statement. America Movil didn’t immediately respond to requests for comment.

America Movil shares rose as much as 0.5 percent to 16.66 pesos in Mexico City, an almost three-year intraday high. The stock has been gaining since the Aug. 10 publication of Supreme Court Justice Javier Laynez’s recommendation that America Movil’s injunction request be granted. The judicial panel amended Laynez’s proposed ruling on Wednesday, delaying the resumption of America Movil’s fees until January.

President Enrique Pena Nieto’s push to create more competition in telecommunications has hamstrung America Movil’s stock for years. Shares have generated a 13 percent return for investors, including reinvested dividends, since Pena Nieto was elected in 2012. That’s far short of the 39 percent return for the IPC index.

Since the reform took effect, America Movil has lost about 5 percentage points of market share, which stands at about 65 percent. At the same time, an ensuing price war drove mobile costs down by as much as 43 percent, according to the IFT. America Movil’s profit margin in Mexico has declined from 35 percent in 2014 to 20.3 percent last quarter.

The IFT had previously set an interconnection fee for calls ending up in America Movil’s network at 0.2045 pesos (1.2 cents) per minute — already lower than what rivals received — and is expected to arrive at the new number using price-based models.

America Movil’s 2018 estimated earnings before interest, taxes, depreciation and amortization will likely increase by about $100 million, or 1 percent, a year should the IFT set the rate at the mid-point between the current zero fee that America Movil receives and the 19-centavo levy that other companies get for calls ending in their network, Baggio estimated.

This ruling is not entirely a done deal. America Movil has also asked the Supreme Court to grant an injunction to a law that forced it to publish a public reference price for telecom services. The argument for both cases is the same: America Movil claims it’s the IFT — and not Congress — that should make those decisions. Mexico’s Supreme Court is divided into two chambers, with the second chamber issuing Wednesday’s ruling and the first chamber set to decide on the reference price. Should the rulings conflict, the full court would then take up both cases.

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