It was the billionaire monopolist's equivalent of, "You can't fire me, I quit": Carlos Slim announced yesterday that he would break up America Movil, Latin America’s fourth-largest public company, rather than wait for the Mexican government to do it for him.
The administration of President Enrique Pena Nieto, unsurprisingly, is spinning the news as a victory, saying it will lead to lower prices and better service for Mexico's phone customers. Certainly it’s hard to argue that Mexico would be a better place if America Movil were left intact. But much needs to be done to ensure that this breakup benefits the Mexican economy.
Mexico’s new telecommunications regulator, for instance, has its work cut out for it. Last year, Mexico created the Federal Telecommunications Institute in part to spur competition. In March, the IFT ruled that America Movil, which controls 70 percent of all Mexico’s mobile-phone subscribers and 80 percent of its landlines, dominates its market, and ordered it to reduce the connection fees it charges rivals and to share its infrastructure. And a law just passed in Congress would levy stiff penalties unless it reduces its market share, including the imposition of a delay on America Movil's entry into the television business.
The details of Slim’s planned divestiture are still unclear. The decision to spin off the company's wireless towers may make it easier for others to expand their service, for instance. Yet regulators must also make sure that America Movil's efforts to slim down don't violate its legal obligation to serve customers in the poorer, remote parts of the country.
Slim's quest to break into television gives regulators -- who along with shareholders must approve his final plan -- some leverage. At the same time, they must also be mindful of the need to attract more investment to the telecommunications sector, which has lately stagnated. Foreign investors and smaller companies need an incentive to fill the gap left by big ex-monopolists that now may be less interested in upgrading their networks.
Slim's companies (not to mention their rivals) have browbeat regulators for years. Will the Pena Nieto administration ensure that the new IFT gets the resources it needs to monitor Mexico's fast-changing telecommunications market? In some respects, the just-passed law's hard-to-amend requirements for companies may actually make it tougher for the regulator to do its job.
For Mexico, the breakup of America Movil is an opportunity to remake the country's "dysfunctional" telecommunication sector, which has been characterized by high prices, low investment, poor access -- and higher-than-average profit margins. With its uneven regional output, low productivity, relatively high income inequality and large rural population, Mexico badly needs the economic boost that better, cheaper phones and broadband can bring.
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