As Latin American countries strive for technological innovation, the telecommunications industry takes notice. Prior to the past few years, the telecom industry in Mexico and other Latin American countries have not been highly regulated. As a result, a single dominant player, America Movil (AMX), has controlled telecommunications in the area since the 1980s.

America Movil is the largest mobile operator in Mexico and operates in many other Latin American countries. With a market cap of $78 billion, America Movil is the most valuable company in Mexico. As a result, CEO and owner Carlos Slim is one of the richest men in the world, just shy of Microsoft’s Bill Gates. Due to lax regulation, Slim’s monopolistic control over telecom in Mexico and Latin America has been unchallenged. It is reported that lack of reforms and competition in telecommunication has cost the Mexican economy roughly $25 billion each year. The lack of competition has inevitably led to higher prices for consumers and business with little incentive for modernization and new services.

Over the past two years, however, the government in Mexico has strived to reform telecom regulations and foster competition. In particular, AT&T (T) has embarked in Latin American markets to challenge America Movil’s control over the telecom industry and build its own lasting footprint.

AT&T and America Movil Cooperation

In 1990, Southwestern Bell, which later became AT&T, bought a stake in Telmex, the Mexican state-owned telecom company. As mobile telephony began to overtake traditional landlines, Telmex became America Movil, and one of Telmex's early investors, Carlos Slim, gained a controlling interest in the new company. The partnership between AT&T and America Movil expanded the former's markets into Latin American, and the two companies provided broader regional coverage and wider global coverage in the Western Hemisphere. 

By 2013, AT&T's stake in America Movil was valued at $5.6 billion. In 2014, political regulations in Mexico began to put pressure on America Movil, and AT&T looked to sever long lasting ties with the telecom giant. Instead of withdrawing from Mexico and Latin American countries, AT&T is currently looking to build a framework that can directly compete with American Movil.

Iusacell

In an attempt to position itself as a stronger player in Mexico, AT&T purchased Mexico’s third largest mobile service provider, Iusacell and is set to acquire 8.6 million subscribers.  AT&T’s purchase of Iuascell suggests conditions are in place for competition to intensify in the Mexican mobile industry. While America Movil currently controls 70 percent of the telecom market in Mexico and 38 percent in Latin America, AT&T’s purchase is still grounds for concern to America Movil. 

DirectTV

As regulators begin to force Slim to break up his near monopoly, America Movil has begun to sell large chunks of its Mexican assets. In particular American Movil offered to sell $17.5 billion in assets to AT&T. However due to an agreement to purchase DirectTV, AT&T could not buy America Movil's assets due to a conflict of interests, and in fact AT&T sold its shares in the company. In an aggressive attempt to gain a foothold in the growing Mexican economy, AT&T’s purchase of DirectTV puts the telecom giants in direct completion for telecom and television services. 

AT&T’s recent purchases of Iusacell and DirectTV indicate a strong push to form global outreach and counter slower growth within the United States. Today, Latin America and Mexico’s communications markets are recognized globally as one of the higher potential growth markets.

Regulations

In 2013, The Federal Telecommunications Institute (IFT) was formed as Mexico’s new telecommunications regulatory body. In an attempt break up Carlos Slim’s America Movil, regulations have been adopted to ensure economic fairness. These include price regulations and the elimination of national roaming fees. Furthermore, the IFT has full discretion to order companies to sell assets and share infrastructure.

Prior to these reforms, Slim’s America Movil had controlled 80 percent of landlines and 70 percent of the mobile sector in Mexico. As a result, American Movil has opened up bids for $17.5 billion in assets in order to decrease its market share. It is anticipated that America Movil will sell off the necessary assets to reduce its market share below 50 percent. Because it was declared a dominant company in the telecom sector by the IFT, America Movil is subject to a fine equal to 10 percent of revenue if its market share does not fall below the 50 percent threshold.

The Bottom Line

With strong economies, Mexico and Latin American countries have been globally recognized for their high growth potential in the telecommunications and mobile industries. In addition, over the past year, Mexico and Latin American countries have witnessed wide sweeping regulatory reform to break up monopolistic control of companies like Carlos Slim’s America Movil.

A combination of wider regulatory controls with rising consumer demand and growth should foster real competition. Over the past decade, America Movil has seen little competition resulting in losses for the economy, particularly in Mexico. However with AT&T’s entry and regulation reforms, America Movil will continue to lose market control over telecommunications in Latin America. AT&T’s purchases of Iusacell and DirectTV are early indications of AT&T’s foothold in Mexico and Latin America. As AT&T continues to grow and regulation continues to pressure America Movil, competition will encourage decreased prices and increased consumer demand. 

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