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Geopolitics

Will Mexico's Ambitious Telecom Reform Cut Carlos Slim Down To Size?

Mexico's New President Peña Nieto’s has pushed through a sweeping reform of the telecoms and TV sector, which could undo the monopoly that turned Carlos Slim into the world's richest man.

Slim earlier this month in Mexico City
Slim earlier this month in Mexico City
Editorial

-Editorial-

MEXICO CITY – So many presidential candidates have promised reforms in Mexico and so many have failed to deliver, that almost no one took President Peña Nieto’s promises seriously during his electoral bid.

His promises were even less credible since they were coming from a candidate belonging to the PRI, the party that ruled Mexico with an iron fist for seven uninterrupted decades, and blocked the attempts at reform from Vicente Fox (2000-2006) and Felipe Calderón (2006-2012).

During his candidacy, Peña Nieto promised, among other things, to allow competition in the sectors of telecommunications and television. This was the hardest to believe. Peña Nieto’s meteoric ascent first as a political figure and then as a presidential candidate is due in large measure to the support of Televisa, Mexico’s main broadcaster and Latin America’s largest media company. Mexican businessman Emilio Azcárraga is the CEO of the network, which controls 60% of the commercial television market in Mexico.

Televisa stations provided extensive coverage of Peña Nieto’s presidential campaign, while also transmitting telenovelas (soap operas) starring his wife, Angélica Rivera. This led us to believe that if Peña Nieto’s reforms in the television sector did happen, they would be – at best – cosmetic.

This has not been the case. To our surprise, Peña Nieto’s recently-announced reforms are the strongest earthquake that Mexican television has ever felt.

The bill, which was approved by the lower house of Congress on March 22, creates two new national TV networks concessions, which Televisa cannot bid for. Production companies will be forced to offer their programs to all cable TV companies, while cable TV companies will have to transmit programs from all production companies. Lawmakers however made some amendments to the bill, including a provision that initially allowed foreign companies to own up to 49% of a TV or radio network. Now foreign investors will be limited to what other countries allow in their respective markets.

Ending the mother of all monopolies

An equally strong blow has been dealt to Carlos Slim’s telecommunications monopoly -- the richest man in the world.

In the telecoms sector, the reform prevents one company from controlling more than 50% of the market for fixed line or mobile telephones. Telmex and América Móvil, Slim’s companies, control 80% and 70% of the market. The new law forces Slim to sell 30% of Telmex and 20% of América Móvil.

The reform also creates an independent regulatory agency to enforce the 50% market share limit, with the power to set huge fines and even dismantle companies. Additionally, many regulatory reforms will make the telecoms market more competitive and transparent.

Peña Nieto’s reforms are hitting Slim worse than they are hitting Azcárraga, and this is a good thing. Broadband Internet access in Mexico is among the most expensive in the world, bordering $100 dollars a month. Research conducted by the OECD in 2012 stated that the lack of competition in telecommunications costs the country around $25 million dollars a year.

The market also anticipated that Slim would lose more than Azcárraga: América Móvil shares dipped 13% in the week the reforms were announced, while Televisa shares barely moved, losing only 1%.

Now that the law has been approved by the lower house of Congress, it is headed for the Senate, where it is also expected to be approved. Some of the reforms – especially those regarding the telecoms sector – will take effect as soon as the law is passed.

In February, Peña Nieto managed to touch the untouchable president of the Teacher’s Labor Union, Elba Esther Gordillo, who was arrested and charged with misusing members’ funds. Less than two weeks later he is now going head to head with the richest man on earth, one of the men that helped him rise to power.

So far, Enrique Peña Nieto has kept three promises he made in his presidential campaign. There are still many more, but the Mexican president's current pace proves that he was not joking when he said that he was in office to transform the country, not just to rule it.

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