Mexican Government a Heavy Hand with New Telecom Legislation

Mexico’s telecommunications terrain is on the brink of getting pretty tough for large corporations (or one entity in particular – América Móvil).

This week, Mexican President Enrique Peña Nieto signed a law to combat monopolies in the country’s telecommunications and broadcast industries. Lawmakers hope to increase competition and encourage market investment in a sector historically dominated by just a few major players.

To accomplish this, a new body, Ifetel, has been created to monitor the situation. It boasts the power to grant and revoke telecommunications and media concessions, and it may also force companies to share infrastructure and comply with updated tariff mechanisms. Most drastically, it can order asset sales and even break up companies entirely.

The Target

This move on part of the Mexican government is largely aimed at América Móvil, owned by business magnate Carlos Slim. The world’s richest man until last month (due to a sell-off of company shares), Slim has a tight grip on Mexico’s telecom market and isn’t eager to loosen it.

Through América Móvil, Slim controls 80% of the country’s fixed-line sector. His company has more than 260 million mobile subscribers throughout Latin America and handles 70% of mobile traffic in Mexico.

Up to now, América Móvil has depended largely on legal scheming to keep the competition at bay. Under this new legislation, such tactics will no longer get by. Broadcaster Telavisa has employed similar strategies in avoiding competition in order to keep hold of its 60% market share. It, like América Móvil, could end up losing big.

Story Unfolding

In an interview with CNBC, Slim said he wasn’t overly concerned with the legislation’s implications. He remarked:

I don’t think the profitability is any problem. Profitability is coming from productivity, efficiency, management, austerity, and the way to manage the business.

América Móvil shareholders, however, don’t seem to share his optimistic point-of-view. The company’s American Depository Receipt (ADR) has fallen 27% since Peña Nieto’s election. And last week, AT&T sold US$564 million of its América Móvil shares.

This story is hardly over. In fact, in many ways, it’s just starting. Mexico’s Congress now has six months to draw up secondary legislation to follow up the recently-signed law.

Government, Business and Technology in Latin America

This latest piece of legislation isn’t America Movil’s first clash with government. Just last month, the company found itself in hot water over online video services. Behind all of this is the complex dynamic between government, business and technology.

Latin American government has proven a vital proponent of innovation and entrepreneurship as of late.

The Chilean government is the country’s biggest cheerleader when it comes to startups. It has passed numerous related pieces of legislation, for example, a new law permitting Chileans to incorporate businesses in one day. And with Start-Up Chile, the country has transformed into an international launch pad for businesses.

Colombia’s government has been aggressive as well, through entities like iNNpulsa and And in Brazil, where the lay of the land is notoriously hard to navigate for business, things are changing as well. A law that would allow early-stage startups to operate tax-free is currently being evaluated, and legislation regulating e-commerce and mobile payments has been in the works as well.

Regulations favoring startups and entrepreneurship are, of course, much different from those that deal with conglomerates and monopolies. However, it’s worth noting the bold moves Latin American governments are making with respect to businesses across the entire spectrum of development, market share and reach.