Analysis: Quid pro quo as Slim chases Mexico TV market?

By Cyntia Barrera Diaz

MEXICO CITY (BestGrowthStock) – Regulators have hinted they may give billionaire Carlos Slim the nod to enter the Mexican television market, but the world’s richest man will face a long battle before hitting the screens.

Competition and telecom officials recently said they may allow Slim’s Telmex (TMX.N: ), Mexico’s top fixed-line phone provider, to offer customers television service.

Mony de Swaan, head of Mexico’s telecom regulator Cofetel, told Reuters last week it was “possible and desirable” to give approval to Telmex, which has sought permission to add television to its telephone and Internet services for years. Competition commission Cofeco has voiced a similar stance.

But market watchers think Telmex (TELMEXL.MX: ), a former state-run company that delivers basic telecom services to around 70 percent of Mexican homes, will face plenty of hurdles before it can access the coveted new service.

“It will take time, past 2011,” said analyst Gregorio Tomassi of Santander.

Analysts see television as vital to Telmex’s survival. The company is scrambling to build its Internet business to make up for a decline in its fixed-line and long-distance revenue as clients switch to cellphones and phone services offered by cable television companies.

Yet standing in Telmex’s way are complaints that it charges excessive interconnection fees to competitors for use of its vast telecom network, which stretches from large cities to rural areas, to transport calls and data.

Telmex’s “fees are among the most expensive in the world,” said Alejandro Puente, head of Canitec, which represents some of the leading providers of cable television.

Tomassi said Telmex would likely have to reduce its fees even further to get the go-ahead for television.

“It is a quid pro quo,” he said. Telmex says its domestic long-distance interconnection tariffs have declined by 88 percent since 1997.

Some observers think the government should establish tighter guidelines that would, for example, clear up uncertainty about whether Telmex is eligible or not to jump into television.

“The important issue is that there is (telecom) convergence in tandem with a single vision,” said Francisco Silva, a telecom and media expert with Deloitte.

Cofetel set up a consultation in 2008, including Telmex and its main rivals, to iron out issues such as network access fees, but it failed to produce results.

“If the government decided to adopt a true regulatory stance … addressing seriously the quality of service and fees, it would not have to stop the entrance of Telmex into television,” said professor Raul Trejo, a researcher at Mexico’s National Autonomous University.

TELMEX VS TELEVISA?

Underlying such concerns are worries among Mexican cable companies that the potential entry into the television market of a company with Telmex’s muscle will dwarf existing providers or even push them out of business.

The move from Telmex would pit Slim against Televisa (TV.N: ) (TLVACPO.MX: ), the world’s biggest producer of Spanish-language content and Mexico’s No. 1 broadcast and cable television provider.

Telmex would become the chief rival for Televisa, which may soon be among the first companies in Mexico to bundle cable, Internet, fixed and mobile phone services.

Televisa recently won rights to tap the cell phone market in Mexico.

Should Telmex get the green light to enter the television market, Televisa could push back with its main bargaining chip: programing, analysts said.

Despite the government’s hint that Telmex may be closer to ending its years of wait, the mood inside the company is far from optimistic.

In a recent call with analysts, Telmex Chief Executive Hector Slim said Telmex’s inability to bundle more services in Mexico was hurting customers and the company’s revenue.

(Reporting by Cyntia Barrera Diaz. Editing by Missy Ryan and Robert MacMillan)

Analysis: Quid pro quo as Slim chases Mexico TV market?