Moody's sees court ruling on interconnection rates as credit negative for AMX

Monday, May 9, 2011

Moody's considers the recent ruling by Mexico's supreme court forcing Latin American telecoms giant América Móvil (NYSE: AMX) to cut the fees it charges competitors in the country to access its wireless network as credit negative for the operator, according to a release from the ratings agency.

América Móvil will be forced to drop its interconnection rates in Mexico for fixed-line operators from 0.95 pesos (US$0.08) per minute, to the rate set by national telecoms regulator Cofetel at 0.39 pesos (US$0.03) per minute.

Moody's estimates that América Móvil takes in between US$1.1bn and US$1.25bn in wireless interconnection fees each year from the country's fixed-line operators. The consultancy estimates that the fees make up 2.5% of the company's revenues.

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Although saying it has been lowering rates, the company has also said it needs higher interconnection rates to invest in wireless infrastructure.

According to Moody's, the ruling should help smaller telecoms operators in Mexico, like Alestra, Axtel and Maxcom. The consultancy estimates that interconnection fees make up about 15% of these operators' costs, and they will now be able to offer more competitive calling rates or increase capital spending.

Moody's notes, however, that if the lowered rate were to be struck down in court and higher rates allowed, the operators will have to pay the difference retroactively.

According to Moody's, the ruling creates a stricter regulatory environment, while also increasing competition for América Móvil. The consultancy said the decision strengthens Cofetel, making it easier for the regulator to impose new tariffs, rules or sanctions on the country's telecoms operators.

Use this link to view Moody's full report.