Movistar México to reorient investments following telecoms reform

Friday, June 14, 2013

Spanish telco Telefónica's (NYSE: TEF) Mexican unit Movistar México is looking at entering new business segments and reorienting its investments in the country as a result of the telecoms reform which was recently signed into law by President Enrique Peña Nieto.

The telco's investment plan will definitely be modified, but the operator will wait and see what measures the new telecoms regulator Ifetel will implement, the executive president of Telefónica México, Francisco Gil, said in an interview with local publication Milenio.

Ifetel is expected to implement requirements related to network sharing and also measures on interconnection rates.

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Telefónica will reorient its investments to other areas, depending on the options that open up as a result of the reforms, Gil added.

The operator has been present in Mexico since 1998, but has struggled to gain a significant presence in a telecoms market dominated by Mexican-based giant América Móvil (NYSE: AMX), which controls around 80% of the mobile market and 70% of the fixed line market in the country.

Regulators have traditionally struggled when it comes to reducing América Móvil's dominace. However, this looks set to change with the current reforms, which involve measures to combat monopolies and strengthen regulators' sanctioning powers.

Telefónica only operates wireless services in Mexico, and saw revenues of 388mn euros (US$517mn) in the country in Q1, compared to América Móvil's Mexico revenues of 66.3bn pesos (US$5.23bn), according to results releases.

Telefónica has a license to operate satellite TV services in Mexico, but has never initiated commercial TV services as it has prioritized investments in increasing mobile coverage, according to Gil.

However, the company may decide to make an investment or seek a partner in the future to provide TV services in Mexico, he added.

Telefónica invested 427mn euros in Mexico during 2012, down 9.4% from the 471mn euros the previous year.

Mexico continues to have relatively low mobile penetration, and there is still much work to be done to increase the coverage of broadband, lower handset prices, and increase smartphone penetration, Gil said.