Mexico telecom sector behind LatAm, says Moody's

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Thursday, April 20, 2017

Excessive regulations, sluggish economic growth and intensifying competition are stagnating revenue growth for Mexican telecommunications operators, according to ratings agency Moody's.

Moody's raised its outlook on Latin American telcos to positive from stable, as the industry is set to benefit from a slowdown in capital spending, while revenues increase steadily.

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"The combination of growing earnings and declining capital spending will allow companies to lower their debt burdens and reduce their financing needs," said Moody's vice president-senior analyst Marcos Schmidt in a press release. He added that deleveraging now will allow companies to prepare for more capital-intensive phases beyond 2018.

According to Moody's, pricing pressures may have peaked and telcos are better positioned to raise prices without provoking a major decline in consumption.

However, the ratings agency underscored that Mexican operators are the exception to this positive outlook.

Nymia Almeida, vice president-senior credit officer at Moody's, told BNamericas that the regulations resulting from the 2013 telecoms reform, intensifying competition between operators, and the country's low purchasing power are leading to small profit margins.

In Almeida's view, operators could leverage on the country's growing service penetration to increase revenues by volume. However, she underscored that people might not be interested in some services.

Furthermore, Almeida said the Mexican economy grows by 1.5-2.5% on average, so people cannot afford to spend more on the services they already have. "It's a matter of the products people want and how much they are able to spend. Growing by volume in a market where people have limited spending capacity is difficult."

The Moody's representative also said competition promoted by the regulator is benefiting consumers who are paying less, but not the telcos who invest in improving their services.

"The market will reach a point of balance whereby subscribers will have to pay more if they want better services. When that happens, the regulator will have to step back and let the players make the rules, as there will be enough competition to promote investments while offering affordable services," said Almeida.